I recently got a new smartphone. In the setup process, I was presented with all sorts of options. Selecting a language was pretty easy, but I had to think harder about some of the other ones. Did I want the phone to use my location? Did I want to share data anonymously? Did I want…
There are many well-documented problems with investing in hedge funds, and it’s hard to know where to start in pointing them out.
Among them are: lack of liquidity; lack of transparency; loss of control over the asset allocation and thus risk of the portfolio; non-normal distribution of returns (they exhibit excess kurtosis and negative skewness); and they have a high risk of dying (12.3 percent per year from 1994 through 2008).
As a proponent of passive or evidence-based investing, I am heartened by the growing number of people investing in index funds. According to a Morningstar article, “A Bull Market in Passive Investing,” only 12 percent of U.S. open-end mutual fund and exchange-traded fund assets were invested in passively managed funds as of Nov. 1, 2003. That percentage has risen to 27 percent, and it continues to grow.
Every year the markets provide us with lessons on the prudent investment strategy. Many times markets provide remedial courses covering lessons it had provided in prior years. That’s why one of my favorite statements is that there’s nothing new in investing, only the investment history you don’t know.
What should I do about the inevitable rampant inflation problem we are going to face because of the huge fiscal and monetary stimulus that’s been injected into the economy? This has been one of the most persistently asked questions I’ve received since 2009.
The academic research makes clear that the best hedge against unexpected inflation is Treasury Inflation Protection Securities (TIPS). Despite the evidence, many investors won’t invest in TIPS because they believe that the U.S. government is (or will) cheat by underreporting inflation. Read the rest of this article on CBS News.
The first piece of pumpkin pie is a real treat. The second piece might be good. But we may almost have to force ourselves to eat the third. Instead of enjoying it, we’re miserable. Why doesn’t the last piece taste as good as the first
If you invested dispassionately, using an objective analysis of the historical data, you would invest in a globally diversified portfolio of index funds with low management fees. It’s not that you can’t beat the market by investing in actively managed funds. Every year, some mutual funds outperform their benchmark. However, their probability of doing so over the…
When dividends are included, 2013 was the fifth consecutive year of positive performance in the stock market (as measured by the annualized Standard & Poor’s 500 return). The stock market is now up more than 200 percent from the bottom of the financial crisis in March 2009. Returns since those dark days have been unbelievable,…
In spending significant time talking to clients and wealth advisors about fixed income, one common misconception is that bond funds are more exposed to interest rate risk than laddered individual bond portfolios. The logic basically starts and ends with the observation that individual bonds can be held to maturity while bond funds don’t necessarily hold…
One of the questions I am most asked goes something like this: “I have a large amount of cash to invest. Should I invest it all at once or spread the investment out over time?” Perhaps the cash comes from the sale of a business or an inheritance. Or the cash might build up over…
Public pension underfunding at the state and local level has rightly received an enormous amount of attention over the past few years. Most public pension funds are significantly underfunded when pension liabilities are valued using economically reasonable assumptions. In fact, Moody’s has calculated total underfunding to be roughly $1.8 trillion as of 2011, meaning the…
Can you condense your many essential financial and legal documents into one portable file container? With many records now stored online, this goal is more attainable than ever. The following ideas can help you pare down the paper documents that represent your financial life. When everything is sorted, clearly labeled and located in one place,…
It’s my experience that there are two keys to being able to maintain control over those urges that get investors into trouble. The first is to understand financial history. That means knowing that stocks are high risk investments, subject to large losses (we’ve had three bear markets with losses of about 50 percent or more…
Behavioral finance is a fascinating field, providing us with many insights into investor behaviors that help explain many of the anomalies that financial theory cannot explain on its own. It also helps explain many of the mistakes investors make. Among the most common of errors is overconfidence. Even concerns over status can lead to suboptimal…