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Simple or Simplistic? Which gets you to financial independence?
Most people want to help keep their investment planning and lives simple, but they don’t want to risk their futures with overly simple guidance. This is a critical distinction, and those that understand it tend to have better outcomes. In this context “simple” should mean “easy and helpful.” Simplicity happens when you do the hard work of working and saving/investing enough, while objective experts do the hard and right work…
Buyer beware – Proposed investor protections don’t actually protect much
True or false?: All financial firms and professionals are required to act in your best interest, right? Answer: FALSE. Many have conflicts of interest, and biased “advice” damages results… A recent White House Council of Economic Advisers analysis estimate showed that conflicts of interest hurt affected investor accounts by ~1% each year. This amounts to around $17 billion annually. And since it is mostly related to fees and costs, it…
Doctrine of the Mean
When one asset class is outperforming another within a diversified portfolio, investors sometimes wonder why both are held. The recent US stock market vs. the weaker International market such an example. The non-US stock market’s (MSCI EAFE) 3-year annualized return was not far off long-term stock averages, but the US market’s (S&P 500) unusually high 3-year return of 17.9% made well-balanced investors envious of less diversified portfolios. During the financial…
You choose: Fiduciary vs. suitability standards of care
There are two very different standards of care, when it comes to financial professionals: “Fiduciary” (registered investment advisors, regulated by the SEC/Securities & Exchange Commission) and “suitability” (brokers, “self-regulated”). Below is a condensed version of a Washington Post article that summarize it well: Fiduciaries have a much stricter duty and legal obligation than do those who operate under suitability rules. Investors rarely come out on top when a self-regulating entity…
So You Think You’re a Risk-Taker?
Nothing is more important for investors than learning how much they can stand to lose. But nothing is harder to learn—before it’s too late. http://blogs.wsj.com/moneybeat/2014/10/24/so-you-think-youre-a-risk-taker/
Will a Stock Market Correction Derail your Goal?
Corrections are more normal than often thought and should be inconsequential. Bear markets, which are periods of more significant decline, should be surmountable if you have planned properly. Stock market “corrections,” defined as drops of 10% or more, are not more likely at the top of a market. Between the years 1900-2013, the Dow (DJIA) stock index dropped 10% or more about once a year. Stocks do not maintain steady…
The Reality of Red Numbers
What’s your guess as to how many months the stock market declines or rises each year? And in bad vs. good markets? Our yearly update of “The Reality of Red Numbers” shows you, and illustrates that market volatility is often a reasonable price to pay as part of a diversified portfolio, to help capture long-term positive returns… whereas inflation (purchasing power risk) is often a more harmful risk in the…
Goin’ up, goin’ down… let it roll
“Goin’ up, goin’ down, goin’ up-down-down-up… any way you want, let it roll” (song lyrics). Volatility has been low in the past few years. As measured by the VIX volatility index, market fluctuations are at the lowest level since before the global financial crisis. That doesn’t mean high volatility is immediately around the corner, but it is important to remember that smooth markets are not the norm. All investors should…