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Investments and Psychology Traditional concepts of finance are built upon the idea of efficient markets in which investors are rational, unbiased, logical, and risk-averse. When investors act in accord with these qualities, a stock’s price equals its value, and no trading strategy should beat the market. For decades, psychologists have been studying human decision-making. And contrary to [...] Read more » When markets turn volatile adapt to the changing conditions by adopting rules that can carry your investments through turbulent times. Too many people get distracted by benchmarks, well-meaning friends, media reports or information from people that know nothing about them. They forget why they are investing in the first place. The clearer and more specific one is [...] Read more » You can manage risk through diversification. Today, more than ever, geographic diversification should be taken into account. Studies indicate that asset allocation is the single most important determinant of a portfolio’s long-term success. The right mix of stocks, bonds and cash – aligned to our particular risk tolerance and investment objective – is very important. Age-appropriate rebalancing is also [...] Read more » One of the most fundamental decisions an investor must make is whether to “buy and hold” their investments or to make active asset allocation changes as their perceptions of the markets change. We think “buy and hold” works for many investors who don’t have time, temperament or talent to manage and reshuffle their assets [...] Read more » Services Visit these sites in your search for a fee-only financial planner: The National Association of Personal Financial Advisors is the nation’s leading organization dedicated to the advancement of fee-only comprehensive financial planning. Visit Morningstar [...] Read more » A fundamental decision in your asset allocation is to determine what percentage to allocate to stocks and bonds. In making that decision you are deciding how much of your investment should belong as an ownership stake (stocks) and how much of it you want to lend (bonds). In general, bonds have less risk. One reason [...] Read more » If you read all of the noise about investment options you may be tempted to invest in esoteric, out-there, investments and you may be tempted to make your allocation strategy way too complex. Don’t. Keeping it simple is truly the best approach. You won’t increase your return on investment by making it complex. By [...] Read more » There are several reasons why international stocks should be in your portfolio. U.S. stocks will make up a decreasing share of the global equity market. The most fundamental reason for this is that growth outside of the U.S., and especially in emerging and frontier markets, will grow faster than growth in the U.S. Foreign equities will provide [...] Read more » When looking at your asset allocation think broadly. Look beyond your financial assets. Own a home?…then you’re invested in real estate and your need for a REIT just dropped. Your job is in banking?…then your income stream depends on the financial sector so you’ll want to downplay that in your investments. There are [...] Read more » Market volatility can be unsettling and our usual reaction is to buckle our seatbelts and prepare for a wild ride. This reflects an attitude of staying the course. However, when there is substantial volatility it can indicate that new market leadership is emerging. The volatility is an indication of increased market activity. It [...] Read more » One of the fundamental considerations in allocation of assets is whether to have a passive, static allocation or to dynamically shift the assets as pricing of asset classes change. Ben Inker, chief investment officer at GMO, LLC, in his December, 2008 white paper “When Diversification Failed” says: “…rather than having a static allocation to each class of [...] Read more » We all can get a lesson on the value of diversification by looking at the portfolio of Harvard Management Co., the entity that operates the Harvard endowment fund. For the fiscal year ending June 30, 2008, the fund had an 8.6% return on investments. That compares to the Standard & Poor’s 500 index (of large [...] Read more » There are times when it is difficult to “stay the course”. Occasionally markets will become unsettled and cause you to question your asset allocations. These are times when your long-term investment returns can be most jeopardized by inappropriate action. Buy Low When markets are dropping it can be tempting to stop buying. However, since [...] Read more » Give serious consideration to having emerging market stocks in your portfolio. Consider that emerging markets, at market-exchange rates, are expected to have 35% of world gross domestic product by 2013, according to the International Monetary Fund. To reach 35% of world GDP reflects remarkable growth. In fact, the emerging markets share of global economic [...] Read more » |
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