If a 10% stock market decline is a “correction,” is an 11.1% gain a mistake?
I MISS BASEBALL. I love the strategy and the moments of excitement that come in the later innings. I also like to attend games, watching the interaction among the players and coaches. The third base coach plays a big role, relaying signals from the manager to the baserunners and the batter. If you’re a player, and you miss a signal, it can ruin the next play.
While the stock market has signals, they aren’t as black and white as those in baseball.
I’M THE TYPE of person who likes to plan. I have at least 10 to-do lists going at any one time. I have calendars on my refrigerator, my desk and my phone. I plan out my days, my months, my years and, on occasion, my decades.
My job, managing the biology department at a small liberal arts college, is a perfect fit for my personality. For the past 22 years, I’ve methodically planned out every day of each semester.
LAST WEEK, I talked about some of the unsettling trends in the financial markets. In that article, I focused on the role of brokers and day traders, and noted that it takes two to tango. But it turns out the dance floor is quite a bit more crowded than that.
Yes, brokers and day traders are doing their part, but there’s another set of actors who are less visible but a whole lot more influential.
WE DON’T PURSUE money just to put food on the table and a roof over our head. Instead, the hope is to enhance our life. On that score, it seems we aren’t doing terribly well: Our reported level of happiness is no higher than it was half a century ago.
Could we do better? I believe so. There’s been extensive research on happiness in recent decades. For those who want to dig into the details,
IF YOU’VE WORKED a lifetime—while prudently saving and investing—so that in old age you’re well off financially, should you feel guilty?
If your retirement income is greater than the income of most American families, including those still raising young children and facing college costs, as well as the cost of their own retirement, is that embarrassing?
A few years back, during a discussion about how people spend, save and invest, my son-in-law—who’s a financial advisor to high net worth families—casually said to me,
I PURCHASED my first house almost 30 years ago. To call it a “fixer” would have been an understatement. It was 800 square feet of neglected space in desperate need of repairs and updating. Being fresh out of college and working at a job that paid less than $20,000 a year, I didn’t have a lot of money to spend on improvements. But I had the energy and enthusiasm of youth.
Over a five-year period,
NO. 65: REBALANCING controls risk—and can boost returns. Take U.S. and foreign stocks. They’ve generated similar long-run returns, but fare well at different times. By owning both and regularly rebalancing back to target portfolio percentages, you can reduce risk while raising long-run returns, as rebalancing forces you to buy low and sell high.
VISUALIZE YOUR goals. Daydream about the vacation cottage, new car, remodeled kitchen and what you’ll do in retirement. Why? It will make you more motivated to save and you’ll enjoy the pleasure of anticipation. It’ll also give you a chance to ponder your goals in greater detail—and you might discover, on second thought, that some aren’t so enticing.
DUNNING-KRUGER. Why do so many amateur investors persist in trying to beat the market, despite results that are mediocre or worse? It could be that, because they’re incompetent, they don’t have the skill needed to recognize their own incompetence and, as a result, have the illusion of superiority—a cognitive bias known as the Dunning-Kruger effect.
STARTING TO SAVE is a discouraging business. Even if you invest in stocks—and even if stocks post gains—progress initially can seem agonizingly slow.
Consider a simple example. Let’s say you earn $100,000 a year. Not exactly an everyday salary, I admit, but it makes the numbers easier to grasp. You save 12% of your income, equal to $12,000 each year. That money is invested at the start of the year and earns 6% annually,
FEDERAL RESERVE Chairman Jerome Powell appeared before Congress late last month and spoke in serious terms about the country’s debt situation. It’s worth understanding what Powell said—and how that might impact your investments.
Powell’s message: “The U.S. federal government is on an unsustainable fiscal path.” Specifically, “debt as a percentage of GDP is growing, and now growing sharply, and that is unsustainable by definition.”
Powell’s remarks mirrored those of the Congressional Budget Office (CBO).
PAST PERFORMANCE is no guarantee of future results—and that’s especially true once an investment goes from backwater to broad acceptance. Take real-estate investment trusts. Over the past 15 years, they have been embraced by investors, leading to great returns as folks loaded up on REITs. But that widespread acceptance was a onetime event—and returns from here will likely be more modest, especially with equity REITs yielding just 3.4%, versus almost 9% at year-end 1999.
HOUSING IS the biggest expense for most American families, typically devouring a third of their budget. Are those dollars getting spent wisely? Here are 10 questions to ask yourself:
Should you buy? If you play around with the mortgage calculator at Bankrate.com, you can figure out how big a mortgage you could support with your monthly rent payments. That will give you a sense for whether homeownership is within reach. Even if it is,
FOLKS OFTEN feel that, because they’re a certain age, their time has passed and it’s too late for them to pursue new goals, whether it’s saving for retirement or starting their dream business. But I believe we can reinvent ourselves at any age.
Last year, I listened to an NPR podcast that featured an interview with Bob Moore, founder of Bob’s Red Mill. You’re probably familiar with Bob’s Red Mill: Their products are now sold in most grocery store health-food sections.
I MISS BASEBALL. I love the strategy and the moments of excitement that come in the later innings. I also like to attend games, watching the interaction among the players and coaches. The third base coach plays a big role, relaying signals from the manager to the baserunners and the batter. If you’re a player, and you miss a signal, it can ruin the next play.
While the stock market has signals, they aren’t as black and white as those in baseball.
I’M THE TYPE of person who likes to plan. I have at least 10 to-do lists going at any one time. I have calendars on my refrigerator, my desk and my phone. I plan out my days, my months, my years and, on occasion, my decades.
My job, managing the biology department at a small liberal arts college, is a perfect fit for my personality. For the past 22 years, I’ve methodically planned out every day of each semester.
LAST WEEK, I talked about some of the unsettling trends in the financial markets. In that article, I focused on the role of brokers and day traders, and noted that it takes two to tango. But it turns out the dance floor is quite a bit more crowded than that.
Yes, brokers and day traders are doing their part, but there’s another set of actors who are less visible but a whole lot more influential.
WE DON’T PURSUE money just to put food on the table and a roof over our head. Instead, the hope is to enhance our life. On that score, it seems we aren’t doing terribly well: Our reported level of happiness is no higher than it was half a century ago.
Could we do better? I believe so. There’s been extensive research on happiness in recent decades. For those who want to dig into the details,
IF YOU’VE WORKED a lifetime—while prudently saving and investing—so that in old age you’re well off financially, should you feel guilty?
If your retirement income is greater than the income of most American families, including those still raising young children and facing college costs, as well as the cost of their own retirement, is that embarrassing?
A few years back, during a discussion about how people spend, save and invest, my son-in-law—who’s a financial advisor to high net worth families—casually said to me,
I PURCHASED my first house almost 30 years ago. To call it a “fixer” would have been an understatement. It was 800 square feet of neglected space in desperate need of repairs and updating. Being fresh out of college and working at a job that paid less than $20,000 a year, I didn’t have a lot of money to spend on improvements. But I had the energy and enthusiasm of youth.
Over a five-year period,
NO. 5: WE CAN’T stop misfortune from befalling us—but we can limit the fallout by keeping emergency money, living below our means, taking on debt cautiously and buying the right insurance.
VISUALIZE YOUR goals. Daydream about the vacation cottage, new car, remodeled kitchen and what you’ll do in retirement. Why? It will make you more motivated to save and you’ll enjoy the pleasure of anticipation. It’ll also give you a chance to ponder your goals in greater detail—and you might discover, on second thought, that some aren’t so enticing.
NO. 65: REBALANCING controls risk—and can boost returns. Take U.S. and foreign stocks. They’ve generated similar long-run returns, but fare well at different times. By owning both and regularly rebalancing back to target portfolio percentages, you can reduce risk while raising long-run returns, as rebalancing forces you to buy low and sell high.
DUNNING-KRUGER. Why do so many amateur investors persist in trying to beat the market, despite results that are mediocre or worse? It could be that, because they’re incompetent, they don’t have the skill needed to recognize their own incompetence and, as a result, have the illusion of superiority—a cognitive bias known as the Dunning-Kruger effect.
STARTING TO SAVE is a discouraging business. Even if you invest in stocks—and even if stocks post gains—progress initially can seem agonizingly slow.
Consider a simple example. Let’s say you earn $100,000 a year. Not exactly an everyday salary, I admit, but it makes the numbers easier to grasp. You save 12% of your income, equal to $12,000 each year. That money is invested at the start of the year and earns 6% annually,
FEDERAL RESERVE Chairman Jerome Powell appeared before Congress late last month and spoke in serious terms about the country’s debt situation. It’s worth understanding what Powell said—and how that might impact your investments.
Powell’s message: “The U.S. federal government is on an unsustainable fiscal path.” Specifically, “debt as a percentage of GDP is growing, and now growing sharply, and that is unsustainable by definition.”
Powell’s remarks mirrored those of the Congressional Budget Office (CBO).
PAST PERFORMANCE is no guarantee of future results—and that’s especially true once an investment goes from backwater to broad acceptance. Take real-estate investment trusts. Over the past 15 years, they have been embraced by investors, leading to great returns as folks loaded up on REITs. But that widespread acceptance was a onetime event—and returns from here will likely be more modest, especially with equity REITs yielding just 3.4%, versus almost 9% at year-end 1999.
HOUSING IS the biggest expense for most American families, typically devouring a third of their budget. Are those dollars getting spent wisely? Here are 10 questions to ask yourself:
Should you buy? If you play around with the mortgage calculator at Bankrate.com, you can figure out how big a mortgage you could support with your monthly rent payments. That will give you a sense for whether homeownership is within reach. Even if it is,
FOLKS OFTEN feel that, because they’re a certain age, their time has passed and it’s too late for them to pursue new goals, whether it’s saving for retirement or starting their dream business. But I believe we can reinvent ourselves at any age.
Last year, I listened to an NPR podcast that featured an interview with Bob Moore, founder of Bob’s Red Mill. You’re probably familiar with Bob’s Red Mill: Their products are now sold in most grocery store health-food sections.