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Balancing Act

STOCKS MARCH ever higher, portfolios get ever fatter and yet the conundrum facing investors remains the same. We have no idea what will happen next to share prices—and no reliable way of figuring it out. Consider:

Valuations are rich, but they have been for much of the past three decades. Indeed, if above-average valuations were your signal to sell, you likely would have dumped stocks long ago and missed out on substantial gains. The reality: Valuations don’t predict short-term returns,

Read more »

Pay to Play

OUR WEALTH is usually measured by net worth, which is total assets minus all debt. But there’s an alternative measure—which is to assign our wealth to the purposes it serves. What purposes? Two come to mind: physical and social.
Let’s start with physical wealth. We’re talking here about a family’s ability to maintain basic physical comforts, such as enjoying decent food, a comfortable home, a reliable car and access to good health care.
You don’t have to be rich to afford these.

Read more »

Getting Used?

IN THE PAST, we’ve always bought certified preowned cars. We know new cars lose a big chunk of their value when you drive them off the lot, so we had our eye on a used car when we started our search earlier this year.
Our goal was a Mercedes Benz GLC 300 AWD 4MATIC. My husband enjoys the negotiating and drama that comes with buying a car, so he investigated choices, checked out prices at dealerships and was ready to start his usual two-to-three-month car hunt.

Read more »

Solomon on Money

THE MOST WIDELY read book of all time, the Bible, has a lot to say about money. According to biblical scholars, money and wealth are mentioned more than 2,000 times. Out of the roughly 40 parables Jesus told, nearly half speak of money.
Why does the Bible make such a big deal about money? The answer belongs in a Sunday sermon, not here. Still, I believe there’s a great deal to be learned from what the Bible says about money.

Read more »

Bet Your Life

INCOME ANNUITIES are a simple, cost-efficient way to generate guaranteed retirement income, and yet they account for just 5% of overall annuity sales. My contention: They can play a unique role in a portfolio—and deserve serious consideration by anyone planning for retirement.
Full disclosure: I’m co-founder of Saturday Insurance, an online company that offers income annuities and other insurance products directly to consumers. I also know that, when most people hear the word “annuity,” they cringe,

Read more »

Under Attack

THE FINANCIAL site MarketWatch has been running a series about the lives and budgets of Americans who retire abroad. My wife Jiab and I—who moved from Texas to Spain—were one of the first couples featured, along with a husband and wife who now live in Chile. Both articles made clear there were plusses and minuses to such a move—experiencing new things, but also being away from family—and that we weren’t advocating this for everyone.

Read more »

Money Guide

Momentum Effect

WHAT GOES UP keeps going up—or so it seems. Numerous academic papers have documented momentum in stock prices, notably the 1993 paper by Narasimham Jegadeesh and Sheridan Titman  ("Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, Vol. 48, No. 1). Many quantitatively driven money managers follow a value strategy, but also look for upward price momentum, with a view to buying beaten-down value stocks that are starting to revive. Researchers have found that stocks with strong short-term performance, typically over 12 months or less, often continue to perform well during the 12 months that followed. What’s behind this share-price momentum? It seems difficult to explain the rewards of momentum investing in terms of increased risk (though that argument has been made). Instead, it could be that, when good news emerges about a company, investors bid up the share price. But the initial share-price increase doesn’t fully reflect the good news, perhaps because some potential buyers are concerned the improvement may be a flash-in-the-pan. Gradually, investors shed their concerns and purchase the stock, causing the shares to continue climbing. AQR Capital Management has a series of mutual funds that use momentum strategies, while Invesco offers a variety of ETFs. Other offerings include iShares Edge MSCI USA Momentum Factor ETFSPDR Russell 1000 Momentum Focus ETF and Vanguard U.S. Momentum Factor ETF. Next: Profitability Effect Previous: Value Effect Articles: Say No to Mo and Pushing Prices
Read more »

Archive

Getting an Edge

I’M ALWAYS on the lookout for easy ways to improve my finances. Here are five simple strategies I use: 1. Open a high-yield savings account. The interest rate on a regular Bank of America savings account is 0.01%. Ally Bank, on the other hand, offers 1%, almost a full percentage point more. For a savings account with $10,000, that’s the difference between earning $1 a year and $100, and it takes just 15 minutes to set up. 2. Maximize credit card signup bonuses. The Chase Sapphire Preferred, often a go-to card for those getting into the points game, offers a 50,000-point bonus for spending $4,000 in the first three months you carry the card. The Points Guy values those points at 2.1 cents each, translating to $1,050 in airline and hotel credits. To hit the minimum spend, ask friends if you can pay the tab with your card and then have them use Venmo to pay you back. 3. Work with friends to collect referral bonuses. The advisory fees on my Wealthfront account are waived on the first $20,000, because I referred three friends to the service, with another on the way. Similarly, Chase Sapphire Preferred will throw you 10,000 points for each new cardholder you refer, up to a maximum 50,000 points. 4. Buy family plan streaming packages. For the longest time, my fiancée and I were paying $10 a month each for Spotify, until we realized the family plan—which has six slots—only costs $15. We promptly switched over, saving $5 a month and offering free seats to the rest of our family. Netflix has a similar pricing structure: $8 gets you one “screen,” but for $12 you can have four people use the account. 5. Collect change in a jar and then use it to splurge once a year. Every August, my fiancée and I empty our change jar and spend the proceeds on dinner at Balthazar in Manhattan. (Don’t worry, we first convert our coins to folding money.) Usually, this covers at least $100 of our meal—giving us a guilt-free fancy dinner. Steven Aguiar’s previous blogs were Going It Alone and Why I Invest With a Robo-Advisor. Steve is the founder of BlueWing, a B2B digital marketing agency. He majored in Economics and Hispanic Studies at Brown, and is a big fan of compounding interest.
Read more »

Numbers

WHAT INVESTMENT would you favor if you had a 10-year time horizon? A Bankrate survey found 31% chose real estate, 20% stocks, 19% cash investments, 11% gold and other precious metals, and 7% bonds.

Home Call to Action

Manifesto

NO. 3: WE SHOULD focus relentlessly on what we want from our financial life. That’ll motivate us to save, drive our investment strategy—and help ensure we pursue the goals we care about most.

Truths

NO. 105: IN INEFFICIENT markets—such as those for microcap stocks and emerging market companies—skilled investors have a better shot at earning market-beating returns. But after investment costs, most investors will trail the market averages and the shortfall is often large, because the cost of active management is so high.

Act

CHECK YOUR portfolio percentages. In 2019, stocks have outpaced bonds, U.S. growth companies are ahead of bargain-priced value shares, real estate stocks have sparkled and foreign stock markets have fallen behind. All this may have pushed your portfolio away from your target asset allocation—and it could be time to rebalance.

Think

HYPERBOLIC discounting. Suppose we’re choosing between a smaller reward today and a larger reward at some future date. To get us to wait, the later reward typically has to be far larger, perhaps giving us a 100% return for delaying just a few days or weeks. Such hyperbolic discounting highlights how we favor today and shortchange our future selves.

Balancing Act

STOCKS MARCH ever higher, portfolios get ever fatter and yet the conundrum facing investors remains the same. We have no idea what will happen next to share prices—and no reliable way of figuring it out. Consider:

Valuations are rich, but they have been for much of the past three decades. Indeed, if above-average valuations were your signal to sell, you likely would have dumped stocks long ago and missed out on substantial gains. The reality: Valuations don’t predict short-term returns,

Read more »

Pay to Play

OUR WEALTH is usually measured by net worth, which is total assets minus all debt. But there’s an alternative measure—which is to assign our wealth to the purposes it serves. What purposes? Two come to mind: physical and social.
Let’s start with physical wealth. We’re talking here about a family’s ability to maintain basic physical comforts, such as enjoying decent food, a comfortable home, a reliable car and access to good health care.
You don’t have to be rich to afford these.

Read more »

Getting Used?

IN THE PAST, we’ve always bought certified preowned cars. We know new cars lose a big chunk of their value when you drive them off the lot, so we had our eye on a used car when we started our search earlier this year.
Our goal was a Mercedes Benz GLC 300 AWD 4MATIC. My husband enjoys the negotiating and drama that comes with buying a car, so he investigated choices, checked out prices at dealerships and was ready to start his usual two-to-three-month car hunt.

Read more »

Solomon on Money

THE MOST WIDELY read book of all time, the Bible, has a lot to say about money. According to biblical scholars, money and wealth are mentioned more than 2,000 times. Out of the roughly 40 parables Jesus told, nearly half speak of money.
Why does the Bible make such a big deal about money? The answer belongs in a Sunday sermon, not here. Still, I believe there’s a great deal to be learned from what the Bible says about money.

Read more »

Bet Your Life

INCOME ANNUITIES are a simple, cost-efficient way to generate guaranteed retirement income, and yet they account for just 5% of overall annuity sales. My contention: They can play a unique role in a portfolio—and deserve serious consideration by anyone planning for retirement.
Full disclosure: I’m co-founder of Saturday Insurance, an online company that offers income annuities and other insurance products directly to consumers. I also know that, when most people hear the word “annuity,” they cringe,

Read more »

Under Attack

THE FINANCIAL site MarketWatch has been running a series about the lives and budgets of Americans who retire abroad. My wife Jiab and I—who moved from Texas to Spain—were one of the first couples featured, along with a husband and wife who now live in Chile. Both articles made clear there were plusses and minuses to such a move—experiencing new things, but also being away from family—and that we weren’t advocating this for everyone.

Read more »

Free Newsletter

Numbers

WHAT INVESTMENT would you favor if you had a 10-year time horizon? A Bankrate survey found 31% chose real estate, 20% stocks, 19% cash investments, 11% gold and other precious metals, and 7% bonds.

Manifesto

NO. 3: WE SHOULD focus relentlessly on what we want from our financial life. That’ll motivate us to save, drive our investment strategy—and help ensure we pursue the goals we care about most.

Home Call to Action

Act

CHECK YOUR portfolio percentages. In 2019, stocks have outpaced bonds, U.S. growth companies are ahead of bargain-priced value shares, real estate stocks have sparkled and foreign stock markets have fallen behind. All this may have pushed your portfolio away from your target asset allocation—and it could be time to rebalance.

Truths

NO. 105: IN INEFFICIENT markets—such as those for microcap stocks and emerging market companies—skilled investors have a better shot at earning market-beating returns. But after investment costs, most investors will trail the market averages and the shortfall is often large, because the cost of active management is so high.

Think

HYPERBOLIC discounting. Suppose we’re choosing between a smaller reward today and a larger reward at some future date. To get us to wait, the later reward typically has to be far larger, perhaps giving us a 100% return for delaying just a few days or weeks. Such hyperbolic discounting highlights how we favor today and shortchange our future selves.

Money Guide

Start Here

Momentum Effect

WHAT GOES UP keeps going up—or so it seems. Numerous academic papers have documented momentum in stock prices, notably the 1993 paper by Narasimham Jegadeesh and Sheridan Titman  ("Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, Vol. 48, No. 1). Many quantitatively driven money managers follow a value strategy, but also look for upward price momentum, with a view to buying beaten-down value stocks that are starting to revive. Researchers have found that stocks with strong short-term performance, typically over 12 months or less, often continue to perform well during the 12 months that followed. What’s behind this share-price momentum? It seems difficult to explain the rewards of momentum investing in terms of increased risk (though that argument has been made). Instead, it could be that, when good news emerges about a company, investors bid up the share price. But the initial share-price increase doesn’t fully reflect the good news, perhaps because some potential buyers are concerned the improvement may be a flash-in-the-pan. Gradually, investors shed their concerns and purchase the stock, causing the shares to continue climbing. AQR Capital Management has a series of mutual funds that use momentum strategies, while Invesco offers a variety of ETFs. Other offerings include iShares Edge MSCI USA Momentum Factor ETFSPDR Russell 1000 Momentum Focus ETF and Vanguard U.S. Momentum Factor ETF. Next: Profitability Effect Previous: Value Effect Articles: Say No to Mo and Pushing Prices
Read more »

Archive

Getting an Edge

I’M ALWAYS on the lookout for easy ways to improve my finances. Here are five simple strategies I use: 1. Open a high-yield savings account. The interest rate on a regular Bank of America savings account is 0.01%. Ally Bank, on the other hand, offers 1%, almost a full percentage point more. For a savings account with $10,000, that’s the difference between earning $1 a year and $100, and it takes just 15 minutes to set up. 2. Maximize credit card signup bonuses. The Chase Sapphire Preferred, often a go-to card for those getting into the points game, offers a 50,000-point bonus for spending $4,000 in the first three months you carry the card. The Points Guy values those points at 2.1 cents each, translating to $1,050 in airline and hotel credits. To hit the minimum spend, ask friends if you can pay the tab with your card and then have them use Venmo to pay you back. 3. Work with friends to collect referral bonuses. The advisory fees on my Wealthfront account are waived on the first $20,000, because I referred three friends to the service, with another on the way. Similarly, Chase Sapphire Preferred will throw you 10,000 points for each new cardholder you refer, up to a maximum 50,000 points. 4. Buy family plan streaming packages. For the longest time, my fiancée and I were paying $10 a month each for Spotify, until we realized the family plan—which has six slots—only costs $15. We promptly switched over, saving $5 a month and offering free seats to the rest of our family. Netflix has a similar pricing structure: $8 gets you one “screen,” but for $12 you can have four people use the account. 5. Collect change in a jar and then use it to splurge once a year. Every August, my fiancée and I empty our change jar and spend the proceeds on dinner at Balthazar in Manhattan. (Don’t worry, we first convert our coins to folding money.) Usually, this covers at least $100 of our meal—giving us a guilt-free fancy dinner. Steven Aguiar’s previous blogs were Going It Alone and Why I Invest With a Robo-Advisor. Steve is the founder of BlueWing, a B2B digital marketing agency. He majored in Economics and Hispanic Studies at Brown, and is a big fan of compounding interest.
Read more »