IMAGINE A MARKET genie offered you the choice between knowing the stock market’s return next year or the stock market’s average return over the next 10 to 15 years. Which would you choose?
I’m guessing that most people would prefer to know how the stock market will do next year. After all, that seems like more actionable information, plus who has the patience to wait a decade or longer? But for those with an investing time horizon of more than 10 years—the vast majority of us—knowing the stock market’s return over the next decade or longer is far more valuable information.
ONE PERCENT is the average annual cost charged by actively managed stock mutual funds. One percent is also the typical fee charged by financial advisors for managing a client’s portfolio. Paying 1% means keeping 99% for yourself. What’s the harm in that?
Here are some pictures of Lower Manhattan. It’s dotted with the skyscrapers that comprise the financial district, home to some of Wall Street’s largest firms. Just the seven largest U.S. banks together are worth more than $1.5 trillion (yes,
I’VE LONG BEEN flummoxed by the difficulty people have managing money. It all seems so intuitive: Save, invest, repeat. Buy more when the market falls and a lot more when it crashes. Rebalance by adding more to losing asset classes—which today means buying value and international stocks.
Now, don’t get me wrong: I’m no financial genius. I’ve made my share of blunders. But I also know that being a do-it-yourself investor has saved me boatloads of money.
‘TIS THE SEASON for making predictions and financial recommendations for the year ahead. Since everyone else is doing it, I figured I’d hop on the bandwagon. Here are my 10 predictions and recommendations for 2021:
1. The stock market will fluctuate, but company dividends will be relatively stable.
John Pierpont Morgan was asked what the stock market would do next. According to legend, he answered, “It will fluctuate.” If only financial experts were so truthful today.
DEAR FAMILY, you know I don’t typically give unsolicited investment advice. But today, I’m breaking that rule, because I don’t want you to get hurt financially.
I can’t promise that, by following my advice, you’ll be better off in the short run. But I firmly believe that you’ll be better off in the long run, by which I mean in the next five to 10 years. Please take this letter for what it is,
HUMANS ARE WIRED in ways that, alas, aren’t conducive to achieving our financial goals. Indeed, thanks to research by academics focused on behavioral finance, we now have a much better handle on the money mistakes that many of us regularly make. Want to become a better investor? Here are three insights into ourselves, compliments of behavioral finance:
The illusion of understanding. Once you’re aware of this illusion, you start seeing it everywhere,
“WHAT CHANGES have you made to your portfolio during this market decline?” That was the article request I received from HumbleDollar’s editor. Initially, I had reservations about taking on the assignment, afraid that my story would be misinterpreted as giving financial advice. What follows isn’t financial advice, but rather a highly personal account of one investor’s approach.
I’ve been quite cautious for the past few years. Written into my investment policy statement is Benjamin Graham’s advice to have between 25% and 75% of one’s portfolio in stocks.
WE HAVE MUCH to learn about the coronavirus, but we already know a great deal about financial risk—and, indeed, recent weeks have offered a brutal refresher course. What insights can we draw from investors’ reaction to this awful epidemic? Here are eight timeless lessons:
1. The greatest risks are those we never see coming.
Some risks are predictable, such as stock market volatility. Others are less probable but widely known, like the possibility of a recession.
THE JAPANESE JUST “celebrated” the 30th anniversary of their stock market’s peak. The Nikkei 225 hit an all-time high of 38,916 in December 1989. Today, it stands at 23,320, or 40% below 1989’s level.
“But the Japanese stock market in the 1980s was the mother of all bubbles,” you might respond. Perhaps. But what about the Nasdaq bubble of the late ’90s? True, the Nasdaq Composite Index has finally returned to its 2000 peak.
THE FINANCIAL markets are often quick to punish investment sins. By contrast, if we err with our borrowing, spending and other personal-finance issues, problems might not show up until years later—but the damage can be just as great. Here, to complement last week’s list of 12 deadly investment sins, are 12 deadly personal-finance sins:
1. Pride: Keeping up with the Jones by buying luxury cars and fancy clothes.
Antidote: Realize the folly of buying depreciating assets you don’t need,
WANT TO IMPROVE your investment results? The deadly sins below are not only among the most serious financial transgressions, but also they’re among the most common. I firmly believe that, if you eradicate these 12 sins from your financial life, you’ll have a better-performing portfolio.
1. Pride: Thinking you can beat the market by picking individual stocks, selecting actively managed funds or timing the market.
Antidote: Humility. By humbly accepting “average” returns through low-cost index funds,
IT’S WIDELY ASSUMED that the Federal Reserve, our nation’s central bank, has two mandates: maximum employment and stable prices. But a closer look at the Federal Reserve Act of 1977 on the Federal Reserve’s very own website reveals a third mandate, namely “moderate long-term interest rates.”
Does a 1.7% yield on 10-year Treasurys and 2.15% on 30-year Treasurys count as “moderate long-term interest rates”? Since I have nothing better to do on the weekend,
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.
THIS WILL SOUND like heresy to buy-and-hold investors. But I believe risks are building within the financial system—and we ignore these risks at our peril.
If you’re a diehard buy-and-hold investor who, come hell or high water, plans to dollar-cost average into the stock market, feel free to skip this article. It is not for you. On the other hand, if you believe—as I do—that there are more and less advantageous times to invest one’s capital,
THREE YEARS AGO, I decided to write a book about money for my children, then ages 9 and 11. Raising Your Child’s Financial IQ: The Most Important Things is now finished. Here are six things I learned along the way—which apply not just to writing a book, but also to life more generally:
1. Yes, you can find the time
I’m a physician, working 50 to 60 hours a week.