BEHAVIORAL ECONOMISTS long ago discovered that the pain we feel from a $1,000 loss is about twice as great as the joy we feel from a $1,000 gain. Daniel Kahneman and Amos Tversky documented the phenomenon and coined the term “loss aversion” in 1979. That was just a few years before I began investing.
Since then, I’ve made a discovery about my own psychology: I’d rather underperform in out-of-favor stocks than risk losses in glamorous ones—because my gut tells me that the more something is celebrated,
BECAUSE WE’RE HUMAN, we always find something to complain about. But I’ve come to believe there’s never been a better time to be a regular, everyday investor.
No, I’m not suggesting stocks are some great once-in-a-lifetime bargain. Rather, I mean the choices available to investors have never been greater, thanks in part to the growth of exchange-traded funds and the disappearance of brokerage commissions. On top of that, the costs of fund investing have never been lower.
CAN YOU EVER HAVE enough? Yes, I’m talking about money.
But I’m not some gazillionaire burning up billions on a rocket to space. I’m talking about emergency savings for ordinary people. A cash stash. Rainy-day funds. Mattress money.
I thought I had enough a few months ago, but then life happened. Dental work. A blown clutch. More support for my son, who has a great job offer but won’t start work until later this year.
AS AN INVESTOR, I’d describe myself as a small-cap-value-aholic with a worldly outlook. Right now, I’m betting that one of world’s least loved overseas markets will finally return to favor after decades of disappointment. You can laugh out loud now.
Last year, my investment in U.S. small-cap value stocks was a great play from the March 2020 market bottom through about mid-May of this year. I didn’t catch the market bottom perfectly, but—luckily—I was close.
TERRY ODEAN has been studying investor behavior for decades. The University of California at Berkeley finance professor has proven again and again that everyday investors often harm their performance by trading too much.
Last year, Odean and his fellow researchers turned their attention to the Robinhood phenomenon. Result? When I spoke to Odean, he said the only thing that surprised him was the magnitude of the self-inflicted investment wounds by users of the free-and-easy trading app.
ALMOST EVERYTHING on Wall Street went up in April, including some of 2021’s laggards, such as gold, bonds and growth stocks.
Investors may not like President Biden’s capital gains and corporate tax hike proposals. But despite the president’s somewhat stealthy pursuit of policies worthy of Franklin D. Roosevelt, stock investors could be forgiven for breaking out into FDR’s 1932 campaign song, Happy Days Are Here Again. Consider:
Stocks have risen more in Biden’s first 100 days (symbol: SPY +9.8%) than in the same period of any president’s term since—guess who—FDR’s fourth.
WAS MARCH WHEN YOU learned what a nonfungible token was, because a digital file sold for $69 million? Was it when you told yourself you just had to find out more about SPACs? When you realized that the nation’s hottest fund manager, Cathie Wood, who you first heard about in February, was now a household name referred to simply as Cathie? As in, “Why does Cathie own Deere and Netflix in her new space exploration ETF?”
Then you and I are most definitely late to the party—and it’s probably best not to start dancing on the tables with the others.
IT’S BUYER BEWARE for bond fund investors. Three big risks have snuck up on today’s fund shareholders, which—taken together—mean higher volatility and lower returns.
I discussed these pitfalls with Ben Johnson, director of global exchange-traded fund research at Morningstar, the Chicago investment research firm. “In recent years, the market’s standards have loosened significantly and durations have lengthened,” Johnson told me. “People are generally willing to lend money to less creditworthy borrowers for longer terms….
RAMPANT SPECULATION in parts of the market has been obvious for months. Less obvious is whether investors collectively will pay a substantial price for it. Can a reflation trade end up piercing a market bubble?
Stocks posted solid gains in February—with the S&P 500 touching a record high on Feb. 12—but the final week felt a bit precarious, even if the benchmark ended the month down just 3.5% from that high. (Insert your favorite adjective to describe the correction so far: normal,
WELCOME TO OUR inaugural monthly personal-finance update. I was all ready to write about January’s robust stock market—and then the GameStop saga garnered national headlines, with short-selling hedge funds losing billions, everyday investors crowing and politicians piping up. Some bashed Wall Street for allegedly thwarting retail traders, while others worried about the financial system’s stability.
Amid the tumult, the S&P 500 fell into the red for the year-to-date, despite blockbuster earnings reports from two of the market’s longtime leaders,
MY OLD INVESTING self was like the guy in the meme who twists around to ogle a woman in a red dress, while his girlfriend looks ready to break his neck.
Just as jumping from one relationship to another introduces new risks, the same holds true for jumping in and out of different investments. For me—and for most people, I’d wager—investing in individual stocks and narrowly focused funds involves a certain amount of trading,
IT ISN’T EVERY personal finance book that includes a chapter entitled, “You Will Lose Money.” But that’s Ben Carlson laying down the harsh truth for inexperienced investors in his self-published fourth book, Everything You Need to Know About Saving for Retirement.
I interviewed Carlson recently because I find his A Wealth of Common Sense blog among the most useful for a small investor like me—someone with an intermediate level of market knowledge.
WELL, IT SOUNDED good. Academic theory and nearly a century of investment experience supported the argument that small-cap value is the most promising market segment over the long term, since it offers the superior risk-adjusted return that comes with owning both neglected small-cap shares and shunned value stocks.
But as legendary economist John Maynard Keynes observed, in the long run, we are all dead. In my 36-year investment career, both small- and large-cap value have lagged large-cap growth.
THEY WERE GURUS and gunslingers. Market mavens. Stock pickers and sector bettors. Over in the bond market, there was even a king. They were star fund managers—but most were shooting stars, destined to crash.
Yes, we’ve had managers like Peter Lynch, Will Danoff and Bill Gross, whose long-term returns did indeed beat the indexes. But for every winner like them, there have been—statistically speaking—seven who failed. Between 74% and 93% of funds in a variety of broad categories—small-cap,
TARGET-DATE FUNDS offer one-stop investment shopping. But what exactly are you buying?
These funds are intended to offer a diversified portfolio that’ll carry you through to retirement and beyond. Each follows a “glide path,” reducing its stock exposure over time. But the substantial differences among the funds means that some roads will be rockier than others, so it’s important to understand what you’re getting.
For instance, young investors in 2060 target-date funds—like my children—will have 90% or more in stocks.