WITH STOCK PRICES so high and interest rates so low, many folks are thinking about buying gold. Tempted to take the plunge? Ponder these nine issues:
1. No income. Gold pays no interest or dividends. That means gold’s return hinges entirely on its price going up. Gold ownership also means you must forgo the interest and dividends you’d have otherwise earned on alternative investments. Still, with interest rates so low, the opportunity cost of owning gold—at least in terms of lost income—is very low right now.
THIS IS THE STORY of how I thought I’d successfully timed the market—but didn’t.
I started investing in 2007, when the stock market peaked, which wasn’t great. But then came 2009 to 2019. Stocks enjoyed the longest and one of the strongest bull markets in history, averaging some 15% a year. Thanks to that great bull market, my wife and I found ourselves with more in our taxable mutual funds than we owed on our home mortgage.
OVER THE PAST TWO decades, investors have increasingly shunned actively managed mutual funds, instead embracing index mutual funds and exchange-traded index funds. This has led to a contrived debate over whether active or passive investing is better.
My contention: It’s wrong to position indexing as somehow the mirror opposite of active management. Why? Even if you eliminate active mutual fund managers and their fees from your portfolio, you still need to grapple with three crucial investment decisions—all of which involve the sort of judgment call active investors must make.
HISTORY IS FULL of fringe investments that make headlines after rapid—and often inexplicable and indefensible—price increases. Bitcoin is one of the latest examples, leaving even casual observers asking, “What is it and should I buy some?”
First traded in 2009, bitcoin is the best-known cryptocurrency. Thousands of others have been introduced, but many have since died. That’s one problem with trying to pick the right digital currency to purchase: There are low barriers to entry.
REMEMBER THE OLD joke about the efficient markets theory? An economics professor and a student are walking across campus, when the student says, “Look, there’s a $100 bill on the path,” to which the professor replies, “That can’t be true, because somebody would’ve already picked it up.”
I’ve been thinking about that joke not because of the efficient markets theory, but because I’m amazed at how many smart people walk by a $100 bill every day.
A POPULAR MYTH holds that individual bonds are safer than bond funds—because individual bonds supposedly come with no interest rate risk.
Proponents of this notion claim that if you buy a bond and interest rates rise—which they have this year—you won’t lose any principal because you’ll eventually get back the bond’s par value, assuming you hold the bond to maturity and the issuer doesn’t default. This is true, but it doesn’t mean individual bonds don’t involve interest rate risk.
SPECIAL PURPOSE acquisition companies are hot. But will investors get burned?
Also known as “blank check” companies, special purpose acquisition companies (SPACs) are shell companies with no current business operations that raise investor funds through an initial public offering (IPO). The companies then seek a merger with a private company, allowing its new partner to go public without the delays and demands of a traditional IPO.
An additional advantage: The acquired companies are allowed to make projections about their business prospects,
CHIMAMANDA ADICHIE coined the term “single story” in 2009. A novelist and a native of Nigeria, Adichie first came to the U.S. to attend college. Almost immediately, she was struck by the one-dimensional lens through which many saw her. It started with her roommate.
Knowing that Adichie had just arrived in this country, her roommate—an American—asked how she was able to speak English so well. Adichie had to explain that English is Nigeria’s official language.
BACK IN 2017, I wrote about an oddity in my portfolio—an actively managed mutual fund that I bought without much thought to how it fit with my overall financial goals. Today, I have a confession. That fund isn’t the only oddity I own. In the interest of transparency—and because I hope readers will find it instructive—here are five more oddities, plus the thinking behind each:
While I firmly believe that low-cost index funds are the best way to build wealth and I believe that stock-picking is a fool’s errand,
I’VE LATELY FACED one of the investment world’s greatest dangers: It’s called FOMO, or fear of missing out. If you pay attention to the financial news, you may be wrestling with this one, too.
Let’s start with bitcoin. I’ve studied it, but never invested. I’ve got friends who own the digital currency. I’m thrilled they’ve been wildly successful. But you know how awkward you feel when somebody tells an inside joke that you don’t get?
I’M TOLD THAT younger investors tend to trade more. That’s because those of us in our 20s and early 30s tend to be more confident—and perhaps overconfident—and that leads us to actively manage our portfolios as we seek to outpace the market averages. On top of that, it takes time to learn what works and what doesn’t, and that can also lead to frequent trading.
That brings me to 2021 and the four key portfolio changes I’m making:
IN THE FAMILY TREE of investors that began with Benjamin Graham sits a quiet, 100-year-old firm called Tweedy, Browne. This week, it published a chart that offered a new angle on a key debate in the world of personal finance: Is value investing dead—or just resting?
Before I get into the details of the Tweedy chart, I’ll back up and first recap the concept of value investing and why there’s a debate about it.
EVERY SO OFTEN, an arcane topic jumps from obscurity into the headlines. Such was the case last week when everyone was suddenly talking about the “short squeeze” on Wall Street. Below I’ll explain what happened and offer four thoughts on how to respond.
What does it mean to short a stock? In simple terms, it means you’re betting a stock will decline in price.
How does one accomplish this? First,
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.