Actively-managed mutual funds have a lot of flexibility over the types of investments they hold. One problem with this flexibility is that it often leads to style drift, which is a term used to describe a gradual change in investment style within a fund. Style drift is important to understand since a change in the investment style of a single fund could change the expected risk and return of your overall portfolio. I wasn’t concerned about style drift when I first started investing. I … [Read more...]
Is Recency Bias Affecting Your Decisions?
Humans tend to use recent experiences as predictors of what will happen in the future. The technical term for this is recency bias, and it’s a reason why many investors aren’t as successful as they could be. Paying too much attention to recent trends - like the excellent performance of the stock market over the past 7+ years - often leads to performance chasing, dangerous asset allocation changes, and other harmful decisions. The S&P 500 peaked at 1,565 in October 2007, and continued to … [Read more...]
Year-End Investment Moves
The end of the year is a great time to review your accounts and investments. Consider the following moves during your year-end review. Move 1: Check your asset allocation. The mix of investments you hold is referred to as your asset allocation. Younger investors tend to hold more in stocks for higher return potential, and older investors need more money in bonds for stability. The end of the year is a great time to check your investments and rebalance back to your target … [Read more...]
