Are you worried that an investment you’re considering might be a Ponzi scheme? Are you afraid that your financial planner might turn out to be the next Bernie Madoff? If you answered yes to either of these questions, then follow these simple tips to avoid potential investment scams and steer clear of con artists posing as trusted advisors. Tip 1: Beware of the promise of high returns and low risk. A lot of investment scams attract investors by promising very high returns will little or … [Read more...]
Who Moved My Small-Cap Fund?
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...]
Are You Underperforming Your Own Investments?
My recent post titled To Index, Or Not To Index: That Is The Question! focused on the fact that most actively-managed mutual funds fail to outperform their benchmarks. It's bad enough that most funds underperform the market, but what's worse is that investors often underperform their own investments! The Quantitative Analysis of Investor Behavior (QAIB) is a report that Dalbar, a financial research company, has published since 1994. This study compares the performance of individual investors … [Read more...]
To Index, or Not to Index: That Is the Question!
Is it best to pick a mutual fund run by a top-notch manager? Or should you keep expenses low and track an index? Determining which side of the active vs. passive debate you're on is an important part of the investment planning process. Passively-managed investments track indexes like the S&P 500. These types of funds replicate the holdings of an index in an attempt to track its performance as closely as possible. Actively-managed investments attempt to outperform their respective index by … [Read more...]
Questions to Ask When Interviewing a Financial Advisor
I've had a lot of first-hand experience with the work and business practices of other financial advisors over the past 15+ years. This has come not only from my experience working with other firms, but also from providing second opinions on each new Client’s previous financial plan. Seeing the good, the bad, and the ugly that exists in this industry has given me a very clear idea of how I would go about finding an advisor. You can find an extensive list of questions to ask a potential advisor … [Read more...]
Invest Like a Rat
In the October 2013 issue of Research Magazine, Bob Seawright writes about a study mentioned in the book Expert Political Judgment. The study involved rats looking for food that was placed at one of the two ends of a T-maze. … [Read more...]
Common Investment Mistakes During a Market Downturn
As humans we feel about twice as much pain from losing money as we feel pleasure from gaining money. … [Read more...]
Bonds: The “Safe” Alternative to Stocks?
Bonds are considered to be a safe alternative to the stock market. While it’s true that they aren’t as volatile as stocks … [Read more...]