There’s an ongoing battle in the financial realm pitting the Roth IRA against its older cousin, the Traditional IRA. Most of the debate, however, is rendered irrelevant because it doesn’t consider the Traditional IRA’s fatal flaw. Tale of the Tape: The IRA debate is almost entirely about taxes. As long as you meet certain income requirements,…
Stability itself is destabilizing. This is one of the defining ideas of the economist Hyman Minsky. And it matters because when we have periods of relative stability or happy results in the stock market (like now), we start to tell ourselves little stories. For example, we might believe that the stock market will behave like…
By Jared Kizer The financial media are full of conjecture about which strategies might effectively hedge inflation risk or not. Here we explore which asset classes, if any, have been effective at protecting against inflation risk. First, it is helpful to address some common logical and analytical misconceptions about hedging inflation risk. Focus on Correlation,…
An overwhelming body of evidence shows that actively managed mutual funds underperform their appropriate risk-adjusted benchmarks. In addition, little to no evidence points to persistence of performance beyond the randomly expected, which means past performance isn’t prologue. That’s the reason for one of the great puzzles in finance: Why do investors continue with such great…
Carl Richards, director of investor education for the BAM ALLIANCE, explains in his book The Behavior Gap on the difference between financial planning and life planning: “I spend a lot of time talking and writing about worst-case scenarios: investors behaving badly, people losing their retirement, and so on. But let’s not forget why we’re so…
A recent Northwest Mutual study shows a connection between being a disciplined financial planner and being happy in retirement. The study shows that highly disciplined planners — those who know their goals, have detailed plans to meet them and don’t deviate from those plans — are more likely than non-planners to say they are “happy…
Dan Solin is a New York Times best-selling author of the Smartest series of books. The following excerpt from his latest book, The Smartest Sales Book You’ll Ever Read, shows how you have the power to increase your level of happiness. Do you really have the power to increase your happiness? Experts say yes. Sonja…
One of the more frequently asked questions I get is about the need to diversify across mutual fund or exchange-traded fund providers: Is there risk in having all your eggs in one fund family’s basket? This question became even more prevalent after the Bernie Madoff fraud was exposed. We’ll begin to address this issue by…
The tendency for mutual fund companies to drop poorly performing funds when calculating historical return data is a major problem for unsuspecting investors, and it’s known as survivorship bias. An investor selecting mutual funds today is choosing from a list that excludes the losers that have been either closed or merged out of existence so…
In my book, Think, Act, and Invest Like Warren Buffett, I noted that the Oracle of Omaha advised investors: “We have long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up…
Today begins a two-part series on international bonds and whether or not they belong in your portfolio. Broad diversification of risk is one of the prudent rules of investing – since it’s the only free lunch in investing, you might as well eat as much of it as you can. For equity investors, an important…
Today we continue our discussion on international bonds. We’ll begin with a Vanguard study. Vanguard reached the same conclusions we discussed in yesterday’s post in their February 2014 research paper “Global fixed income: Considerations for U.S. Investors.” The paper states: For the average investor seeking to further mitigate volatility in a diversified portfolio, foreign bonds can play…
There’s an interesting new paper by Claude Erb, “Has the Stock Market Been Overgrazed?” He begins with noting that over time (since the 1920s), the beta, size and value premiums have all declined. He then asks: “What if too many investors are demanding too much from a possibly limited supply of opportunities?” Said another way,…
During bear markets, the dividends thrown off by companies provide the cash flow required, while a total-return approach requires one to sell shares to provide the cash flow—a clear advantage of dividend-focused strategies that those who favor them are quick to point out. This blog addresses that issue specifically. We’ll begin our discussion by pointing…
The financial equivalent of the Miller Lite, “tastes great, less filling,” debate is between traditional finance (which uses risk theories to explain asset pricing), and the newer behavioral finance field (which uses human behavior to provide the explanations). Unfortunately, there’s no consensus about which side of the debate is correct. My own view is that…