Filter Failure

We are inundated with information and data these days – most of which serve to distract us from more important things, yet they are effective nonetheless. And for some reason our brain really likes distractions.

Power of Headlines

Headlines exist for one reason – to get you to read, click or tune in. The real purpose of headlines is not to inform, it is to get you hooked.

Our brains love headlines! We don’t have a lot of time, and we are constantly being persuaded to look this way or click over here. The brain often lends attention to those things we can learn in two seconds without using any brainpower. Headlines provide that material.

The Value of Cash

As investors, we have great difficulty valuing cash correctly. We take shortcuts and seldom analyze things from more than one point of view. Understanding the value of cash, from different angles, can help you make better decisions with your money.

What’s The Yield?

Can You Hold a Winning Asset?

It is every investor’s dream to invest early in a company such as Microsoft, Apple or Amazon. Oftentimes the media reports on how much we would have made had we invested early on. For instance, a $10,000 investment in Amazon at its IPO would be worth $4.9 million today (49,000% gain).  

Market Indexes Aren't Diversified as You Think

It is very common in our industry to compare personal portfolio returns to indexes. Two of the most common indexes referenced are the S&P 500 and the Dow Jones Industrial Average, also known as “The Dow”. Investors compare personal return to indexes, or benchmarks, to give them a sense of whether the portfolio is doing as it should…kind of a check and balance. That is a reasonable use of indexes, but unfortunately many investors are taking it too far. 

The Dow

Selecting Your Investment Benchmark

Investors often compare personal portfolio performance with some stock market index, a benchmark. While the comparison may be easy to make, it is seldom a valid comparison. What we are actually doing is comparing apples to oranges. 

What Dow 20,000 Means

Not much. For the media it means headlines and talking points. For traders and speculators, it may be an excuse to make some trade based on expected short-term outcomes. For investors, it means nothing – except for its potential to distract you from what really matters. 

It’s nice that stock market indexes are increasing, but what does it really matter that the Dow hit 20,000? Sure, it’s a nice round number with lots of zeros. But there is really no difference between the Dow hitting 20,000, 20,126 or 19,944.

What a Year!

This is always a good time for people to look back on the year and take personal inventory.  For investing, the personal inventory often takes the form of behavioral inventory. We cannot control the news, economy or market, but we can control our reactions to external events. So how did you do this year?

Election 2016: Surprise and The Improbable

No matter where you lie on the political spectrum, the outcome of the 2016 election was a surprise to most people. The media got it wrong; the polls got it wrong and even the betting market (where real money is at stake) had the odds of a Clinton win at 80% as the polls opened. States that were sure things ended up flipping with no advanced warning. The markets had priced in a Clinton win. As usual, when the market prices in one thing and something else occurs, it gets surprised and needs to re-price.

Expected Returns

One of the core inputs required in the financial planning process is the assumption of what the future return of the security (portfolio) will be. Obviously higher returns are preferable because they translate into greater spending power and/or reaching your goals sooner. Yet higher returns come with a caveat; higher risk. There is a very strong correlation between risk and return. So the higher the desired return, the greater the risk of losing money over a period of time.