“My name is Neal, and I’m a lane changer. It’s been two weeks since I changed lanes — and that’s only because it’s been two weeks since I was on the highway!” If there were an organization similar to Alcoholics Anonymous for chronic lane changers, I would join. I know I have a problem, but…
In our ongoing series looking at asset allocation issues, we’ve already covered some essentials, namely, how to analyze your ability, willingness and need to take risk — and what do when one or more of those factors conflict. Figuring out where you fit along the risk spectrum will help you figure how much of your portfolio to put into stocks. Now,…
In order to rationally develop an investment plan you need to estimate long-term returns for the asset classes in which to invest – without doing so you cannot determine how much to allocate to risky stocks and how much to safer bonds. When estimating returns we know that current valuations provide valuable information. As good…
I recently came across an article on Seeking Alpha by The Statistical Investor entitled “Demographics Are Destiny: World Population Trends“. The article begins: “As they say, demographics is destiny. Just ask Japan. The longer your investment horizon, the more exposed you are to demographic trends.” The author continues with what we might call “conventional wisdom”…
The presence of regularly occurring anomalies in conventional economic theory led to the development of the field of behavioral finance, and the volatility anomaly is one that deserves some special attention. Anomalies directly violate modern financial and economic theories, which assume rational and logical behavior. We now have a laundry list of anomalies, including…
It’s long been known that many investors have a preference for cash dividends. But from the perspective of classical financial theory, this behavior is an anomaly. Here’s why. It’s perplexing behavior because before taking into consideration what are referred to as “frictions” such as transaction costs and taxes, dividends and capital gains should be perfect…
I frequently get asked about the merits of corporate bonds, both investment-grade (IG) and high-yield (HY), relative to government and municipal bonds. I don’t believe the risk-return profile for long-term investors (particularly taxable individual investors) is improved by owning IG or HY corporate bonds compared with simply owning a diversified portfolio of stocks and high-quality…
It used to be that once Americans neared retirement, they had whittled down (or eliminated) their debt. Freed from monthly principal and interest payments, these fortunate individuals were prepared to retirewith dignity. Times have changed. Read the rest of the article on US News.
Most Americans have a high regard for our Canadian neighbors to the north. We respect their honesty, their integrity and, especially, their civility. The statistics on crime in the U.S. and Canada show that Canadians live in a more lawful, peaceful society. Violent crime in the U.S. is appallingly higher per 100,000 inhabitants than in Canada. Murder…
We need not look far to learn that 401(k) plans are imperfect or worse, so instead of lumping on more criticism about how you and your employer have botched your 401(k), let’s discuss how to make the most of a not-so-great situation. Read the rest of the article on Forbes.
We’re still making the same old mistake of buying investments when prices are high and selling them once their prices have fallen. I had hoped things had changed, I really did. But Morningstar’s latest Investor Returns data says otherwise. More than 10 years after I first started thinking about this data, the behavior gap still exists. The…
Multigenerational planning involves the transfer of wealth, but it also extends to intangible concepts such as family values and legacy wishes. Conversations about multigenerational planning begin with the first generation. The success of an estate plan can depend on whether the details of that plan have been properly communicated to family members. Therefore, it is…
So you’ve experienced a financial windfall and you don’t know what to do with it. This is what we refer to as a “luxury problem,” right? Indeed, you’d think this would be the most glorious dilemma possible to befall you and your household. But for some, a windfall can be more of a curse than…
The first two posts in our series on asset allocation focused on investors’ ability and willingness to take risk. Today, we turn our attention to the third of our three tests, the need to take risk. The need to take risk is determined by the rate of return required to achieve financial objectives. The greater the rate of return…
Today we conclude our series on how best to make asset allocation decisions. It’s an easy decision when the analysis of your ability, willingness and need to take risk leads to the same conclusion. For example, one can have a high ability and willingness to take risk but little need. In that case, the answer is simple: Because the marginal…