As I look back to the early years of my career as a financial advisor, I recall being driven by three powerful and distinct forces. The first was necessity. With a wife and three children completely dependent on my commissions, success was not a dream or a goal, it was a necessity.
What comes to mind when you hear the word confidence? You might think about the assurance of your own ability to accomplish a task or to succeed in some endeavor, great or small. You might also consider it as faith in somebody else; that they will do right or act in a trustworthy manner. Confidence in this light can also be associated with things that act in a predictable or reliable manner. It can mean a secret shared and it can describe the relationship of trust that exists to make sharing the secret possible.
Last week in Measuring Uncertainty I focused on the pitfalls of using performance alone to measure progress toward reaching your financial goals. It’s only natural to use returns because they are the universal language of the financial services industry. And if the language of the industry is returns, then the methodology for producing them is active management; where managers make specific investments with a primary goal of outperforming an investment benchmark index. But with return alone as your guide, you are left to wonder just how effectively your managers are improving your situation relative to your goals, how are they
Psychologists have uncovered a fascinating phenomenon about people at the racetrack. The moment after placing their bet on a horse they become much more confident of their horse’s chances of winning than they were immediately before placing their bet. Is it possible that the very same thing happens the moment we invest in a stock or a mutual fund?
If you’ve invested long enough, it’s almost certain that you’ve been made to feel less than knowledgeable, either by your advisor (unwittingly, of course) or by ‘Mr. Market.’ People invest for as many reasons as there are people. Today’s Brief addresses the purpose of the vast majority of investors; that of saving to replace the paycheck. Some call it retirement, some call it freedom from salary, others refer to it as their second half, and still others call it doing what you really want to do, or were meant to do all along. Whatever you call it, it happens when
Do you ever wonder if you will have enough money to see you through the surprises and challenges ahead? Or, if you are blessed with abundance, do you ever think how nice it would be to quantify your surplus, find purposes for it, to enjoy the benefits today; rather than leaving it to the next generation to fight over? Truth is, most people have no idea whether their plans are over- or under-funded, or by how much. They spend most of their time worrying about return.
The recent 8.2% dip in stock indices from their January 15th peak provides an opportunity for reflection. While market declines in general are not pleasant, one can understand investors are understandably squeamish after the 37% drop in 2008 and the peak-to-trough drop of 57% from October ‘07 to March ‘09. But ever since stock markets began, values have dropped then recovered only to go on to new heights. Our purpose today is not to predict the market’s next move, but to objectively examine its nature and demonstrate why worrying about the dips is needless and avoidable.
There is a steady and dramatic shift occurring in the investment world toward Exchange Traded Funds. ETFs as they are called, represent baskets of stocks which are managed only to match specific indexes, not to beat them, as is the case for actively managed mutual funds. According to a recent study by Barclays Global Investors US listed ETFs climbed to an all-time high of $607 billion at the end of August. The study suggests that a “conservative” growth rate of 20% compounded annually, would put ETFs above $1 trillion by mid-2011. That total would represent 10% of the US mutual
Information travels faster than ever now which tends to amplify panics and crises. The natural herd tendency to sell or buy is fanned by the rapid flow of news, often in its raw state. Globally linked computerized exchanges make buying and selling more efficient and faster than ever. What is crystal clear in this time of crisis and uncertainty is that we have no control of the markets (short of shutting them down). They are bigger and more powerful than any government and they will find their equilibriums in all circumstances. Predicting or timing them is all but impossible, especially