How to Diversify a Million Dollar Portfolio
Diversifying a million dollar portfolio can be tricky. Make sure you start by making a plan and analyzing your financial situation.
Are You Worried About Your Stocks and Market Risk?
If the market goes up, do you still need to worry about stocks and market risk? Should you rebalance your portfolio in an up market?
Do Mutual Funds Increase the Risk Level of Your Portfolio?
Mutual funds can add risk to your portfolio. If you want to limit your risk exposure, pay attention to what mutual funds and ETFs you own.
Do you want steady income from your dollar deposits?
Is your investment goal to receive a steady income from dollar deposits? If so, take these 3 steps to help you reach your goal.
Can Mutual Funds or ETFs Improve Your Portfolio’s Performance?
Learn how Americans living abroad can use mutual funds or ETFs to improve their portfolio’s performance.
Here’s a Quick Way to Invest in the Stock Market
When you want to invest in the stock market, how do you choose a stock? Peter Lynch invested in L’Eggs because his wife wore stockings. But is that a reason to buy a stock?
The Investment Tool You Need to Invest Your Money Like the Pros
Professional money managers are a good investment tool to use if you don’t want to think too much about your investments. Learn how “regular” people can use money managers just like the pros do.
A 4-minute financial podcast
Worrying about your stocks when the market is volatile is only natural. Here are 3 steps to take to minimize your worries and stay in the stock market.
How Much Money Can You Afford to Lose in a Risky Investment?
When looking at a possible investment, consider how much money you might potentially lose. Your risk tolerance needs to be taken into account.
Why Are Dividend-Paying Stocks like a Paycheck?
Find out how dividend-paying stocks can help increase cash flow. Can income investors earn higher total returns through dividend reinvestment plans?
Should You Engage in Copycat Trading?
Find out why copycat investing vs. copycat trading is the more prudent strategy for growing your retirement portfolio
Is the global economy on the verge of another collapse?
Gambling vs. Investing: Where Are You More Likely to Win?
Is there a difference between investing and gambling? Understanding gambling risks can improve your investing performance.
Do Market Timers Generate High Returns?
Why do market timers think they can outperform the market? Understanding why market timers underperform passive investors can improve your investment performance.
Is There a Difference between Growth and Value Stocks?
What is the difference between growth and value stocks? Does one have a better chance of growing your portfolio?
Why a Stock’s Price Doesn’t Matter
High stock prices may be intimidating, but they do not necessarily reflect the company’s value. Read here to learn why.
Growth vs. Income Investing: Is the Cost of Growth Too High?
Retirement portfolio: Learn how to allocate growth vs. income investing, according to your risk profile.
Should Retirees Diversify Globally to Protect Their Savings?
If you diversify globally will it improve the risk-adjusted returns on your investment portfolio? Learn how global diversification adds non-correlated assets to a retirement portfolio.
Do Simple Investments Generate Higher Returns?
What type of investments yield the higher returns: complicated or simple investments? You may be surprised to learn that simple investments tend to have better, consistent returns. Read to find out why.
Should I Sell Out before Losing Money in a Stock Market Crash?
Protect your portfolio from a stock market crash by reducing risk and producing more consistent performance through diversification
Are Emerging Markets’ Potential Returns Worth the Risks?
Learn how diversification can help you manage the risks and returns of investing in emerging markets.
I Don't Feel Inflation. Is It Hurting My Savings?
Understand how inflation affects your buying behavior, spending patterns and savings.
Does Investor Bias Make You Underperform the Market?
By Douglas Goldstein CFP® - helping olim handle their U.S. investments from Israel
A friend recently had a losing streak at the casino. Instead of walking away, he played more hands of blackjack. “I was determined to win,” he lamented. In fact, he was playing to recoup his losses.
He was a victim of investment biases subconsciously affecting his decision-making. Gambler’s Fallacy – the belief that after a streak of losses his luck would turn – duped him into doubling his losses. A recent study of Major League Baseball umpires showed how biases are at work in all forms of decision-making. In 1.5 million pitches, umpires were less likely to call a strike if the previous pitch was a strike.
Investor bias can lead you to make bad investing decisions. Biases are shortcuts in decision-making; you may, for example, increase your position in gold stocks because you have recently made a lot of money in gold, ignoring economic news that suggests gold prices are likely to drop. If you make a bet based on what just happened, you suffer from “Recency Bias,” like the umpire, who is more likely to call a ball after two strikes than one.
Passive and automated investment systems (such as dollar cost averaging) outperform active traders because they eliminate such human biases and judgements. Dollar cost averaging – making fixed investments on a regular schedule – improves returns by reducing volatility and human error.
Why do investors actively trade stocks?
The answer is overconfidence bias. Overconfident investors believe they have an edge over others; they are better stock pickers and market timers. The more humbling reality is that overconfident investors underperform the market. They are more likely to act on gut instinct than on research and analysis.
The major obstacle between you and better investment returns is often yourself. By making rational decisions and not letting your emotions dictate your trade orders, you may improve your investment results. To learn more about investor bias, read my blog, ProfilePerspectives.com/investor-bias
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Should You Follow Investment Trends or Bet against the Masses?
By Douglas Goldstein CFP® - helping olim handle their U.S. investments from Israel
Today, many “investment trend” websites are enticing online traders to join. Investors who follow the trend – also known as “momentum trading” – invest in stocks based on rising market prices rather than company fundamentals.
The strategy of following the investment trend performs best in a bull market. However, selling before the trend reverses is a skill that eludes most investors. When many investors buy the same stock, the market price can rise above the underlying value of the company. Eventually, as investors’ emotions stabilize, rationality may return, and prices fall into line with the fundamental value of the company (based on measures of revenues, earnings, etc.). Short-term momentum players who try to time market fluctuations seldom outperform buy-and-hold investors in the long term.
The trend can be a false friend
Herding behavior, whereby investors irrationally pile into a stock or sector, is behind most stock market bubbles. Two conditions for stock market bubbles are: new money inflows (which sustain the inflated price), and credit expansion (to generate the capital to invest). When credit conditions tighten, capital flows into the investment market slows and stocks start to decline.
When to bet against the masses
If a company’s fundamentals don’t support the stock price, it may be prudent to bet against the masses. Contrarians are often viewed as the mavericks of the markets. More often than not, their decision to go against the trend is based on thorough fundamental analysis.
If you base your investment decisions on sound fundamental security analysis, you may not always be a part of investment trends, but you will hopefully enjoy steadier and better long-term investment performance.
For more on the risks of following the trend, see my book review of Ben Bernanke’s book about the 2008 crash at Profile-Financial.com/bernanke
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Do You Look at the Risk-Reward Ratio of Your Stocks and Bonds?
By Douglas Goldstein CFP® - helping olim handle their U.S. investments from Israel
The risk-reward ratio is an attempt to quantify the amount of risk you need to take in order to get an anticipated return from any investment.
If you were to only consider past returns when deciding whether to invest in stocks or bonds, stocks would appear to be the clear winner. From 2007 to 2016, stocks had an average annual return of 9% versus about 5% for 10-year U.S. Treasury bonds.
If past returns are your only measurement of performance, then perhaps you should consider high-yield corporate bonds. This year, Harvard University’s endowment fund made its largest allocation to a high-yield corporate bond exchange traded fund (ETF), which had a one-year return (through March 2017) of 13.4%.
Risk vs return
Prudent investors know that past performance is not a guarantee of future returns, and instead of chasing last year’s returns they start by looking at their own risk profile. Indeed, some would say that Harvard marched farther out on the risk spectrum than a conservative education endowment should wander.
Fund managers always look at both the return and risk premium – the risk-adjusted return – of a stock or bond. The risk premium is one of the most important metrics in investing because it indicates how much money you may receive (the return) for the level of risk taken.
So, do stocks still make sense?
Stocks make a lot of sense on a risk-return basis. Looking over a long investment horizon, from 1967 to 2016, stocks returned over 11% on average compared to about 7% for 10-year U.S. Treasury bonds. Consider too, that stocks’ risk premium was 6.6% and the Treasuries’ 4.4%. By comparing the risk-return metrics, it appears as if investors are taking on added risk in exchange for incremental stock returns.
Diversifying an investment portfolio by adding bonds with a lower risk-return ratio may provide a superior risk-adjusted return. Find out why having a diversified portfolio matters at Profile-Financial.com/asset-allocation
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.