Happy Hour: Impulse Finances

People feel better about their finances. That’s what a recent Gallup poll says. Their bank accounts look fuller. Their retirement accounts look bigger. Their debt feels under control. Their monthly budget has money left over.

A funny thing happens when people feel better about their finances. They’re willing to spend more money then they were in the past. And they buy stuff they want, not need. The feel good nature around money makes it easier to scratch the constant itch to upgrade your lifestyle. Impulse purchases are now on the table. Continue Reading…

What Type Of Investor Are You?

Investor BehaviorThere has been a growing upheaval in investing as we throw out overused theories and reintroduce behavior, redefine risk, and question labels that have been used for decades.

None of this is new. It was simply ignored or written off for decades thanks to a faulty belief in efficient markets. Ben Graham offered up behavior’s role in investing back in 1949 with the story of Mr. Market. Since then, emotion was magically removed from the markets and common sense has brought it back.

Those dark ages weren’t all bad. It brought index funds and low-cost investing to the masses. There’s the tiny issue that masses bring more emotion to the markets, but hey, it’s not perfect.

Still, index funds are another label – index investor and passive investor – used at a time when investing should be simplified. Continue Reading…

Happy Hour: The Rate Question

There’s one question that’s been asked since last year and still hasn’t been answered – when will the Fed raise rates? Nobody has the answer, not even the Fed. Still, we ask the question because when it does happen, it will affect most asset classes.

If you’re living under a rock, interest rates are at all time lows. That’s not a big secret but we’re stuck with this reality…for the moment.

From different angles this is either good or bad news. Continue Reading…

How Avoiding Big Market Losses Impact Returns

Avoiding Big LossesWe love to make money, but we hate to lose money even more. The ultimate investing strategy is the one that never loses money. Except that strategy doesn’t exist. The next best option is to control your investment risk to avoid the biggest losses.

Lets imagine someone gifted enough to guess every losing year in the stock market. Of course, it’s more then just picking the losing years. They’d have put their money in cash for the losing years but be invested in the market for every other year too. They’d have to bat 1,000 and stick with it over time.

The chart below shows exactly what their performance would look like, minus the losses in blue. Continue Reading…

Happy Hour: Side Effect of Indexing

I ran across a hypothetical question – what happens when Vanguard owns everything? – which was followed up with a rebuttle and reply. For something that will never happen it was a decent read with a nugget of information buried at the bottom:

Financial Analysts Journal paper by Rodney Sullivan and Morningstar’s own James Xiong that raises a warning flag about spillover effects with market-cap indexing. In the words of the authors, the growth in market-cap indexing has led to “increased volatility” and “marketplace fragility.”

That brings up another question – whether indexing can get too big? Continue Reading…