Most people should know by now that asset classes go through periods of good years and bad years. This is why you diversify – owning several asset classes with a low correlation – so they don’t all move in the same direction at once. Especially when that direction is down. What you end up with is a decent average return in the 6-8% range via index funds, depending on the allocation.

Then smart beta funds came along. While not the holy grail, smart beta does offer the chance of better than average returns. But value, momentum, low volatility, etc. all go through similar periods of good years and bad years. So you still have to diversify. Continue Reading…

So Dow 20,000 happened. Many people will take credit for it, undeservedly so. Sure it’s a cool milestone and the psychology around it is important but the number is arbitrary. It’s no more important than when the Dow hit 5,000 or 10,000.

Still, Dow 20,000 will be splashed all across the news this week, which will get people interested. Combine that with the fact that people have never felt better financially and perspectives may change.

Optimism is okay…until it spreads into other areas. When people feel financially better, they’re willing to spend more, they treat debt differently, they see they’re investments differently, maybe they like stocks more (Dow 20,000 certainly helps), and they might be willing to take more risks. Continue Reading…

Market valuation is always a hot topic at the start of every year. Predictions are another. And there’s always someone who combines the two, citing current valuation for what the market will do over the next year.

Let’s stick to what we know. The current U.S. valuation hovers around a CAPE of 28. You can read more about the CAPE ratio here. For the short version, 28 falls on the expensive side of things, meaning on average expensive markets tend to perform poorly over the next decade.

But expensive does not mean that a market correction or crash is imminent or guaranteed. The funny thing about averages is that it turns a large basket of numbers – added up and divided by the total number of numbers – into one number. Some people choose to focus only on the one number and ignore all the rest but we can’t. Continue Reading…