stock market http://www.wisebread.com/taxonomy/term/1549/all en-US 4 Portfolio "Blind Spots" That Are Ruining Your Investments http://www.wisebread.com/4-portfolio-blind-spots-that-are-ruining-your-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-portfolio-blind-spots-that-are-ruining-your-investments" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/confused_executive_man_looking_at_documents.jpg" alt="Confused executive man looking at documents" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Ignorance definitely isn't bliss when it comes to your investments, and yet we all seem to be hard-wired with blind spots, or as psychologists call them, <em>behavioral biases</em>. Here are some of the more common ways we tend to make irrational and unprofitable investment decisions. (See also: <a href="http://www.wisebread.com/this-one-mental-bias-is-harming-your-investments?ref=seealso" target="_blank">This One Mental Bias Is Harming Your Investments</a>)</p> <h2>1. Assigning too much value to the most recent news</h2> <p>Try to remember what you had for dinner on each of the past seven nights. Assuming there was nothing unusual about any of the meals, which one do you think you'll remember most easily? Last night's dinner, right?</p> <p>That makes sense. It's only natural that we would remember most clearly what happened in the most recent past.</p> <p>But here's the problem when it comes to investing: It isn't just that we most easily remember what happened in the recent past; we tend to assign greater significance to the most recent events as well, viewing them as indicators of what's likely to happen in the future. That's called <em>recency bias</em>.</p> <p>For example, let's say you're thinking about buying a particular stock. Before placing a buy order, you check its performance today and are pleased to see that it's up. Without consciously thinking about it, your built-in recency bias sees this as added confirmation that the stock is worth buying. It might be a good stock to buy, and it might not. One day's performance means very little.</p> <p>What to do? Make sure you're basing your investment decisions on something more than just the most recent news. What are analysts saying about the company's long-term prospects? Where will the company's future growth come from? How much competition does it have?</p> <h2>2. Reacting too strongly to bad news</h2> <p>Recency bias can be magnified if the recent news is bad. That's because of <em>loss aversion</em> &mdash; the tendency to feel the pain of loss on a much greater magnitude than the pleasure of an equal gain. According to some studies, losses can feel twice as bad as the good feelings that accompany comparable gains.</p> <p>This can lead to many forms of bad investor behavior. During a steep market decline, some investors can't stomach the pain and decide to sell. But that often makes matters worse because selling locks in their loss. When the market eventually cycles back up, fear keeps them on the sidelines and they miss the rebound.</p> <p>How to combat loss aversion? Don't monitor your portfolio so closely. People who check their holdings frequently have been found to trade more (because of fear-based selling) and generate lower returns than those who monitor their portfolios less often. (See also: <a href="http://www.wisebread.com/your-loss-aversion-is-costing-you-more-than-your-fomo?ref=seealso" target="_blank">Your Loss Aversion Is Costing You More Than Your FOMO</a>)</p> <h2>3. Seeing only what you want to see</h2> <p>As the old saying goes, if you're a hammer, everything looks like a nail. By the same token, if you have a hunch about a stock, and especially if you've become emotionally attached to the idea of owning it, you may tend to notice only news that supports your point of view.</p> <p>When <em>confirmation bias</em> gets its claws in you, it becomes very difficult to see things differently. You will ignore contradictory information, selectively remember conversations or articles about the investment you are considering, and even read ambiguous commentary as favoring your point of view.</p> <p>Confirmation bias goes a long way toward explaining the existence of &quot;perma-bears&quot; and &quot;perma-bulls&quot; &mdash; market analysts who <em>always </em>see a bear or bull market on the horizon and can point to evidence supporting their opinions.</p> <p>To avoid confirmation bias, proactively seek opposing points of view. Feeling strongly attached to the idea of investing in XYZ Corp? Look for reasons <em>not </em>to invest in it.</p> <h2>4. Using the wrong benchmarks</h2> <p>When you walk into a car dealer's showroom and see one of its most expensive vehicles on display, the model you had in mind probably looks like a bargain. That's a type of bias called<em> anchoring </em>in action, with the expensive car serving as a very influential point of reference.</p> <p>When it comes to investing, it's common for people to anchor their portfolio's performance to &quot;the market.&quot; Even if they have 40 percent of their money invested in bonds, the fact that the market generated a 30 percent gain makes them feel bad about their paltry 18 percent. It might even prompt them to change their portfolio and take on more risk than they should.</p> <p>What's the solution? Create a written investment plan tailored to your age and risk tolerance, including a realistic assumed average annual rate of return, such as 7 percent. Using <em>that </em>as your anchor, an 18 percent return wouldn't be a disappointment; it would be amazing.</p> <h2>Other ways to combat behavioral biases</h2> <p>The ideal emotional state for an investor is <em>unemotional. </em>However, we're not robots. So, awareness of our many biases is a good starting point for preventing them from steering us in the wrong direction.</p> <p>Perhaps the most helpful step of all is to press the pause button. Since it's impossible to time the market, waiting a couple of days before executing a buy or sell order isn't going to make much difference in that investment's performance. However, using that time to question your assumptions may make a <em>big</em> difference in helping you more rationally decide whether the investment should be bought or sold in the first place. (See also: <a href="http://www.wisebread.com/5-mental-biases-that-are-keeping-you-poor?ref=seealso" target="_blank">5 Mental Biases That Are Keeping You Poor</a>)</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/4-portfolio-blind-spots-that-are-ruining-your-investments">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-is-cryptocurrency-anyway">What Is Cryptocurrency, Anyway?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">8 Types of Investors — Which One Are You?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-easiest-way-to-invest-in-the-worlds-biggest-companies">The Easiest Way to Invest in the World&#039;s Biggest Companies</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/your-loss-aversion-is-costing-you-more-than-your-fomo">Your Loss Aversion Is Costing You More Than Your FOMO</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment anchoring blind spots buying cognitive biases confirmation bias loss aversion mental biases portfolio recency bias selling stock market Tue, 17 Oct 2017 08:30:10 +0000 Matt Bell 2035896 at http://www.wisebread.com Why the Dow Will Hit a Million, Eventually http://www.wisebread.com/why-the-dow-will-hit-a-million-eventually <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-the-dow-will-hit-a-million-eventually" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/businessman_building_business_graph.jpg" alt="Businessman building business graph" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>At an event earlier this month, Warren Buffett, one of the most successful investors of all time, revealed his prediction that the Dow Jones industrial average (DJIA) will be &quot;over 1 million&quot; in 100 years.</p> <p>With the DJIA currently sitting at about 22,400, is it even reasonable to think that the stock market could grow that much? Growth from the current value of the Dow to 1 million would represent an increase of about 45 times over. My first impression was that a value of 1 million for the Dow is very high, and Mr. Buffett must be either confused or overly optimistic to put forth such a prediction.</p> <p>But since this prediction came from someone who <em>clearly </em>has a good understanding of investments and the stock market, I decided to check out the math behind this prediction to see if it makes sense.</p> <p>An important part of Warren Buffett's prediction is the &quot;in 100 years&quot; part. One hundred years is a long time, and although it may be surprising, Warren Buffett's prediction of the Dow topping 1 million is actually quite reasonable given the historical performance of the market. In fact, the prediction of the Dow reaching 1 million in 100 years may even be <em>conservative</em>.</p> <h2>Here's the math</h2> <p>Let's look at what kind of growth rate would be required for the Dow to reach 1 million in 100 years. As I mentioned, the Dow would need to grow by 45 times its current value. When thinking about investment growth, it is informative to look at the growth in terms of the number of doublings that would be required.</p> <p>2<sup>n</sup> = 45</p> <p>n ln(2) = ln (45)</p> <p>n = ln(45) / ln(2)</p> <p>n = 3.81 / 0.693</p> <p>n = 5.5</p> <p>So the market value would need to double 5.5 times from its current value to reach 1 million. Let's look at this in the form of a table to make sure it makes sense:</p> <table> <tbody> <tr> <td> <p><strong># of Doublings</strong></p> </td> <td> <p><strong>Resulting Dow Value</strong></p> </td> </tr> <tr> <td> <p>0 doublings</p> </td> <td> <p>22,400 (current Dow)</p> </td> </tr> <tr> <td> <p>1 doubling</p> </td> <td> <p>44,800</p> </td> </tr> <tr> <td> <p>2 doublings</p> </td> <td> <p>89,600</p> </td> </tr> <tr> <td> <p>3 doublings</p> </td> <td> <p>179,200</p> </td> </tr> <tr> <td> <p>4 doublings</p> </td> <td> <p>358,400</p> </td> </tr> <tr> <td> <p>5 doublings</p> </td> <td> <p>716,800</p> </td> </tr> <tr> <td> <p>6 doublings</p> </td> <td> <p>1,433,600 (Dow over 1 million)</p> </td> </tr> </tbody> </table> <p>From the table above, you can see that doubling the current Dow five times yields 716,800, and doubling six times yields <em>over</em> 1 million, so the number of doublings for the Dow to reach 1 million must be somewhere in between. Our estimate of 5.5 doublings makes sense.</p> <p>So the Dow would need to double 5.5 times in 100 years &mdash; or in other words, it would need to double every 18.2 years: 100 years / 5.5 doublings = 18.2 years to double.</p> <p>The next step to checking out Mr. Buffett's prediction is to figure out what rate of growth would be required for the value of the Dow to double every 18.2 years.</p> <p>For a quick estimate, I turned to the &quot;Rule of 72.&quot; The Rule of 72 is a handy approximation to find how many years it will take an investment to double &mdash; simply divide 72 by the annual rate of growth. I flipped the Rule of 72 formula around to check the rate of growth required:</p> <p>72 / growth rate = years to double</p> <p>72 / growth rate = 18.2 years</p> <p>Solve for growth rate:</p> <p>72 = 18.2 x growth rate</p> <p>growth rate = 72 / 18.2 = 3.96 percent annual growth</p> <p>So the &quot;Rule of 72&quot; approximation tells us that an annual growth rate of 3.96 percent would be required to double the Dow every 18.2 years, which is the rate of growth needed for the Dow to hit 1 million in 100 years.</p> <p>If you don't want to settle for an approximation, or if you are just geeky in a cool sort of way, you can do a more exact calculation:</p> <p>2P = Pe<sup>Yr</sup></p> <p>2P = Pe<sup>(18.2)r</sup></p> <p>ln(2) = 18.2r</p> <p>r = ln(2) / 18.2</p> <p>r = 0.038 or 3.8 percent</p> <p>The approximation from the Rule of 72 matches pretty closely with the exact calculation, so it seems we have nailed down the rate of growth that is required for the Dow to reach 1 million.</p> <p>It turns out that that an annualized growth rate of 3.8 percent is well within the historical growth rate of the stock market over the past 100 years. The average rate of return from the stock market is typically considered to be as high as 7 percent.</p> <p>Of course the stock market does not march steadily along at an average rate of growth year after year. The market swings up and down from day to day and follows longer upward and downward trends during bull and bear markets. But over the long haul, the average trend for the stock market has been upward at a rate of well over 3.8 percent average growth over the past 100 years.</p> <p>In addition to the mathematical consideration of the rate of growth required for the Dow to reach 1 million in 100 years, another consideration is whether the world's people and natural resources will continue to sustain economic growth over the next 100 years. With development of exciting new technologies and emerging global markets to drive growth, it seems reasonable that the <a href="http://www.wisebread.com/why-does-the-stock-market-keep-going-up" target="_blank">stock market could keep going up</a>.</p> <p>So it looks like Mr. Buffett's thinking makes good sense as usual, and the prediction of the Dow 1 million makes perfect sense.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fwhy-the-dow-will-hit-a-million-eventually&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FWhy%2520the%2520Dow%2520Will%2520Hit%2520a%2520Million%252C%2520Eventually.jpg&amp;description=Why%20the%20Dow%20Will%20Hit%20a%20Million%2C%20Eventually"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Why%20the%20Dow%20Will%20Hit%20a%20Million%2C%20Eventually.jpg" alt="Why the Dow Will Hit a Million, Eventually" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/why-the-dow-will-hit-a-million-eventually">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-does-the-stock-market-keep-going-up">Why Does the Stock Market Keep Going Up?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-millennials-should-stop-being-afraid-of-the-stock-market">7 Reasons Millennials Should Stop Being Afraid of the Stock Market</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-dollar-cost-averaging-the-right-strategy-for-you">Is Dollar Cost Averaging the Right Strategy for You?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-buy-berkshire-hathaway-and-other-blue-chip-stock-for-17-off">How to Buy Berkshire Hathaway and Other Blue Chip Stock for 17% Off</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-we-headed-toward-a-bull-or-bear-market">Are We Headed Toward a Bull or Bear Market?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Financial News Investment 1 million calculations djia dow jones industrial average estimates growth math predictions stock market Warren Buffett Fri, 29 Sep 2017 08:30:10 +0000 Dr Penny Pincher 2028010 at http://www.wisebread.com 8 Types of Investors — Which One Are You? http://www.wisebread.com/8-types-of-investors-which-one-are-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-types-of-investors-which-one-are-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/businessman_reading_a_newspaper.jpg" alt="which type of investor are you" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Do you tend to invest in a particular way? Identifying which type of investor you are can help you understand the potential pitfalls of your investment approach &mdash; and how to improve your chances for better investment returns. Which type of investor are you?</p> <h2>1. Automatic investor</h2> <p>The automatic investor is all about convenience. Everything related to investing is set on autopilot. Automatic contributions to investment funds come out of every paycheck or are withdrawn from the bank account on a certain day of the month. This type of investor doesn't spend much time or effort thinking about investing, and doesn't need to since everything is automatic. They don't have to remind themselves to invest; it's checked off their financial to-do list.</p> <p>The potential downside for the automatic investor is losing touch with where investment funds are going and how the investment portfolio is performing. If you are not paying attention, you may not have investment selections that meet your current goals, and you may not identify and remove low performing investments or funds with high fees. If you don't check in at least occasionally, this hands-off approach may cost you. Rebalancing your portfolio once or twice a year by transferring funds to maintain your desired proportions of stocks to bonds should be sufficient to keep your investment portfolio on track. (See also: <a href="http://www.wisebread.com/the-most-important-thing-youre-probably-not-doing-with-your-portfolio?ref=seealso" target="_blank">The Most Important Thing You're Probably Not Doing With Your Portfolio</a>)</p> <h2>2. Daily Dow watcher</h2> <p>The Dow watcher is constantly up to speed. They know at any time if the stock market is up or down. The current market price and chart is only a tap away on their smartphone. This type of investor knows how much their portfolio is worth and worries about how much they are losing when the market has a bad day. Nothing goes over the Dow watcher's head.</p> <p>The risk for the Dow watcher is that he or she can easily get stressed out by day-to-day ups and downs in the market. They may even get discouraged when the market is going down and decide to sell stock when the price is low &mdash; the worst time to sell! It's good to be informed, especially when it comes to your investments, but if you find yourself too glued to the Dow's daily performance &mdash; it might be a good idea to <a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news" target="_blank">step away from the news</a> for a bit. Checking in on the stock market and your investment portfolio quarterly is probably more than frequent enough, and you can use the time you save for something more productive and enjoyable.</p> <h2>3. Active trader</h2> <p>The active trader is a studious investor. This type of investor tries to time the market by figuring out that a stock is going up before other investors realize it &mdash; and then selling when it is near the peak price before most investors figure out that it is going down. This type of investor pores over market and economic data, reads business articles, and is well-informed about business trends and news. He or she is willing to take risks for a chance at big returns.</p> <p>If you're an active trader, tread carefully; you can easily lose significant money if your timing is off. Trading fees can also get expensive if your investment approach requires making a lot of trades. You are much more likely to make money from buying good stocks and holding them for the long haul.</p> <h2>4. Conscientious investor</h2> <p>Conscientious investors put their money where their morals are. They have limits to what activities and products they are willing to be involved with in order to make a buck. For example, some conscientious investors invest only in socially-responsible or environmentally-responsible companies, and avoid owning shares in companies that promote values or products contrary to their moral principles. This type of investor is likely to exert economic influence through consumer purchasing decisions as well as through their stock picks.</p> <p>This type of ethical investing unfortunately can limit a person's investment options, which may result in lower returns. But some things are worth more than money to conscientious investors. (See also: <a href="http://www.wisebread.com/a-simple-guide-to-socially-responsible-investing?ref=seealso" target="_blank">A Simple Guide to Socially Responsible Investing</a>)</p> <h2>5. Property investor</h2> <p>Not every investor owns stocks. The property investor owns real estate, collectibles, gold, and maybe even bonds. He or she wants to invest in things that they can understand and control to some extent. This type of investor may not trust Wall Street and avoids the volatility of stocks.</p> <p>Historically, however, stocks have had great investment returns compared to other investment types, so property investors who shy away from the stock market could be missing out. Large cap value stocks can be a relatively safe way to start off in stock investing for first-time stock investors.</p> <h2>6. Bargain investor</h2> <p>This is the kind of investor that pounced on GM stock when it was $1 per share in 2009. Of course there is risk that bargain stocks could become worthless, but there is potential for the stock price to bounce back. The bargain investor looks carefully at P/E ratios to check the share price relative to earnings per share when deciding what stock to buy.</p> <p>Bargain hunters should be wary though &mdash; sometimes stocks with low prices are trading at a low price for a good reason. The bigger the bargain, the more research is merited into why the price is so low before you buy.</p> <h2>7. Company loyalist</h2> <p>The company loyalist owns a disproportionate amount of stock from an individual company. This could be a trendy stock that inspires loyalty like Apple or Tesla, or the company loyalist could own a large amount of his or her own employer's stock.</p> <p>Owning a large amount of any single company stock can be risky. The company could <a href="http://www.wisebread.com/how-these-8-company-stocks-fared-following-scandal" target="_blank">experience a major scandal</a> or product failure and the stock price could tank. Remember Enron? Owning a lot of stock in the company you work for is even riskier, because if something goes wrong you'll not only lose value in your stock fund, but you may lose your job at the same time. Some financial advisers suggest that owning more than 10 percent to 15 percent of your company's stock may be too much.</p> <h2>8. Portfolio tweaker</h2> <p>The portfolio tweaker is not really an active trader, but likes to adjust and fine tune his or her portfolio frequently by making transfers between funds to get the desired balance between large cap, mid cap, small cap, foreign, domestic, growth, value, and bond investment categories.</p> <p>While it is good to adjust your portfolio occasionally to meet your investment goals, frequently selling investments that are performing well just to meet an arbitrary &quot;balance&quot; in your portfolio may not be the best move and could hurt your overall return. As we advised the automatic investor, portfolio rebalancing once or twice per year is a good interval for most investors.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F8-types-of-investors-which-one-are-you&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F8%2520Types%2520Of%2520Investors%2520Which%2520One%2520Are%2520You.jpg&amp;description=8%20Types%20of%20Investors%20%E2%80%94%20Which%20One%20Are%20You%3F"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/8%20Types%20Of%20Investors%20Which%20One%20Are%20You.jpg" alt="8 Types of Investors &mdash; Which One Are You?" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news">Want Your Investments to Do Better? Stop Watching the News</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-dollar-cost-averaging-the-right-strategy-for-you">Is Dollar Cost Averaging the Right Strategy for You?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-essentials-for-building-a-profitable-portfolio">5 Essentials for Building a Profitable Portfolio</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment automatic company stock dow ethical investing portfolio property investors returns risk stock market stocks types Fri, 08 Sep 2017 08:00:05 +0000 Dr Penny Pincher 2017190 at http://www.wisebread.com 4 Ways to Add Gold to Your Portfolio http://www.wisebread.com/4-ways-to-add-gold-to-your-portfolio <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-ways-to-add-gold-to-your-portfolio" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-165418687.jpg" alt="Learning ways to add gold to your portfolio" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>Owning gold can be an attractive insurance policy in case of stock market turmoil or a decline in currency valuation. In times of economic uncertainty, gold prices tend to increase even when the value of other investments goes down.</p> <p>If you are looking to reduce your exposure to stock market investments, or simply want to have something of value to trade in case of a zombie apocalypse, here are four ways you can invest in gold today.</p> <h2>1. Gold coins and bullion</h2> <p>The U.S. Mint issues American Eagle gold bullion coins in the following denominations:</p> <ul> <li>1/10 ounce</li> <li>&frac14; ounce</li> <li>&frac12; ounce</li> <li>1 ounce</li> </ul> <p>The selling price of these coins floats with the price of gold, plus you will pay a few percent premium for getting a minted coin instead of a plain piece of gold. With the current price of gold at over $1,200 an ounce, you can find 1/10 ounce American Eagles selling from dealers for under $150. Gold coins produced by the U.S. Mint are not sold directly to the public, but may be purchased from a network of <a href="https://catalog.usmint.gov/bullion-dealer-locator?_ga=2.66368809.627583906.1498523906-142188866.1498523906" target="_blank">authorized bullion dealers</a> who buy the coins from the mint for resale.</p> <p>Another option is the American Buffalo gold coin that comes in a 1 ounce denomination. This is a legal tender coin whose gold content is guaranteed by the U.S. Government. These coins are available at coin dealers and participating banks. The South African Krugerrand, Canadian Gold Maple Leaf, Australian Gold Nugget, Chinese Gold Panda, and British Gold Britannia are other popular gold coins from around the world.</p> <p>A less expensive alternative to gold coins is to buy gold bars or gold rounds. These are not as impressive to look at, but are priced near the current trading price, or &quot;spot price,&quot; for gold. This form of bullion may have simple markings with the weight and purity of the gold.</p> <p>If the thought of keeping gold hidden in your closet or safe makes you nervous, consider using a bullion trading and storage platform. You can buy and sell physical gold bullion and it never has to leave the secure vault where it is stored unless you want to take it out. This gives you the benefit of directly owning gold without the hassle of transporting and storing it.</p> <h2>2. Gold jewelry</h2> <p>An advantage of buying gold in the form of jewelry is that you can wear and enjoy your investment, and it is highly transportable. A smart way to invest in gold is to give gold jewelry as a gift. A gift of precious metal jewelry will hold its value and possibly grow in value while most other gifts depreciate and eventually end up in a landfill.</p> <p>When buying gold jewelry, you need to pay attention not only to the weight of the jewelry, but also the purity of the gold. Pure gold is designated as 24 karat gold. But pure gold is too soft and malleable for jewelry, so it is often mixed with other metals to make the jewelry harder and stronger. For example, jewelry that is 18 karat gold is 18/24, or 75 percent gold and 25 percent other metals. You can divide the karat rating of jewelry by 24 to determine the fraction of gold that it contains.</p> <p>Sometimes you can find broken, tangled, or damaged gold jewelry for sale at a pawnshop for less than the spot price of gold. Just make sure you are buying solid gold, and not just gold plated items.</p> <h2>3. Gold exchange traded funds (ETFs)</h2> <p>A gold ETF is a fund that aims to track the price of gold. Some funds actually hold gold, while others do not own gold, but use derivative contracts instead. Gold ETFs allow a quick and easy way to get an investment that tracks the price of gold, and are convenient for large transactions since you do not need to move or store a lot of gold.</p> <p>There are a couple of potential downsides to investing in a gold ETF. When you buy shares in a gold ETF, you might not actually own any gold &mdash; in some cases, you will own only shares in the fund. Since the fund tracks the price of gold, you may not have a problem with this. But if you are trying to reduce your exposure to large financial institutions by investing in gold, buying shares in a fund run by a large financial institution might not meet your goal. Also, some gold ETFs sell some of the gold that they hold to cover expenses, so the amount of gold per share that you own can be reduced over time.</p> <h2>4. Gold industry stocks and mutual funds</h2> <p>Another way to get a piece of the gold market is to buy stock of companies involved in gold mining and gold production. When gold prices go up, the stock prices of these companies can also go way up. Conversely, when gold prices go down, the stock prices of these companies can go way down.</p> <p>You can buy individual company stocks or mutual funds that provide holdings in a number of companies in the gold industry. This market segment is especially volatile, but may provide a hedge against other types of investments in your portfolio.</p> <h2 style="text-align: center;">Like This Article? Pin it!</p> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F4-ways-to-add-gold-to-your-portfolio&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F4%2520Ways%2520to%2520Add%2520Gold%2520to%2520Your%2520Investment%2520Portfolio.png&amp;description=4%20Ways%20to%20Add%20Gold%20to%20Your%20Investment%20Portfolio"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/4%20Ways%20to%20Add%20Gold%20to%20Your%20Investment%20Portfolio.png" alt="4 Ways to Add Gold to Your Investment Portfolio" width="250" height="374" /></p> </h2> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/4-ways-to-add-gold-to-your-portfolio">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-10-weirdest-etfs-you-can-buy">The 10 Weirdest ETFs You Can Buy</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-everyone-should-know-about-the-commodities-markets">8 Things Everyone Should Know About the Commodities Markets</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-choosing-the-right-fund-for-your-portfolio">Are You Choosing the Right Fund for Your Portfolio?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-money-moves-to-make-as-soon-as-you-conquer-debt">7 Money Moves to Make as Soon as You Conquer Debt</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bullion coins ETFs exchange traded funds gold gold industry jewelry mining stock market u.s. Mint value Mon, 07 Aug 2017 08:00:05 +0000 Dr Penny Pincher 1994330 at http://www.wisebread.com This One Mental Bias Is Harming Your Investments http://www.wisebread.com/this-one-mental-bias-is-harming-your-investments <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-one-mental-bias-is-harming-your-investments" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/young_man_holding_his_head_counting_pennies.jpg" alt="Young man holding his head counting pennies" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Are you holding your breath just waiting for the market to fall? If so, you're not alone. Many investors seem to be waiting for the other shoe to drop. That seems logical: After all, today's bull market has been running for more than eight years, and bull markets don't last forever.</p> <p>But is it really logical to think that way? Bull markets don't die of old age. They die from other causes, such as rising inflation or a recession. As of today, inflation is in check and most economy watchers say they see no signs of trouble.</p> <p>Making it far more difficult to decide what, if anything, to do with your investment portfolio are the many cognitive biases that plague us all. One such bias, however, can be especially dangerous in a stock market environment such as the one we're in right now.</p> <h2>A financially dangerous disposition</h2> <p>Think about your portfolio. You probably have several investments that have done very well in recent years. And, if you're well diversified, you may have some that have lost value. Are you thinking about &quot;taking profits&quot; by selling some of your winners? At the same time, are you planning to hang onto those investments that haven't done so well? Perhaps it would be too painful to sell. And besides, they're bound to come back eventually, right?</p> <p>Be careful. You may be under the spell of what behavioral scientists call the <em>disposition effect</em>. That's the tendency to sell winning investments too soon and keep losing investments too long.</p> <h2>The unequal nature of gains and losses</h2> <p>The disposition effect has much to do with a foundational behavioral bias first identified by researchers Daniel Kahneman and Amos Tversky. It theorizes that losses &mdash; whether in the stock market, real estate, or other domains &mdash; have far more emotional impact on us than equivalent gains.</p> <p>Objectively speaking, it's been well documented that the recent past performance of an investment &mdash; its momentum &mdash; tends to persist. We'd be better off keeping our winners longer and selling our losers sooner.</p> <p>But we are not objective beings. For most of us, in the daily battle between facts and feelings, the truth seldom gets in the way of a bad decision.</p> <p>So strong is our subjective, irrational desire to avoid the pain of regret &mdash; in this case, the regret of having made a losing investment in the first place &mdash; that we tend to keep poorly-performing investments longer than we should.</p> <p>Hersh Shefrin, one of the behavioral finance experts who identified the disposition effect, described it as a &quot;predisposition toward get-evenitis.&quot; Rather than cutting our losses, we tend to hang on in the hope of at least getting back to even.</p> <h2>How to beat the disposition effect</h2> <p>Telling yourself to stop trying to avoid the pain of regret is about as effective as telling yourself not to think about an elephant. But that doesn't mean you're destined to spend your life fighting the disposition effect. Three steps can help.</p> <h3>1. Follow a process</h3> <p>First and foremost, don't make investment buy/sell decisions on your own. Find and follow a proven, objective, rules-based investment selection process. That may mean working with an experienced investment adviser, using a target-date fund that's designed according to your optimal asset allocation, or subscribing to an investment newsletter with a solid track record.</p> <h3>2. Stop the daily updates</h3> <p>Prevent yourself from looking at your investments so often. Research by psychologist Paul Andreassen found that people who receive frequent updates about their investment portfolios tend to trade more often and generate poorer returns than those who receive less frequent updates. Watching the daily gyrations of the market is a prescription for heartburn and bad decision-making. Check in with your holdings once a quarter, or once a month if you must. If you signed up for daily or weekly updates on how your portfolio is doing, today's the day to unsubscribe. (See also: <a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news?ref=seealso" target="_blank">Want Your Investments to Do Better? Stop Watching the News</a>)</p> <h3>3. Form a plan</h3> <p>Lastly, create a written investment plan. It should identify your investment goals and time frames, the strategy you're using to accomplish them, the process you're following for choosing specific investments, and perhaps most importantly, what you are committed to doing (or not doing) under various market conditions. Then review it anytime market conditions tempt you to veer from your plan.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fthis-one-mental-bias-is-harming-your-investments&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FThis%2520One%2520Mental%2520Bias%2520Is%2520Harming%2520Your%2520Investments_0.jpg&amp;description=This%20One%20Mental%20Bias%20Is%20Harming%20Your%20Investments"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/This%20One%20Mental%20Bias%20Is%20Harming%20Your%20Investments_0.jpg" alt="This One Mental Bias Is Harming Your Investments" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/this-one-mental-bias-is-harming-your-investments">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/your-loss-aversion-is-costing-you-more-than-your-fomo">Your Loss Aversion Is Costing You More Than Your FOMO</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/learn-how-to-invest-with-these-5-stock-market-games">Learn How to Invest With These 5 Stock Market Games</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">8 Types of Investors — Which One Are You?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-stocks-to-buy-before-black-friday">6 Stocks to Buy Before Black Friday</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bull market cognitive bias disposition effect downturn gains losses overthinking risk stock market Fri, 28 Jul 2017 08:01:05 +0000 Matt Bell 1990503 at http://www.wisebread.com Is Dollar Cost Averaging the Right Strategy for You? http://www.wisebread.com/is-dollar-cost-averaging-the-right-strategy-for-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/is-dollar-cost-averaging-the-right-strategy-for-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/saving_money_and_banking_for_finance_concept.jpg" alt="Saving money and banking for finance concept" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You've just received a bonus or an inheritance, and you know that investing your money in stocks and bonds is one of the best ways to create long-term wealth. But you're also worried that your investments might lose value instead of gaining it.</p> <p>It's a common struggle: You want the financial rewards that can come with investing, but the potential risk of losing money nags at you. (See also: <a href="http://www.wisebread.com/how-to-get-over-these-5-scary-things-about-investing?ref=seealso" target="_blank">How to Get Over These 5 Scary Things About Investing</a>)</p> <p>An investing strategy known as dollar cost averaging might be the answer.</p> <h2>What is dollar cost averaging?</h2> <p>In dollar cost averaging, you invest just a small chunk of money at a time. This differs from the more traditional approach to investing, in which you'd invest all the money that you've targeted for stocks, bonds, or real estate at the same time.</p> <p>Say you've inherited $6,000. You'd like to invest that money in the stock market so that it will grow over time. If you were investing in the traditional way, you'd invest that money all at once. With dollar cost averaging, though, you would invest more gradually, perhaps investing $500 each month throughout the course of a year. That way, you'd buy more stocks when prices are low, and fewer stocks when they're high. (See also: <a href="http://www.wisebread.com/9-investing-questions-youre-too-embarrassed-to-ask?ref=seealso" target="_blank">9 Investing Questions You're Too Embarrassed to Ask</a>)</p> <p>The main benefit of dollar cost averaging is that it reduces your financial risk. Say you invested all that money in stocks at once. A market crash three months later would then impact all your money. But if you'd just invested, say, $1,500 before the market crashed, you'd still have $4,500 of your original $6,000 left untouched by the financial turbulence.</p> <h2>Paycheck contributions versus lump sum investing</h2> <p>If you contribute the same amount to your 401(k) every paycheck, that's equivalent to dollar cost averaging. By default, most people have the same amount deducted from their paycheck each month, so there is no choice to make. Dollar cost averaging, however, usually refers to a choice the investor makes when they've got a lump sum of money, such as an inheritance, royalty check, or bonus. If you don't have a windfall of some sort, you usually don't have to worry about whether or not to do dollar cost averaging.</p> <h2>Pros and cons</h2> <p>The main advantage of dollar cost averaging is the reduced risk of losing as much money in a market downturn. But there's another advantage, too: Dollar cost averaging makes it easier for reluctant investors to enter the market.</p> <p>If you're hesitant about investing, you might find it easier to take the jump if you are investing a smaller amount of money. And that's a good thing: Over time, the stock market has tended to increase in value. If you don't invest, you won't get the chance to take advantage of this.</p> <p>Anything that encourages you to invest &mdash; such as dollar cost averaging &mdash; is a positive.</p> <p>There is a drawback, though, to this approach: By limiting your risk, you are also limiting the potential size of your financial rewards.</p> <p>Because the stock market has historically increased in value over time, the odds are that you'll make more money if you invest a larger sum all at once. The sooner you invest the money, the more time it has to grow. By contrast, if you invest smaller bits of money over time, you will tend to see smaller returns in what has historically been an upward-trending market.</p> <p>A recent study by Vanguard illustrates this. Vanguard studied whether people would see higher returns by <a href="https://personal.vanguard.com/pdf/ISGDCA.pdf" target="_blank">investing a large sum of cash</a> all at once or in smaller doses over a six-month period into a portfolio of 60 percent stocks and 40 percent bonds. They found that investing the lump sum of cash all at once produced higher returns about two-thirds of the time. The longer the investment period, the higher the chance that the lump sum investment would outperform the dollar cost averaging strategy. (See also: <a href="http://www.wisebread.com/the-basics-of-asset-allocation?ref=seealso" target="_blank">The Basics of Asset Allocation</a>)</p> <p>You'll have to decide whether the reduced risk outweighs the potential of losing out on bigger returns.</p> <p>Of course, it's most important that you do invest your money over the long term. And if dollar cost averaging, and the reduced risk that comes with it, is what encourages you to do this, then it might be the best approach for you.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fis-dollar-cost-averaging-the-right-strategy-for-you&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FIs%2520Dollar%2520Cost%2520Averaging%2520the%2520Right%2520Strategy%2520for%2520You-.jpg&amp;description=Is%20Dollar%20Cost%20Averaging%20the%20Right%20Strategy%20for%20You%3F"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Is%20Dollar%20Cost%20Averaging%20the%20Right%20Strategy%20for%20You-.jpg" alt="Is Dollar Cost Averaging the Right Strategy for You?" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/is-dollar-cost-averaging-the-right-strategy-for-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">8 Types of Investors — Which One Are You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-too-much-investment-diversity-can-cost-you">How Too Much Investment Diversity Can Cost You</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news">Want Your Investments to Do Better? Stop Watching the News</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-millennials-should-stop-being-afraid-of-the-stock-market">7 Reasons Millennials Should Stop Being Afraid of the Stock Market</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-stocks-that-are-actually-having-a-good-year">10 Stocks That Are Actually Having a Good Year</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment dollar cost averaging growth inheritances lump sums returns risk stock market Mon, 24 Jul 2017 08:30:14 +0000 Dan Rafter 1986884 at http://www.wisebread.com Here's How Boomers and Millennials Are Creating Winners on the Stock Market http://www.wisebread.com/heres-how-boomers-and-millennials-are-creating-winners-on-the-stock-market <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/heres-how-boomers-and-millennials-are-creating-winners-on-the-stock-market" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/mother_with_adult_daughter_in_park_together.jpg" alt="Mother With Adult Daughter In Park Together" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>It may not seem like millennials and baby boomers have a lot in common, aside from the fact that they make up a huge chunk of the U.S. population. But the two generations do share some similar traits when it comes to spending and investing. This is already having a significant impact on the economy and the stock market, and will continue to do so.</p> <p>Here are some key ways that baby boomers and millennials are impacting business and the markets.</p> <h2>Health care will be huge</h2> <p>There's a lot of noise related to the Affordable Care Act and a possible replacement. How things will shake out on Capitol Hill is anyone's guess, but there's no doubt that Americans will be spending more on health care. Baby boomers make up an increasing percentage of the U.S. population, and will require more medical attention as they age. This means big profits for pharmaceutical firms, but also biotech companies, hospitals, and manufacturers of medical equipment. The S&amp;P 500 Health Care Index has seen annualized returns of more than 16 percent over the last five years, and is up nearly 12 percent in 2017. Expect the upward trend to continue.</p> <h2>Health consciousness is also big</h2> <p>Millennials are aware of the obesity problem in America, and many of them are making lifestyle choices to counteract that. We've seen a push for more natural and organic food items, and a desire for less sugar and fat. This also means a continued expansion of fast-casual restaurants that offer healthier options, perhaps at the expense of traditional fast food chains. Baby boomers will help fuel this push to health as well simply by following doctor's orders to eat healthy as they age.</p> <h2>Investing costs will go down</h2> <p>Boomers have no interest in seeing their retirement savings cut down by high expense ratios and commissions, and millennials are becoming more savvy about the impact these costs have on their portfolios. These two demographics have led the charge against fees, and we've seen some brokerages respond. In February, Charles Schwab and Fidelity cut their online trade commissions to a mere $4.95, and many brokerage firms have expanded their offerings of commission-free exchange-traded funds (ETFs).</p> <p>Meanwhile, investing in low-cost index funds has ballooned; nearly half of all assets placed in mutual funds and ETFs are indexed rather than in actively-managed accounts, according to Morningstar.</p> <h2>Investing in individual stocks will decline</h2> <p>Aging baby boomers can be expected to withdraw their investments or at least shift their portfolios to more conservative investments like bonds and cash. Meanwhile, millennials are wary of the markets in general after living through the stock market declines of the early 2000s and 2008. Millennials have also learned that trying to beat the market by investing in individual stocks is generally a fool's game. This shying away from individual stocks could impact the overall returns in the stock market over time.</p> <h2>Popular brands aren't a sure thing</h2> <p>There has long been a common thought among investors that big, popular brands will always be surefire investments. Investors have long banked on the notion of brand loyalty as a driver of investment returns. But there have been several recent reports that millennials are not as brand-loyal as their predecessor generations. Millennials will go for value and quality, and aren't going to stick with a single brand out of stubbornness. This may have implications for stocks that have performed well over the years in part due to brand recognition.</p> <h2>Brick-and-mortar retail will go south</h2> <p>We're already seeing retail chains struggling, with H.G. Gregg, Gymboree, Rue 21, and several other brick-and-mortar outlets declaring bankruptcy in recent months. Meanwhile, online retailing giant Amazon just reported a 23 percent increase in sales, to $35.7 billion. Millennials don't mind shopping online, and baby boomers are less likely to go out on long shopping trips as they get older.</p> <h2>Experiences over objects</h2> <p>Millennials don't really care about owning things. Instead, they get satisfaction from experiences like fitness classes, travel, or eating well. To the extent that they need items such as music or movies, they prefer to obtain them through streaming services such as Netflix (one of the hottest tech stocks in America) or Spotify. Meanwhile, baby boomers are getting older and aren't in the habit of acquiring more &quot;stuff,&quot; either.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fheres-how-boomers-and-millennials-are-creating-winners-on-the-stock-market&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHeres%2520How%2520Boomers%2520and%2520Millennials%2520Are%2520Creating%2520Winners%2520on%2520the%2520Stock%2520Market.jpg&amp;description=Heres%20How%20Boomers%20and%20Millennials%20Are%20Creating%20Winners%20on%20the%20Stock%20Market"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Heres%20How%20Boomers%20and%20Millennials%20Are%20Creating%20Winners%20on%20the%20Stock%20Market.jpg" alt="Here's How Boomers and Millennials Are Creating Winners on the Stock Market" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/heres-how-boomers-and-millennials-are-creating-winners-on-the-stock-market">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/with-micro-investing-your-smartphone-pays-you">With Micro-Investing, Your Smartphone Pays YOU</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-millennials-should-stop-being-afraid-of-the-stock-market">7 Reasons Millennials Should Stop Being Afraid of the Stock Market</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-everyone-should-know-about-the-commodities-markets">8 Things Everyone Should Know About the Commodities Markets</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-making-the-biggest-investment-risk-of-all">Are You Making the Biggest Investment Risk of All?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-boring-investments-that-are-surprisingly-profitable">10 Boring Investments That Are Surprisingly Profitable</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment baby boomers brand loyalty eating well Food Health health care millennials retail stock market Mon, 24 Jul 2017 08:00:10 +0000 Tim Lemke 1986883 at http://www.wisebread.com Here's How Rate of Return Can Help You Invest Smarter http://www.wisebread.com/heres-how-rate-of-return-can-help-you-invest-smarter <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/heres-how-rate-of-return-can-help-you-invest-smarter" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/bussiness_growth_new_life_growing_before_blackboard.jpg" alt="Business growth:new life growing before blackboard" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>At first glance, judging an investment's past performance would seem to be a fairly simple exercise. For most stock market investments, such as individual stocks, mutual funds, and exchange-traded funds, a lot of performance information is readily available online.</p> <p>However, the sheer quantity of information that's out there can make understanding it all somewhat overwhelming. And some of the terminology can be confusing.</p> <p>So, let's make sure you understand a couple of key metrics and how to put them to use &mdash; whether you're evaluating the performance of an investment you already own, or you're thinking about making a new investment.</p> <h2>Annual return and average annual return</h2> <p>Two of the most fundamental ways of looking at an investment's results are how well it performed in a specific year and what its average annual return has been over multiple years.</p> <h3>Annual return</h3> <p>This is how an investment performed in one particular year. Let's use Vanguard's 2030 target-date mutual fund [VTHRX] as an example. If you go to Yahoo Finance, enter that ticker symbol in the search box, and then click on the fund's Performance tab, you can see how the fund performed each year going back to 2006. For example, in 2016, it generated a return of 7.85 percent.</p> <h3>Average annual return</h3> <p>To see an investment's average annual return over multiple years, look on the same Yahoo Finance page under Trailing Returns (%) vs. Benchmark&quot; (&quot;trailing&quot; just means &quot;looking back&quot; &mdash; we'll get to the &quot;benchmark&quot; reference in a minute). You can see that VTHRX's average annual return for the past five years was 9.9 percent.</p> <p>On their own, such metrics aren't very useful. However, when used together, they can provide helpful insight. For example, a 9.9 percent average annual return may seem attractive. But when you examine the past five years individually, you can see how unrealistic it is to expect that return each and every year. In 2015, the fund even suffered a loss.</p> <p>When looking for meaning in performance numbers, context is king.</p> <h2>What's a &quot;good&quot; return?</h2> <p>To properly judge how well an investment has performed, you have to choose the right benchmark. Many investors make the mistake of comparing a specific investment or their entire portfolio to &quot;the market.&quot;</p> <p>It's fine to do that if you're investing in an S&amp;P 500 index fund, which is designed to mirror the market. However, sticking with our previous example, VTHRX isn't designed to perform like the market.</p> <p>It's designed for people who have less than 15 years until retirement. According to the basic rules of asset allocation, as you get older, the percentage of your portfolio that's invested in stocks should decrease and the portion invested in bonds should increase.</p> <p>That's exactly how target-date funds, such as VTHRX, are designed. This particular fund holds a 72 percent/28 percent mix of stocks and bonds. Plus, it's diversified across U.S. and foreign stocks and bonds.</p> <p>If you compared VTHRX's performance over the past five years to the S&amp;P 500 (through the end of June), you might be disappointed. The S&amp;P 500 has delivered an average annual return over that time period of 14.6 percent whereas VTHRX has averaged 9.9 percent.</p> <p>But again, that's an apples-to-oranges comparison. A better comparison would be how VTHRX has performed against <em>other </em>2030 target-date funds, and the same Yahoo Finance page referenced earlier tells you that as well.</p> <p>The table showing the fund's average annual returns over various time periods also shows how its performance has compared with the &quot;category&quot; &mdash; in this case, the average 2030 target-date fund. As you can see, it has done a good job of outperforming its category.</p> <h2>Should past performance impact which investments you choose?</h2> <p>The prominent display of historical performance information can give the impression that it's what's most important in choosing investments. However, how an investment has performed in past years has virtually nothing to do with how it'll perform in future years.</p> <p>What's more important is designing a portfolio around your optimal asset allocation &mdash; the mix of stocks and bonds that's appropriate for your investment time frame and risk tolerance. Then, if you're using a target-date fund, choose one with that asset allocation, keeping mind that funds with the same target date may be designed with very different asset allocations.</p> <p>Even more importantly, use an online calculator to develop an investment plan &mdash; how much you need to have in your investment accounts by the time you retire, how much money you need to invest each month, and the average annual rate of return you need to achieve.</p> <p>Such a plan would serve as the best possible benchmark because it's based on what you need to achieve in order to meet your long-term investing goal.</p> <p>On its own, investment performance data isn't very helpful. But with the proper context &mdash; how an investment performed versus other similar investments, and most importantly, how your investments performed compared to the rate of return you're trying to achieve &mdash; can be very helpful indeed.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fheres-how-rate-of-return-can-help-you-invest-smarter&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHeres%2520How%2520Rate%2520of%2520Return%2520Can%2520Help%2520You%2520Invest%2520Smarter.jpg&amp;description=Heres%20How%20Rate%20of%20Return%20Can%20Help%20You%20Invest%20Smarter"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/Heres%20How%20Rate%20of%20Return%20Can%20Help%20You%20Invest%20Smarter.jpg" alt="Here's How Rate of Return Can Help You Invest Smarter" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/heres-how-rate-of-return-can-help-you-invest-smarter">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-one-mediocre-investor-prospered-after-the-market-crash">How One Mediocre Investor Prospered After the Market Crash</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-does-the-stock-market-keep-going-up">Why Does the Stock Market Keep Going Up?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-buy-your-first-stocks-or-funds">How to Buy Your First Stock(s) or Fund(s)</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/is-it-finally-time-to-invest-in-marijuana-stocks">Is It Finally Time to Invest in Marijuana Stocks?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment asset allocation ETF financial news mutual funds performances rate of return stock market target date funds Wed, 19 Jul 2017 08:30:18 +0000 Matt Bell 1985090 at http://www.wisebread.com How to Buy Berkshire Hathaway and Other Blue Chip Stock for 17% Off http://www.wisebread.com/how-to-buy-berkshire-hathaway-and-other-blue-chip-stock-for-17-off <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-buy-berkshire-hathaway-and-other-blue-chip-stock-for-17-off" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/business_woman_with_piggy_bank.jpg" alt="Business woman with piggy bank" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Over the years, Warren Buffett has built incredible wealth through the growth of his company Berkshire Hathaway. Berkshire Hathaway is a holding company that includes stock of companies wholly-owned by Berkshire Hathaway, as well as positions in a number of large financial and consumer-oriented companies.</p> <p>You might be interested in buying stock in the company that Warren Buffett manages himself, but shares of Berkshire Hathaway are currently selling for around $250,000 per share [BRK-A] which is out of reach of most small investors.</p> <h2>Berkshire Hathaway for small investors</h2> <p>Fortunately, there is a way to own Berkshire Hathaway with a smaller minimum investment. In 1996, Berkshire Hathaway started issuing Class B shares [BRK-B] with limited voting rights that are currently selling for about $170. Class B shares were offered to protect small investors from pursuing Berkshire Hathaway imitation funds with high fees or other unfavorable terms.</p> <p>But Warren Buffett himself has advised against small investors buying Berkshire Hathaway stock. Berkshire Hathaway stock typically sells at a premium of 20 percent to 50 percent above the net asset value (NAV) of its holdings. Warren Buffett didn't get rich buying things for more that they are worth!</p> <h2>Berkshire Hathaway for 17 percent off</h2> <p>I decided to check out stocks with low price-to-earnings (P/E) ratios trying to find a good value. While investigating, I stumbled upon an interesting fund called Boulder Growth &amp; Income Fund [BIF]. This 1.2 billion dollar fund is composed of about 30 percent Berkshire Hathaway stock (23 percent Class A shares plus 7 percent Class B shares). BIF also includes large, deep value financial and consumer companies that Warren Buffett likes to hold.</p> <p>A relevant fact about this fund is that it is selling for about 17 percent below net asset value. By contrast, Berkshire Hathaway is currently trading for about 40 percent over net asset value.</p> <p>Getting Berkshire Hathaway and other blue chip stock at a deep discount sounds like a great deal, but why is BIF trading for 17 percent less than asset value? BIF is a closed-end fund, which means that no additional shares of the fund will be issued. Only the existing shares of the fund are available to be traded. This is different from open-end funds that are more common, where new shares continue to be issued when investments are received.</p> <p>The trading price for BIF on the New York Stock Exchange (NYSE) is subject to supply from investors wanting to sell and demand from investors wanting to buy. One downside of owning a closed-end fund is that there may not be a large pool of investors interested in buying when you want to sell. Plus, there is no guarantee that closed-end funds bought at a discount to NAV will ever converge to full market price. A drawback of BIF in particular is that the management fee is high: 1.43 percent total expense ratio in 2016.</p> <h2>Find discounted stock funds</h2> <p>If you are looking for value stocks, buying a closed-end fund at a significant discount is an alternative to other bargain-hunting strategies such as looking for stocks with low P/E ratios or following stock tips. As with any other investment, investigate to understand the goals of the fund, expenses and fees, and the financial health of the fund before buying.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" data-pin-save="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-to-buy-berkshire-hathaway-and-other-blue-chip-stock-for-17-off&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520to%2520Buy%2520Berkshire%2520Hathaway%2520and%2520Other%2520Blue%2520Chip%2520Stock%2520for%252017%2520Percent%2520Off.jpg&amp;description=How%20to%20Buy%20Berkshire%20Hathaway%20and%20Other%20Blue%20Chip%20Stock%20for%2017%20Percent%20Off"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/How%20to%20Buy%20Berkshire%20Hathaway%20and%20Other%20Blue%20Chip%20Stock%20for%2017%20Percent%20Off.jpg" alt="How to Buy Berkshire Hathaway and Other Blue Chip Stock for 17% Off" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/how-to-buy-berkshire-hathaway-and-other-blue-chip-stock-for-17-off">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-you-shouldnt-invest-like-warren-buffett">7 Reasons You Shouldn&#039;t Invest Like Warren Buffett</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-the-dow-will-hit-a-million-eventually">Why the Dow Will Hit a Million, Eventually</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-questions-to-ask-before-you-sell-a-stock-or-a-fund">10 Questions to Ask Before You Sell a Stock or a Fund</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-expensive-stocks-that-are-totally-worth-it">7 Expensive Stocks That Are Totally Worth It</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/11-food-and-beverage-stocks-that-are-having-a-good-year">11 Food and Beverage Stocks That Are Having a Good Year</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Berkshire Hathaway blue chip stocks funds net asset value price to earnings ratio shares stock market Warren Buffett Wed, 12 Jul 2017 08:30:12 +0000 Dr Penny Pincher 1979036 at http://www.wisebread.com Is It Finally Time to Invest in Marijuana Stocks? http://www.wisebread.com/is-it-finally-time-to-invest-in-marijuana-stocks <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/is-it-finally-time-to-invest-in-marijuana-stocks" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/marijuana_leaf.jpg" alt="Marijuana leaf" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Politics aside, there's a lot of green to be made in the burgeoning legal marijuana market. As more states move toward legalization, the <a href="http://www.wisebread.com/5-ways-to-profit-from-legal-marijuana" target="_blank">potential to profit</a> grows higher and higher. But in many cases, it's still just potential.</p> <p>While the industry is worth watching for investment opportunities, there are also some very real downsides to investing in cannabis right now. Read on for our roundup of the pros and cons of investing in weed.</p> <h2>Cannabis industry growth is soaring</h2> <p>According to cannabis research group ArcView, legal marijuana sales in North America increased by 34 percent to $6.9 billion in 2016. A prediction from investment firm Cowen &amp; Co. puts the U.S. market at $50 billion by 2026. More than half of all U.S. states have already legalized the use of medical marijuana, while eight states and counting have legalized recreational use for adults.</p> <p>Another triumph is the story of cannabinoid group GW Pharmaceuticals, whose stock has skyrocketed nearly 1,300 percent in value in less than four years. What's more, a growing percentage of Americans are supportive of marijuana legalization. Public support for legal cannabis has grown to 60 percent, according to a 2016 poll by Gallup. All of this makes for fertile grounds for further cannabis industry growth.</p> <h2>Marijuana could become the next dot-com bubble</h2> <p>When it comes to cannabis stocks, Canada is leading the scene. Unburdened by the depth of <a href="http://www.thecannabist.co/2017/04/21/jeff-sessions-marijuana-legalization-impact/77938/" target="_blank">opposition</a> that recreational marijuana has raised from the U.S. Attorney General and many in the U.S. Republican party, Horizons Medical Marijuana Life Sciences ETF &mdash; one of the first cannabis ETFs in North America &mdash; started trading on the Toronto Stock Exchange in April, almost instantly becoming one of the month's most popular funds. Propelling the marijuana ETF toward further success is a rise in investor enthusiasm sparked by the legislation recently introduced by Prime Minister Justin Trudeau to legalize cannabis across Canada. (The plan is expected to pass.)</p> <p>For a new fund, this level of accomplishment is rare. But experts caution that the marijuana market remains dicey. Canada's landmark marijuana ETF has 14 members, some of which include drug companies whose profits largely draw from sources outside marijuana research. Add to that a 0.75 percent management fee &mdash; higher than the norm. The bottom line is Canada's marijuana stocks are still largely speculative, so investors should be cautious.</p> <h2>Marijuana businesses are hampered by a cash-only economy</h2> <p>Marijuana businesses are completely shut out of traditional financial services, which means the industry is forced to operate in a cash-only environment. Banks and credit card companies have largely been unwilling to work with cannabis firms, even in states where marijuana use is legal, because federal law still prohibits them from taking marijuana money.</p> <p>Whenever a business is forced to deal in cash, there are security risks that its stockholders inevitably have to shoulder. Working in a cash economy, for example, means that a business is more susceptible to robbery or employee theft. It's also a growth inhibitor.</p> <h2>Penny stocks still dominate the cannabis trade</h2> <p>Most marijuana stocks on the market are penny stocks. Translation: They're pretty much one big gamble. With a share price of $5 or less, these stocks are unpredictable, and getting accurate and timely financial stats about them can be difficult. Of course, even a penny stock can experience explosive gains. But at this point, experts say it's little more than a coin toss.</p> <h2>Despite impressive growth, most marijuana stocks are losing money</h2> <p>What do most marijuana stocks have in common? They are losing money. Just two cannabis companies in operation can claim a positive EBITDA (earnings before interest, taxes, depreciation, and amortization), which is an operating performance-focused metric commonly used by investors to guide their investment decisions.</p> <p>Those companies are the Ontario-based Canopy Growth Corp. and Aphria. As for GW Pharmaceuticals and all the others? Shut out from traditional banking and tax deductions, they are operating in a completely experimental world where they're left to learn as they go.</p> <h2>Don't go chasing unicorns</h2> <p>Experts warn that some marijuana companies are little more than a sham. Without a sound business plan, they are roping investors in based on an idea rather than substance or experience to put that idea into action. Don't get roped in. Be skeptical and do your homework. If a company or investment opportunity appears too good to be true, it probably is.</p> <p>Marijuana news websites that only praise a company, for example, might be getting paid to do so. &quot;Check financial websites like Yahoo Finance to see if management is selling any of their shares,&quot; Barry Clark, CEO at cannabis company FlowerKist, recently told Forbes. &quot;If they believe in the company, they won't be selling their shares.&quot;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/brittany-lyte">Brittany Lyte</a> of <a href="http://www.wisebread.com/is-it-finally-time-to-invest-in-marijuana-stocks">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-profit-from-legal-marijuana">5 Ways to Profit From Legal Marijuana</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-how-rate-of-return-can-help-you-invest-smarter">Here&#039;s How Rate of Return Can Help You Invest Smarter</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-are-income-stocks">What Are Income Stocks?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-boring-investments-that-are-surprisingly-profitable">10 Boring Investments That Are Surprisingly Profitable</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/learn-how-to-invest-with-these-5-stock-market-games">Learn How to Invest With These 5 Stock Market Games</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bubble cannabis ETF legalization marijuana new industry pot profits speculation stock market weed Fri, 09 Jun 2017 08:30:08 +0000 Brittany Lyte 1959136 at http://www.wisebread.com Why Does the Stock Market Keep Going Up? http://www.wisebread.com/why-does-the-stock-market-keep-going-up <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-does-the-stock-market-keep-going-up" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/surging_business_0.jpg" alt="Surging Business" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Many people were taken by surprise when the stock market reached new highs after the 2016 election, with the Dow Jones industrial average (DJIA) breaking 20,000. But the recent record highs are only the latest in a long trend of stock market growth extending back well over 100 years.</p> <p>The average rate of return for the DJIA since 1896 is about 7 percent when adjusted for inflation. Looking at a broader representation of the overall stock market, the average rate of return for the Standard &amp; Poor's (S&amp;P) 500 index since it's inception in 1928 is about 10 percent per year.</p> <p>Of course, if you pay attention to the stock market, you know that stocks do not move steadily up all the time. Sometimes there are sudden market declines, such as the crash of 1929 that led to the Great Depression, or the 2008 collapse that led to the Great Recession. Sometimes there are long periods of market stagnation when stock prices do not go up much at all, such as during the 1970s. But over time, the long-term trend has been that stock values keep on pushing up, even after setbacks, and routinely go on to break record highs.</p> <p>What makes stock values keep going higher and higher?</p> <h2>Investors <em>think </em>stocks will go up</h2> <p>Investors who decide to put money into the stock market select individual stocks and stock funds based on the financial performance of the businesses in the portfolio. Ultimately, investors weigh the potential for a stock to go up versus the risk that it will go down during their investment window.</p> <p>Sometimes &quot;irrational exuberance&quot; seems to play a big role in driving stock prices. In a hot housing market, investors will pay essentially any price to buy a property if they are confident the price will go up, even if the price is not rational. Investors sometimes buy stock for the same reason &mdash; simply because they think someone else will pay more for it when they want to sell and they don't want to miss an opportunity to make a big gain. In some extreme cases, such as hot initial public offerings (IPOs), stock valuation seems to be driven by speculation without much solid financial basis.</p> <h2>Businesses have figured out how to make products for less</h2> <p>One way that businesses have become more valuable, and therefore garnered higher stock valuation, is by increasing productivity and efficiency. If a business can produce its goods and services at a lower cost, higher profits can be achieved.</p> <p>Businesses boost their efficiency by using automation, optimizing product designs and reuse, and merging or partnering with other companies with complementary resources and capabilities. The continuous effort by businesses to reduce their costs and run their business more efficiently keeps driving stock prices up over time.</p> <h2>Fancy new products (with higher profit margins)</h2> <p>Innovation and technological advances result in new products with higher profit margins than established products. Consumers will pay a premium to get the latest technology and newest capabilities. When a new type of product is launched, there is a window of time when little or no competition is available in the market. This is why the introduction of new products keeps driving stock values up.</p> <h2>Growing consumerism</h2> <p>In the old days, it was common for people to grow their own food, make their own clothes, and craft other household items such as soap and even furniture. When people were more self-sufficient and made most things for themselves, opportunities for businesses to sell products to customers at a profit was limited.</p> <p>Fast forward to today. The population has increased significantly, and most people buy products instead of making things themselves. As the number of consumers grows, and the demand by consumers for more and more products increases, so does profit for businesses that make and sell products.</p> <h2>Why did stocks unexpectedly go up after Trump was elected?</h2> <p>After an initial tumble in stock futures following the 2016 election, the stock market rallied during the following months and hit a record high, with the DJIA reaching 20,000 for the first time ever on January 25, 2017. Why did the stock market go up after the election of an unpredictable new leader?</p> <p>Markets typically react negatively to uncertainty, and that is what happened when the S&amp;P 500 and DJIA market futures fell around 4 percent on the night of the election. But soon, stock prices started rising again. Investors apparently feel that the new president will follow traditional Republican strategies of lowering taxes on businesses and reducing environmental, safety, and consumer protection regulations, resulting in higher potential profits. Also, the possibility of increased military spending and spending on huge infrastructure projects raises expectations for short-term economic growth among investors.</p> <h2>Will the stock market keep going up?</h2> <p>Stepping back and looking at the potential for stock market growth over the coming decades, the elements for continued stock market growth seem to be forthcoming.</p> <p>New levels of automation promise to drive productivity and reduce the cost to produce and deliver products to consumers. Technical innovations such as renewable energy, virtual reality, augmented reality, and medical breakthroughs appear poised to result in highly profitable new products. New consumers are likely to enter the marketplace as developing economies grow, increasing overall demand for manufactured products and driving business profits higher.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="http://www.wisebread.com/why-does-the-stock-market-keep-going-up">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-the-dow-will-hit-a-million-eventually">Why the Dow Will Hit a Million, Eventually</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-we-headed-toward-a-bull-or-bear-market">Are We Headed Toward a Bull or Bear Market?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-one-mediocre-investor-prospered-after-the-market-crash">How One Mediocre Investor Prospered After the Market Crash</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-foolproof-ways-to-protect-your-money-from-inflation">4 Foolproof Ways to Protect Your Money From Inflation</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-how-rate-of-return-can-help-you-invest-smarter">Here&#039;s How Rate of Return Can Help You Invest Smarter</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment businesses consumerism djia dow jones industrial average Economy production rate of return s&p 500 stock market Wed, 07 Jun 2017 09:01:06 +0000 Dr Penny Pincher 1959368 at http://www.wisebread.com Are We Headed Toward a Bull or Bear Market? http://www.wisebread.com/are-we-headed-toward-a-bull-or-bear-market <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/are-we-headed-toward-a-bull-or-bear-market" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-485863805.jpg" alt="Learning if we&#039;re headed toward a bull or bear market" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The stock market has been on a roll over the last year. Since the winter of 2016, investors have enjoyed a delightful bull market that has seen the S&amp;P 500 index rise by more than 25 percent.</p> <p>Whenever there is a lengthy run-up like this, investors always want to know how long it can last. Are we due for a big correction or even a record-breaking crash? Or will we see the markets continue to rise?</p> <p>Trying to time the market's movement is a fool's game, but it's always smart to look at the various indicators that may foreshadow future performance. With the current market, there is evidence to back up both bullish and bearish predictions.</p> <h2>Indicators of a bull market</h2> <p>The good times won't end anytime soon.</p> <h3>Most economic indicators are strong</h3> <p>For the most part, the American economy is stable. Unemployment is at its lowest point in a decade. Inflation is not out of hand. Manufacturing output is up, along with consumer confidence. There are some concerns about overall growth and productivity, but nothing that spells immediate doom for American investors at this point. Generally speaking, if the underlying foundations of the economy are sound, a sudden drop in stock prices is unlikely.</p> <h3>Interest rates are still historically low</h3> <p>We've seen interest rates creep up a bit, but they are still very low by historical standards. If you're placing money in a bank account, don't expect to receive much in the way of income. Bond yields are also very low. Thus, there's a good chance we'll see people continue to invest in stocks, as they have recently offered much better returns than most other options. As long as interest rates remain low, demand for stocks will be high.</p> <h3>Technical analysis supports it</h3> <p>Many analysts and financial planners prefer to examine a technical analysis of the stock market's performance, which looks at long-term trends that have historically repeated themselves. Most observers of these trends believe we are halfway through a growth cycle that began around 2010 and will continue another five to 10 years.</p> <h3>Corporate earnings are good</h3> <p>The stock market has been known to take a dive when stock prices are high, based on the underlying earnings of companies. In other words, when stocks are overvalued, the market will eventually find out, and you'll see a big correction. Recent earnings reports suggest that the stock market growth is justified. Earnings reports for the first quarter of 2017 look to be among the best in more than five years, so there's no indication that stocks are generally overvalued as a whole.</p> <h3>Lawmakers are pushing pro-business policies</h3> <p>President Trump was elected in part because of promises to lower corporate taxes and reduce business regulations, and he has the majority support of Congress. These are policies that are generally favored by the business community, and investors have responded positively. As long as businesses remain optimistic about policy changes, the stock market will be propped up.</p> <h2>Indicators of a bear market</h2> <p>On the other hand, maybe the good times are about to end.</p> <h3>Companies are heavily leveraged</h3> <p>U.S. companies have more debt than ever, and a lot of it comes due in the next few years. Moody's Investors Services estimated that a record $2 trillion corporate debt will come due between now and 2021, and warned that the market's ability to absorb all of these maturities is &quot;below average.&quot; Few analysts are predicting a massive wave of corporate bankruptcies, but an inability to refinance debt could curb corporate profits and cause stock prices to fall.</p> <h3>There's a possible epidemic of auto loan defaults</h3> <p>When the stock market last suffered a big crash in 2008, it was largely due to a flurry of defaults on mortgage loans. Many Americans obtained home loans that they ultimately could not afford, and ended up in foreclosure when home values dropped.</p> <p>These days, it appears that there may be a similar concern facing the quantity and quality of auto loans. It may not be as big a crisis as the housing bubble, but Americans ended 2016 with a record $1.2 trillion in auto loan debt, an increase of 9 percent from the previous year. Nearly one-fourth of these outstanding auto loans are considered subprime, and the delinquency rate from these loans is at its highest in seven years. This doesn't pose the same systemic risk as the mortgage crisis, but the auto industry is a key part of the American economy.</p> <h3>Europe is facing uncertainty</h3> <p>The United Kingdom is in the process of leaving the EU. There are rumors that other countries (France?) may follow suit. There are lingering concerns over terror attacks in the region. On one hand, economic trouble in the EU may benefit U.S. companies, but many American firms operate in Europe and are impacted by geopolitical uncertainty anywhere.</p> <h3>Political concerns</h3> <p>President Trump and members of Congress have been pushing pro-business policies, but eventually, they will have to deliver the goods. Their struggles in passing a repeal of the Affordable Care Act has been viewed as a sign that they may not have the wherewithal to accomplish big things, such as tax reform. A failure to follow through on any of these major promises could eventually cause a pullback in the markets.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/are-we-headed-toward-a-bull-or-bear-market">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-does-the-stock-market-keep-going-up">Why Does the Stock Market Keep Going Up?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-the-dow-will-hit-a-million-eventually">Why the Dow Will Hit a Million, Eventually</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-one-mental-bias-is-harming-your-investments">This One Mental Bias Is Harming Your Investments</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-stocks-to-buy-before-black-friday">6 Stocks to Buy Before Black Friday</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-creative-ways-to-invest-during-a-weak-market">5 Creative Ways to Invest During a Weak Market</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bankruptcy bear market bull market businesses corporations crash Crisis Economy Europe politics predictions stock market Mon, 15 May 2017 08:00:09 +0000 Tim Lemke 1942751 at http://www.wisebread.com How One Mediocre Investor Prospered After the Market Crash http://www.wisebread.com/how-one-mediocre-investor-prospered-after-the-market-crash <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-one-mediocre-investor-prospered-after-the-market-crash" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-516182744.jpg" alt="Learning how a mediocre investor prospered after the market crash" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>The <a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know" target="_blank">mediocre financial advice</a> I've offered in my last few posts boils down to this: Use low-cost funds, establish an appropriate asset allocation, and rebalance it annually.</p> <p>It's not new advice. My own portfolio was strongly influenced by it back in the early 1980s. By the 1990s, it was pretty much the standard advice you would get anywhere. Many studies at the time showed that a very simple portfolio &mdash; just an S&amp;P 500 index fund, plus a long-term bond fund &mdash; tended to outperform managed funds, especially after the costs of the managed funds were taken into account.</p> <p>I haven't seen as many studies in the years since the financial crisis, so I thought I'd take a quick look at how this sort of basic asset allocation held up in the aftermath.</p> <p>Most people date the financial crisis from 2008, but I tend to date it from June of 2007, because that's when I found out that I'd be losing my job. For that reason, the graphs below run from then through the latest data available as of March 29, 2017.</p> <p>As it turns out, a <a href="http://www.wisebread.com/the-surprising-truth-of-investing-mediocre-advice-is-best" target="_blank">mediocre portfolio</a> held up pretty well.</p> <h2>Criteria for success</h2> <p>To decide whether a particular style of investing is a success, it helps to know what your goals are. Most people would include &quot;maximum return&quot; as at least part of their goal, but instead, I suggest that your portfolio provide an investment return that supports your specific life needs.</p> <p>A portfolio that comfortably beats inflation is part of that. It's also a plus if the portfolio doesn't swing wildly in value &mdash; in case your circumstances require you to cash out a significant amount on an emergency basis. It's nice, too, if the portfolio provides a mix of income and growth, so that if changes in what's in fashion among investors push one category of stocks up or down, the overall value of your portfolio doesn't take too big of a hit. (Personally I've always had a sneaking preference for income, even though tax policy has often favored growth.)</p> <p>With those criteria in mind, let's look at how some of the pieces of a mediocre portfolio have done.</p> <h2>Pieces of a mediocre portfolio</h2> <p>The most basic mediocre portfolio is just an S&amp;P 500 index fund and a long-term bond fund, with the ratio between those two gradually shifting from mostly stocks (for a young person) toward mostly bonds (for someone who has already retired).</p> <h3>Stock market investments</h3> <p>The value of an S&amp;P 500 index fund dropped dramatically during the crisis itself, but it hit bottom well before the end of the recession, recovered all of its losses by 2013, and is now about 50 percent above where it started &mdash; meaning that on stock price alone, you've got an annual return of well over 4 percent. With dividends reinvested, your annual return comes to nearly 7 percent (take a look at the 10-year average annual return of your favorite S&amp;P 500 index fund).</p> <p><iframe src="//fred.stlouisfed.org/graph/graph-landing.php?g=dyOc&amp;width=605&amp;height=340" scrolling="no" frameborder="0" style="overflow:hidden; width:670px; height:525px;" allowtransparency="true"></iframe></p> <p>(Source: <a href="https://fred.stlouisfed.org/graph/?g=dbdN" target="_blank">St. Louis Federal Reserve</a>)</p> <h3>Bond market investments</h3> <p>There isn't an exact bond-market equivalent for the S&amp;P 500 index fund, so it's a little hard to say how your investments would have done during the crisis and since. (I poked around at a few major mutual fund companies and found average annual total returns on various long-term bond funds for the past 10 years ranging from 3.6 percent to 6.1 percent, depending on the fund.)</p> <p>The return on a bond fund depends on interest rates. If you buy a bond that pays X percent and rates go up, your old bond is worth less (because otherwise people will just buy the new bond that pays more). Conversely, if rates go down, your old bond is worth more.</p> <p>With that in mind, here's a graph of the interest rate paid on a U.S. government 10-year treasury bond:</p> <p><iframe src="//fred.stlouisfed.org/graph/graph-landing.php?g=dyOf&amp;width=605&amp;height=340" scrolling="no" frameborder="0" style="overflow:hidden; width:670px; height:525px;" allowtransparency="true"></iframe></p> <p>(Source: <a href="https://fred.stlouisfed.org/graph/?g=dbfK" target="_blank">St. Louis Federal Reserve</a>.)</p> <p>Long-term interest rates dropped steadily before and during the recession. They rebounded modestly as the recession wound down, but then plummeted as it became clear that the economy needed, and would continue to need, extraordinary support from the Federal Reserve. Even now, long-term rates are about half what they were before the crisis began.</p> <p>The upshot is that the value of bonds purchased before the crisis would have soared during the crisis. Bonds purchased during the crisis would also have gone up. Bonds purchased in the aftermath might be up or might be down, depending on exactly when they were bought.</p> <h2>Rebalancing</h2> <p>If you'd just had a portfolio of stocks or bonds, you'd have done ok. Your stocks would have gone down a lot, but they'd have eventually recovered. Your bonds would have gone up a lot, and would have since eased off. But the mediocre asset allocation is more than that. The essence of a mediocre asset allocation is annual rebalancing.</p> <p>At the end of 2007, and again at the end of 2008, you would have sold some of your bonds &mdash; which would have jumped a great deal as interest rates fell ahead of and during the recession &mdash; and shifted that money into depressed stocks to restore your asset allocation.</p> <p>New stocks purchased on the last day of 2008 would have been bought with the S&amp;P 500 at 891 (down from close to 1,500 when you started). At the recent price of 2,359, those shares are up 165 percent. At the same time, you would have harvested much of the gains in your bond portfolio.</p> <p>Really, the rebalancing is where the magic is.</p> <h2>Success</h2> <p>As I mentioned at the beginning, the criteria I'm using as indicators of success are return, stability, and providing a mix of income and growth.</p> <p>The mediocre portfolio did a fine job of providing a return &mdash; especially if you rebalanced annually, thereby automatically buying stocks when they were at their lows.</p> <p>Stability is always a problematic goal, because it's almost the opposite of growth &mdash; the most stable portfolio would be one invested 100 percent in cash, which would show no growth at all. The point here, just as it is with return, is not maximum stability, but rather a degree of stability that supports your life goals. Here again, the mediocre portfolio did fine, especially for older people with a larger bond portfolio, which is where it is most important.</p> <p>Finally, the mediocre portfolio did a fine job at balancing income with growth. An S&amp;P 500 index fund has produced a pretty good yield, especially compared to cash and bonds during this period of historic lows in interest rates. Annual rebalancing will have automatically shifted money out of bonds as interest rates fell (reducing the fraction of the portfolio invested where income is low) and future rebalancing will be shifting money back into bonds as interest rates rise.</p> <p>I would hesitate to call its performance better than mediocre, but that's really the point: A mediocre investment portfolio, providing mediocre performance, is all it takes to support your life goals.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/how-one-mediocre-investor-prospered-after-the-market-crash">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/bookmark-this-a-step-by-step-guide-to-choosing-401k-investments">Bookmark This: A Step-by-Step Guide to Choosing 401(k) Investments</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-does-the-stock-market-keep-going-up">Why Does the Stock Market Keep Going Up?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news">Want Your Investments to Do Better? Stop Watching the News</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-how-rate-of-return-can-help-you-invest-smarter">Here&#039;s How Rate of Return Can Help You Invest Smarter</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment asset allocation bonds financial crisis low-cost funds mediocre investments performance s&p 500 stock market Tue, 02 May 2017 08:30:11 +0000 Philip Brewer 1938294 at http://www.wisebread.com 5 Ways to Invest Like a Pro — No Financial Adviser Required http://www.wisebread.com/5-ways-to-invest-like-a-pro-no-financial-adviser-required <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-ways-to-invest-like-a-pro-no-financial-adviser-required" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-500538951.jpg" alt="Man learning how to invest like a pro without a financial adviser" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Investing can be intimidating. There's a unique language, with expense ratios, ETFs, and dollar-cost averaging &mdash; oh my! And there's a lot at stake, like your retirement. (See also: <a href="http://www.wisebread.com/beginners-guide-to-reading-a-stock-table?ref=seealso" target="_blank">Beginner's Guide to Reading a Stock Table</a>)</p> <p>However, at the risk of sounding like a home repair store commercial, you can do this and we can help. With the following five keys, you'll be well on your way toward becoming a confident, successful, do-it-yourself investor.</p> <h2>1. Commit to the market</h2> <p>The stock market has been on a tear. Since bottoming out in March 2009, it nearly tripled in value by the end of 2016. And since the start of this year, it has only climbed higher. Unfortunately, for many people, it doesn't matter. According to a recent Gallup poll, about half U.S. adults are not investing in the market.</p> <p>Some waffle. They're in when it seems safe; they're out when trouble strikes. But pros don't waffle. They're in it for the long haul because they know that as a long-term investment, the U.S. stock market has delivered average annual returns of nearly 10 percent.</p> <h2>2. Know your goal</h2> <p>The most common investment goal is retirement. It that's your goal, make it as specific as possible. How much money do you want to have? By when? And how much do you need to invest each month in order to get there? These questions can feel overwhelming at times, but you need to answer them in order to get a clear picture of your path to a secure retirement. (See also: <a href="http://www.wisebread.com/how-much-should-you-have-saved-for-retirement-by-30-40-50?ref=seealso" target="_blank">How Much Should You Have Saved for Retirement by 30? 40? 50?</a>)</p> <h2>3. Determine your optimal asset allocation</h2> <p>While many of the headlines in the investment press are about which investments to choose, there's a different factor that'll have an even greater impact on your investing success. It's making sure you've determined your <a href="http://www.wisebread.com/the-surprising-truth-of-investing-mediocre-advice-is-best?ref=internal" target="_blank">optimal asset allocation</a>.</p> <p>Asset allocation refers to how you divvy up the money you invest between asset classes, with the two most important ones being stocks and bonds (preferably, stock and bond mutual funds, since mutual funds enable you to hold a diversified &quot;basket&quot; of stocks and bonds).</p> <p>Generally, when you're young, your portfolio should tilt more toward stocks. Yes, your portfolio will experience sharper ups and downs, but you should have the time to ride them out, and a higher-risk portfolio should lead you to higher returns. As you get older, you would be wise to reduce stock exposure and increase your allocation to bonds. (See also: <a href="http://www.wisebread.com/the-basics-of-asset-allocation?ref=seealso" target="_blank">The Basics of Asset Allocation</a>)</p> <h2>4. Choose an investment selection process</h2> <p>Pay no attention to headlines touting &quot;This Year's Top Mutual Funds&quot; or &quot;Why You Must Own Gold Now.&quot; And tune out all hot tips from your brother-in-law or coworker. What you need is a trustworthy investment selection <em>process</em>.</p> <p>You could keep it super easy by choosing a target-date mutual fund. These funds have years as part of their name, such as the Fidelity Freedom 2040 fund. Just choose the fund with the year closest to the year you intend to retire. Its stock/bond allocation will be what the mutual fund company thinks is the appropriate mix for someone with that much time until retirement, and that allocation is automatically made more conservative over time. Target-date funds aren't perfect, but they get a lot of the big picture decisions right.</p> <p>If you prefer a more hands-on approach, you could do your own research and choose <a href="http://www.wisebread.com/why-warren-buffett-says-you-should-invest-in-index-funds?ref=internal" target="_blank">index funds</a> to build a portfolio that reflects your optimal asset allocation.</p> <p>Or, you could subscribe to an investment newsletter, some of which cost far less than the fees charged by financial planners. Investment newsletters usually offer a number of different strategies and then tell you what to invest in. You're still a do-it-yourself investor. You maintain your own account and make your own trades, but you follow the investing process outlined by the newsletter. (See also: <a href="http://www.wisebread.com/should-you-trust-your-money-with-these-4-popular-financial-robo-advisers?ref=seealso" target="_blank">Should You Trust Your Money With These 4 Popular Financial Robo-Advisers?</a>)</p> <h2>5. Understand the terrain ahead</h2> <p>One of the most important roles a financial adviser plays is seen during market downturns. That's when the best become therapists, speaking calm words of wisdom into the lives of frightened clients. You could serve the same role for yourself with a little understanding of how the market works.</p> <p>If you hear that the market turned in a great performance in a certain year, it's easy to make the mistake of assuming this wonderful result came about through a smooth, yearlong, upward ride. It doesn't usually work that way.</p> <p>Expecting some turbulence can help calm your fears and keep you from selling when the market gets wobbly. (See also: <a href="http://www.wisebread.com/want-your-investments-to-do-better-stop-watching-the-news?ref=seealso" target="_blank">Want Your Investments to Do Better? Stop Watching the News</a>)</p> <p>Taking all of the steps above will get you headed in the right direction. You have a plan. Now put your plan into action and stay with it. The longer you invest, the more confidence you'll gain and the more comfortable you'll become at being a do-it-yourself investor. (See also: <a href="http://www.wisebread.com/the-only-4-things-you-need-to-do-to-start-investing?ref=seealso" target="_blank">The Only 4 Things You Need to Do to Start Investing</a>)</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/matt-bell">Matt Bell</a> of <a href="http://www.wisebread.com/5-ways-to-invest-like-a-pro-no-financial-adviser-required">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-one-mediocre-investor-prospered-after-the-market-crash">How One Mediocre Investor Prospered After the Market Crash</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-how-rate-of-return-can-help-you-invest-smarter">Here&#039;s How Rate of Return Can Help You Invest Smarter</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-boring-investments-that-are-surprisingly-profitable">10 Boring Investments That Are Surprisingly Profitable</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/learn-how-to-invest-with-these-5-stock-market-games">Learn How to Invest With These 5 Stock Market Games</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-types-of-investors-which-one-are-you">8 Types of Investors — Which One Are You?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment asset allocation diy investor Do It Yourself goals investment selection retirement planning stock market Mon, 17 Apr 2017 09:00:09 +0000 Matt Bell 1928275 at http://www.wisebread.com 5 Stocks Your Kids Would Love to Own http://www.wisebread.com/5-stocks-your-kids-would-love-to-own <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-stocks-your-kids-would-love-to-own" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-525331477.jpg" alt="Learning which stocks your kids would love to own" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>When taking a look at your 401(k) or investment accounts, you may often daydream about how cool it would have been if you started investing earlier. That way, maybe you could have jumped on investments that turned out to be home runs, such as Apple [Nasdaq: APPL] and Berkshire-Hathaway [NYSE: BRK].</p> <p>If you have children, you're blessed with the opportunity of granting them the greatest gift any investor could want: time. Let's take a look at some companies whose shares would make a great gift for your kids to not only help them learn about investing, but also get them excited about money and business in general.</p> <h2>1. Snap Inc. [NYSE: SNAP]</h2> <p>Do you know what's cooler than a million dollars? $3.4 billion, which is how much money the parent company of Snapchat raised in its March 1, 2017 initial public offering (IPO). Since it has been estimated that <a href="https://blog.hootsuite.com/snapchat-demographics/" target="_blank">60 percent of Snapchat users</a> are under age 25 and nearly one in four hasn't finished high school, there's a very good chance that your children use this popular social media app.</p> <p>Leverage their interest in the app to keep them focused on tracking a stock price and keeping abreast of the effects of company announcements, such as <a href="http://www.recode.net/2016/9/24/13039900/snapchat-spectacles-google-glass-spiegel" target="_blank">Snap's Spectacles</a>, on the valuation of a publicly-traded company. Bonus: You could use Snapchat to send them their monthly allowance, keep a digital record of when you made that money available, and check how long it lasts them. (See also: <a href="http://www.wisebread.com/7-modern-ways-to-send-money-to-your-kid?ref=seealso" target="_blank">7 Modern Ways to Send Money to Your Kid</a>)</p> <h2>2. The Walt Disney Co. [NYSE: DIS]</h2> <p>&quot;Do you want to buy a stock share? Come on let's go and trade!&quot; If you started reading that in Princess Anna's voice, then you're a Disney parent and your kiddos spend a lot of time singing along to similar tunes. Keeping interested in this stock is easy because your kids will read about movie productions, toy developments, theme park construction, and other family entertainment projects.</p> <p>Disney is a great stock to hold onto for the long run, which is a maxim that you want to instill in any young investor. If you were to have held Disney stock from March 1, 2007 to March 1, 2017, you would have seen the stock price go from $34.39 to $111.04 (a 222.88 percent increase!). Plus, it's a dividend-paying stock, giving you a segue to introduce the concept of fixed income securities. (See also: <a href="http://www.wisebread.com/what-are-income-stocks?ref=seealso" target="_blank">What Are Income Stocks?</a>)</p> <h2>3. Amazon.com, Inc. [Nasdaq: AMZN]</h2> <p>Parcel-delivering drones, robots that work in warehouses, and voice-activated speakers that can control other home devices. It'll never be dull moment chatting with your kid about recent news from the Seattle-based ecommerce giant.</p> <p>If you have the budget, Amazon.com is one of those <a href="http://www.wisebread.com/7-expensive-stocks-that-are-totally-worth-it" target="_blank">expensive stocks that are totally worth it</a>. Just when you think that the stock can't hit new heights, an uptick during the early November and December holiday season gives the stock price another boost. Time your gift well before the holiday season and provide immediate gratification to your kids from a stock price bump.</p> <h2>4. Foot Locker, Inc. [NYSE: FL]</h2> <p>On the other hand, here's one stock to develop in your children an appreciation for delayed gratification. If your kid is a sneakerhead or sports jock, they'll include a new pair of athletic shoes in their Christmas list. With a current stock price close to $75 per share, one share of Foot Locker goes for about the same as a brand-new, high-quality pair of athletic shoes meant to last at least one year.</p> <p>Give your child the option of the shoes or one share of Foot Locker, Inc. (Or pick another company that better matches the price of the shoes that they want, including Nike Inc. [NYSE: NKE] or Skechers USA Inc. [NYSE: SKX].) When your child chooses the stock over the shoes, they'll realize that they'll have more available after a one-year period. If they're still unconvinced, ask them to try selling a pair of old, smelly shoes after one year of (ab)use from a tween.</p> <p>Setting a strong foundation for delayed gratification will boost your child's ability to save for retirement and build an emergency fund. (See also: <a href="http://www.wisebread.com/10-investing-lessons-you-must-teach-your-kids?ref=seealso" target="_blank">10 Investing Lessons You Must Teach Your Kids</a>)</p> <h2>5. Tesla Inc. [Nasdaq: TSLA]</h2> <p>The concept of saving for retirement is completely foreign to most individuals under age 18, maybe even for some under age 25! Getting somebody to plan about 40 to 60 years ahead is a difficult task. One way to get your kid thinking about the future with a fun and optimistic tone is to gift them stock from Tesla, because this company is in the business of electric cars, energy storage batteries, and solar panels.</p> <p>Plus, Tesla's CEO Elon Musk is so cool as to inspire the way actor Robert Downey Jr. plays Tony Stark in all Marvel films. By following the decisions of a cool and smart CEO, your child could gain further interest in business and entrepreneurship.</p> <h2>How custodial Roth IRAs can help with investing education</h2> <p>If your kid is under age 18 and makes some money on their own, such as through a hobby or during the summer, consider opening a custodial Roth IRA for them. This is a great way to educate your child about investing and providing a &quot;sandbox&quot; in which to make real-life decisions with investments. (See also: <a href="http://www.wisebread.com/does-your-kid-need-an-ira?ref=seealso" target="_blank">Does Your Kid Need an IRA?</a>)</p> <p>In 2017, your kid could contribute up to $5,500 to a custodial Roth IRA and watch those contributions grow tax-free forever. Many financial institutions require an account minimum of $100 to open a custodial Roth IRA. You could start with some stocks from this list or other stocks that your kid is interested in and eventually move on to index funds and mutual funds. To minimize fees, just keep post-contribution transactions at a minimum.</p> <p>Gifting your child stocks paired with several years of retirement savings could be one of the best gifts you could ever give them for a brighter financial future.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/5-stocks-your-kids-would-love-to-own">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. 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