One of the hardest things to accept about the stock market is its volatility: prices rise and fall day to day, month to month, and year to year. One month an investor’s account has grown to a certain level, and the next month it has fallen back a few percent from that high, making the investor feel like he has […]
Investments
Employees with 401k accounts flee from stocks in August
Some workers who invest in stocks through their employers’ 401k plans proved to be fickle investors this summer. In August—after sharp stock market declines in July—a near record amount of 401k money was yanked from the stock market, says Hewitt Associates LLC, a human resources consulting firm. Hewitt’s index of 401k investments showed that plan participants shifted $765 million from […]
Think you need a hedge fund for excitement? Better think again
For the last few years there has been a steady drumbeat out of Wall Street touting the advantages of “alternative” investments for well-to-do investors. The alternative crowd argues that plain old stocks and bonds and mutual funds are no longer good enough for sophisticated investors. Instead, they need a dose of hedge funds, private equity investments, and venture capital deals […]
Most retirees should have more money in stocks than they think
It is common for those planning for retirement to feel that they should make their investment portfolios more conservative once they leave the workforce. After all, they have to live off their nest eggs for the rest of their lives and can’t afford to lose money in a declining stock market. However, new studies continue to show that most retirees […]
Forget the dire predictions: Get invested for the long term
Since the subprime mortgage mess hit the markets like a bombshell earlier this year, economists and analysts have been working harder than ever to forecast its future effects. Forecasting potential outcomes is big business in the financial markets, and there is no dearth of “experts” and TV talking heads telling us what lies ahead. Their record of prediction is pretty […]
A handful of stocks offer high returns
Groundbreaking investment research from 1992—supported by other studies since then—indicates that value stocks and small stocks outperform the stock market as a whole. Recently, professors Eugene F. Fama of the University of Chicago and Kenneth R. French of Dartmouth—authors of the 1992 study—have identified another important component of stock returns: the higher returns of small and value stocks are due […]
It is the ‘unknown unknowns’ that will affect your portfolio
Among the many peculiar word constructions former Secretary of Defense Donald Rumsfeld is remembered for, there is one that applies to all forecasts of the future: the “unknown unknowns.” In his words, they are “the ones we don’t know we don’t know.” That phrase, incidentally, was already commonly used in the Defense Department and elsewhere in its shortened version, “unk-unk.” It […]
Was the February market drop a portent of things to come?
Complacency will get you into trouble, at least in the financial markets. Back in February, when the U.S. stock market dropped almost 3.5% in one day (following an 8% plunge in the Chinese market), investors became alarmed, newspapers ran front-page headlines for several days, and television “experts” opined about the market’s sudden volatility. It wasn’t the market that had suddenly […]
Forget trends and patterns: Randomness rules the stock market
Despite impressive evidence that most short-term movements in the markets are random, professional and amateur investors alike continue to throw hundreds of billions of dollars at strategies designed to beat the market. The common perception is that certain securities are “mispriced”—that is, investors have bid them too high or too low based on their inherent value.The human mind has evolved […]
Regular rebalancing is the best way to protect a portfolio
It’s a simple fact: investors abhor losses. They engage in all sorts of strategies and practices in order to avoid or minimize losses. At the same time, investors are often excitable and greedy. When a segment of the investment market goes through a prolonged upswing, they throw money at it as they chase recent returns. Many academic studies, as well […]
