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Tsunamis, Earthquakes, and Uprisings: Why Smart Investors Don’t Predict
Tweet Share on Facebook March 17, 2011 CommentThis year has been full of the unexpected. The world is an unpredictable place. It was just a few weeks ago that Egypt and then Libya dominated the airwaves. Now they are distant memories with the horrific events in Japan this week. Who would have thought that an earthquake would lead to a nuclear meltdown? Who would have predicted that Arab dictatorships would topple because of Facebook and Twitter? What is an investor to do?
The answer lies in whether your investment focus is based upon predicting or positioning.
[See top-rated funds by category ranked by U.S. News Score.]
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3 Reasons To Be Cautious About Bonds
Tweet Share on Facebook March 16, 2011 Comment (1)Everyone knows that a well-diversified portfolio should contain bonds. Bonds typically provide stability and keep portfolios safe, especially when the market is tanking. But sometimes, that last statement couldn't be further from the truth.
Here are three reasons why you should be leery of the current bond market:
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5 Tips for Evaluating Mutual Funds
Tweet Share on Facebook March 16, 2011 CommentThere are more than 7,000 funds from which to choose spanning a variety of asset classes and investment styles. How do you decide which funds are right for you? Here are five tips for evaluating a mutual fund:
Understand the fund's objectives and investment style. Look beyond the fund's name and its Morningstar style box. Research the fund. Look at what types of stocks or bonds the fund actually holds. Understand the restrictions on the fund manager. Some funds stay true to their investment style, while others have more latitude in where they can invest. Do you understand what the fund does? Under what economic conditions will the fund most likely be successful? In the case of a fund of funds, such as a target-date fund, you need to take the additional step of reviewing the underlying holdings and understanding the fund's asset allocation.
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Why Rebalancing Your Portfolio Is Important
Tweet Share on Facebook March 15, 2011 Comment (3)Rebalancing your portfolio is one of the keys to successful investing over time. Rebalancing means adjusting your holdings—that is, buying and selling certain stocks, funds, or other securities—to maintain your established asset allocation. For example, let's say your asset allocation is 60 percent stocks and 40 percent bonds. If stock prices go up for a few months, your allocation to them might rise to 70 percent. That means you have to sell some stocks to get back to your desired level. It's important to maintain your asset allocation because it keeps your tolerance for risk at the most comfortable level.
For most investors, rebalancing twice a year is sufficient to make sure their asset allocation isn't getting out of whack. Mark the dates you want to rebalance on a calendar you check the most. That way you won't forget.
[See top-rated funds by category ranked by U.S. News Score.]
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How to Choose a Financial Adviser
Tweet Share on Facebook March 11, 2011 CommentI've been in the wealth management business since 1999 and have learned a few things about the industry that are important for everyone to understand in order to become a smarter investor.
You can do it yourself. I know a lot of rich people that manage their own money. They are smart and they spend a lot of time doing research, determining where they think we are in the economic and business cycle, which sizes, style and sectors should perform well over the next 12 to 18 months, selecting managers or passive investments, shaping and rebalancing asset allocations, and monitoring performance.
This approach takes a lot of time and money, just like, for example, learning to be an at-home gourmet cook. If I wanted to be a gourmet cook, I'd go take classes, renovate my kitchen, and spend a lot of my time going to specialty grocery stores and coming home early from work to make that "perfect" meal every day.
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How to Pick the Right ETF
Tweet Share on Facebook March 10, 2011 CommentIn the mid 1990s, exchange-traded funds came riding down Wall Street like Clint Eastwood in an old spaghetti western—fearless and ready to take on the bandits who had been terrorizing the townsfolk. For years prior to the arrival of ETFs, average investors were held hostage by obscene fees while mutual fund robbers brashly collected their booty, threw back some expensive whiskey, and then shamelessly shot up the town.
In 1989 the first ETF—Index Participation Shares—came to the rescue. This S&P 500 proxy traded on the American Stock Exchange but was quickly gunned down by the Chicago Mercantile Exchange who quickly perceived the threat. It wasn't until 1993 that the real gunslinger rode into town and changed the order of the fund industry forever.
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Enhanced ETFs: A Different Approach to Passive Investing
Tweet Share on Facebook March 9, 2011 Comment (1)Exchange-traded funds haven't been around for very long and many investors still don't understand them. While many are a plain-vanilla type investment, some offer an allocation that could significantly enhance a portfolio.
Many ETFs are based on an index and are passively managed. They have gained popularity because they are diversified, easy-to-trade, tax efficient and cover many hard-to-access asset classes. While many investors use mainstream ETFs, there is a different classification of ETFs some investors do not know about called an enhanced index ETF.
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5 Common 401(k) Pitfalls
Tweet Share on Facebook March 8, 2011 CommentParticipating in your company's retirement savings plan is a great first step, but that alone won't guarantee a comfortable retirement. When thinking about your financial goals and retirement savings, keep these 401(k) considerations in mind:
A 401(k) plan alone is not sufficient. Your goal should be to contribute the maximum annual limit: $16,500 for people under 50 years of age and $22,000 for investors 50 and older. Contributing at that level isn't realistic for everyone, but some contribution is better than nothing. Start contributing as much as you can afford and make it a goal to increase that amount annually. Some plans allow you to implement an automatic increase each year in the percentage of pay you contribute. Take advantage of this or consider increasing your contribution by the amount of any pay raise you receive.
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Stay Focused on Your Financial Plan
Tweet Share on Facebook March 8, 2011 Comment (1)People always seem to stress about something when it comes to investing. In hindsight many of the worries are just that, worries. It's not until you can look at the situation in a rearview mirror that you realize whether you had something to worry about or not.
Most recently, crude oil prices spiked to $100 a barrel because of concerns about supply disruptions amid revolts in Libya and other parts of the Middle East. Countries around the world struggle with social unrest or financial problems on any given day. Last year, people staged riots in Greece to oppose tax hikes and cuts in wages and pensions designed to reduce the country's large deficit. Worries that Greece could default on its debt put the euro currency—shared with 16 other European countries—at risk.
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3 Problems with the S&P 500 Index
Tweet Share on Facebook March 4, 2011 Comment (2)For as long as I've been in the industry, both investors and advisers alike have accepted the good old S&P 500 index as a good way to gauge portfolio performance. The most common question any adviser gets from a client is: "How well did I do versus the S&P 500?" While it's one of the most widely-followed indices, the S&P 500 weights securities by market capitalization, which can impact returns. Here are three issues for you to consider:
