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Fear Tactics: Viral Chart Draws “Scary Parallel” Between Today and Period Leading up to Crash of ’29

Scary Parallel ChartFor some reason (probably just because fear sells), a particular chart has been making the rounds of late. It draws a “scary parallel” between the recent performance of the DJIA and that of the same prior to the 1929 crash, implying that a significant decline is impending (maybe). Already just this month three analysts over at The Wall Street Journal’s MarketWatch have penned at least four articles inspired by the graphic (including this retort), after it first appeared in the McClellan Market Report in late November, and more articles than that have been posted since the start of December. What should you do about it? Continue reading

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4 Periodic Tables Show How Fast Winning & Losing Assets Swap Spots

The patterns are compelling … and chaotic. Popularized by Callahan Associates, this table illustrates its core point very well: past performance does not predict future returns. No, really. Stop for a moment and internalize that idea – there is a reason funds have to put that front and center on disclaimers and in prospectuses. Continue reading

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4 Powerful Investment Truths Illustrated via Interactive Diagrams

Vanguard is not the only company offering low-cost index funds for long-term investors, but in many way it comes out at the head of the pack. One such reason: their focus on helping investors, with things like these simple graphical illustrations of common investor pitfalls and misunderstandings regarding specific strategies (e.g. buy, hold and rebalance) as well as universal subjects (expense ratios, emotional risk and asset volatility) which they call ‘Investing Truths‘ with good reason. Continue reading

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Stock Sages? 5 Failed Market Predictions of Finance’s Most Famous Figures

Irrational exuberance, mathematical hubris, call it what you will, but predicting stock markets is a little like peering into a cloudy crystal ball and declaring your can clearly see what is coming next. Here, then, are a few sobering lessons from a long line of respected economics, finance professors, business publications and famed advisers who missed the mark by miles – all good reminders that even on top of sound analysis, the market can remain irrational longer than you can remain solvent. Continue reading

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Halloween Effect: Ghosts, Ghouls, Goblins and Spooky Math

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The Halloween effect just might be more of a trick than a treat – think less chocolate and more witch’s brew. The end of October and beginning of November mark the start of the six-month period of November-April during which, historical evidence shows, stocks have outperformed when compared with their performance during the other six months of the year, May-October, or with the performance of a general buy-and-hold strategy. This outperformance continues to lend credence to the concept of market timing and fuel the debate over active versus passive investment strategies. And so, with another potential bumper period for stocks possibly about to get under way, we owe it to our lazy selves to address the topic and speak to why we shouldn’t give the wolf in sheep’s clothing any candy, why it is not advisable to indulge in this active strategy in spite of evidence of a persistent seasonal pattern. Continue reading

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Your True Risk Profile: Should You Be Investing at All?

Venn_0000_0001.svgWe could assume that because we now find you reading an article related to investing, you have either purchased investment vehicles at some point in your life, you currently own investments, or you have an interest in learning more about investing with the intention of possibly even engaging in that crazy activity. The stock market has been doing great, again, right? But before you go diving down the rabbit hole one more time (or for the first time), ask yourself a couple of questions: How well do I know myself? Should I even be investing at all? Before selecting a fund, before determining your asset allocation, before putting even one cent on the table, you owe it to yourself to have a frank conversation with yourself about, well … yourself. Specifically, you owe it to yourself to assess your true risk profile. Getting a handle on this could be one of the most important activities you ever undertake as a current or would-be investor. The bottom line? Taking a risk-attitude questionnaire is not enough.

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Matching Duration to Need: Short-Term Bonds & Bond Funds

short term bonds fundsIt is a common mistake to conflate ‘bonds’ and ‘safe investing’ and invest accordingly, taking on more risk than they either realize or desire. This oversimplification can result in a shortfall of funds when you need them the most.

If you know you will need your money (or at minimum: most of it) back at some point in the somewhat-near future – say, the next few year – you need to make sure you are investing in instruments appropriate not only to your risk tolerance but also your investment horizon.

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Cash 101: Liquid Savings for Short-Term Needs & Emergency Funds

Before you can invest, you have to save – and if you are saving for essentials or emergencies, you had better keep those savings safe. And that is where cash comes in.

First, let’s clarify this term ‘cash’ – in most financial contexts (including this article) this does not necessarily mean physical bills in your wallet (or stuffed under the mattress), but highly liquid and safe assets denominated in your home currency. Next, let’s look at cash and cash-like options for typical savers. Continue reading

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The First Question is: ‘What Asset Classes?’, Not ‘Which Mutual Funds?’

One of the most common first questions to find on financial forums is “which of these funds should I invest in?” In some cases, these are folks who have freshly found themselves with 401(k) options for the first time. In other cases, the poster already has a wild mix of funds that overlap, thus providing a comforting illusion of diversification. Continue reading

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