Inflation is perhaps the biggest enemy of a would-be retiree, eating away at the value of core investments virtually across the board – the 70s shook investors to their core, causing many to flee stocks and bonds in favor of alternatives. No one wants to see a sequel to that scenario, but despite the uniqueness of the wage-price spiral that precipitated it, there is no ruling it out, either, in the short or the long term. Continue reading
“They account for more than 70% of the world’s population (over five times that of developed markets), 46% of its land mass (twice that of developed markets), and 31% of its GDP (almost half that of developed markets). And, taken as a group, their real GDP growth has been much faster than in developed markets.” (Source: Adapted from Jacobs et al, “How Should Private Investors Diversify?”, Mannheim University 2009; GDP information is from Mitchell, Maddison and IMF; market capitalization data is from S&P, MSCI and FTSE; frontier markets are excluded) Continue reading
First: hurry up and wait. A little knowledge goes a long way, as they say – in this case, a few dollars and hours worth of insight today could compound for decades in ways you have no yet imagined, paying you back many times over. Divided into three sections, these ten books cover history, theory and psychology, but most importantly: they show an ordinary investor, starting from scratch, how to invest as well as where, when and why from a rational, long-term perspective. Continue reading
Mr. Bogle is a man of many dimensions, but with a deep-running moral core and steadfast long-term convictions in the power of passive stock market investing. Born in the same year that started the 20th Century’s Great Depression, he has lived through lean years and bull runs, wars both cold and hot, inflation and other economic crises. Continue reading
So you have money you want to invest, and you know what you want to invest it in, but are not sure when to do it. Put it all in and you might be buying cheap, or accidentally be adding at a market peak. Wait and you may miss the best (or worse) time, but you get the peace of mind that comes from an average rather than an extreme. As with many investment questions, there is no single right answer, but advantages and drawbacks (and sometimes drawdowns) to each approach. In the end, though, it comes down to psychology: which do you feel better about … and if one causes you distress: is your portfolio really the ideal mix you believe it to be? Continue reading
The above chart summarizes everything wrong with the gold perma-bull position. Taken out of context, it looks like gold is a no-brainer – might as well just cash out those bonds, sell off those stocks and sit tight, right? Wrong. Let’s add a few more decades by way of context, for starters: Continue reading
There is fact and there is speculation – we can never be sure what will happen to growth rates of markets or Gross Domestic Products over time, but history (illustrated by the chart above) shows they change significantly from one period to the next. (Source: Data from World Bank and The World in 2050, PricewaterhouseCoopers 2008; updates from John Hawksworth and Gordon Cookson; authors’ analysis) Continue reading
Managing portfolio risk starts with larger decisions – allocations to stocks versus bonds, for instance – but, at its best, it does not end there. Consider these five cases from history, where a single-country stock market radically diverged from the rest of the world. While global equity correlations have clearly increased, it would be a mistake to assume investing in one country (say, one’s own country) is on par with spreading risk (and reward) around the world. (Image above via London Business School). Continue reading
According to Rydex, “history shows that the market typically moves in cycles. In the past 114 years, there have been four bull markets (shown in green) and four bear markets (shown in red). Investment strategies that work in bull markets may not be effective in flat or bear markets.” Of course, a wise investor knows that the past does not predict the future – and a statistician knows that four and four makes eight, but not a huge sample size. Also, of course, the Dow Jones Industrial Average is not the whole market. Continue reading
The man is nearly synonymous with actively-managed bond investing, and arguably with good reason: his Total Return Fund has hundreds of billions of dollars under management, has done very well overall and Bill Gross also makes a point of being vocally opinionated about equity and bond markets (and is thus frequently found on the front pages of financial newspapers and magazines). But even the bond guru himself is not always right – in fact, as a recent example shows, he can be wrong at the worst of times. Continue reading