Six years after the collapse of the stock market, I must say I begin to see signs that people are forgetting the lesson:
- Some of my clients are pressuring me to increase allocation to stocks.
- The US stock market has done better than others, and some of my clients are questioning why bother with global diversification.
- I have seen portfolios (not managed by me of course) where 90% of money is allocated to US growth stocks.
Recently, Independence Advisor, LLC produces a fabulous video explaining the behavior of investment returns. It’s only five minutes long. Whether you are my clients or not, please watch it in its entirety, then you will understand why I always act as a dampener of emotions. Whether it’s fear or enthusiasm, I would always counsel not to get carried away.
If you want to find out how I can help you, schedule a Discovery review with me. If you are not ready, you can still get my white paper for free: The Informed Investor: 5 Key Concepts for Financial Success.
At the turn of the year, a few clients asked me a very good question: “Why my portfolio is not doing as well as the S&P 500 index? Shouldn’t we invest more in US stocks?”
The answer is very simple, US equity is only one component of the portfolio, it happened to do the best last year. The best component of the portfolio will always do better than the whole portfolio. That does not mean we should not diversify.
In fact, I got similar questions every year. Four years ago, it was like “Why didn’t we invest more in emerging markets? there’s no way the US market will do better than emerging markets.” Two years ago, it was like “Why shouldn’t we put everything in gold? all of my friends are investing in gold.”
Without much thought to my schedule, I told her I would visit her on Friday, a mere three days away. During the next two days, I moved my appointments around to clear up a whole day, and then I booked a round trip ticket and a rental car.
On Friday, I set out early on the trip and got to her place by noon. When I met her, I saw a middle-aged woman in deep grief and distress. I couldn’t help but give her a big hug, and she wept on my shoulder for a while.
Donate all the garbage. I couldn’t believe how many items in my household we literally didn’t touch, not even once, in the whole of 2014. Things like that are immediate candidates for donation. Things that fall into this category could be electronics, furniture, books, clothes, kitchenware, bedroom sets, used toothbrushes, etc. Ok, maybe not used toothbrushes, but just about anything you don’t use, you can find a better home for, and get a tax deduction for doing so. In some years, we’ve gotten $10,000 worth of deductions. Read the rest of this entry »
I asked my assistant to do an updated stock market seasonality study.
The data we used was the S&P 500 index from 1927 which we found in Nobel Prize winner Robert Shiller’s database.
We assumed that at the beginning of each year we invested $1 in the index, and we observed how the investment fluctuated over the year. Then we took the average over three different periods of time: the last 20 years, the last 50 years, and the last 86 years.
Here is the chart we got: Read the rest of this entry »
Some of you may have already known that my hobby is improv comedy. Here is what happens during a performance. I go on stage with my fellow actors, we ask for a suggestion from the audience, and then we create a comedy play from scratch using that suggestion.
It just so turns out that many lessons I learn in improv are totally applicable to real life. Since after all, life is a just a big improv show. Nobody wakes up with a script in hand for how to live the day.
So allow me to summarize the top three lessons I’ve learned.
- First things first; be a great listener.