The Investment Scientist

For those who are hard core about learning personal finance, I have this to share with you – Jim Ludwick’s Tweets for the Month. Jim is a hourly fee-only financial planner I respect a lot. His tweets cover a wide range of issues…

Russ Thornton

[by Russ Thornton] At some point, 70% of people over the age of 65 will need some form of long-term care and support.

I get a lot of questions from clients about long-term care insurance.

Yet, I find many people are more willing to discuss their estate planning (and their mortality) than the possibility of finding themselves in a situation calling for long-term care.

Typical objections to insurance for long-term care include:

  • It’s too expensive,
  • My kids/spouse/family will take care of me,
  • I’ll pay for it myself out of my savings and investments,
  • or something else.

And let me mention the fact that I don’t sell long-term care or any other type of insurance, so I’m not sharing this information to motivate you to buy something from me.

In fact, long-term care insurance isn’t necessary for many, despite many insurance companies’ and agents’ best attempts to use fear-based tactics to sell you policies. Read the rest of this entry »

images-73As of today, all three market indices Dow Jones, Nasdaq and the S&P 500 are in correction territory, meaning they’ve all fallen more than 10%. Last time this happened was in 2011. Then I wrote an article “How Often Does Market Correction Happen?” to calm the nerve of my clients and readers.

The key insight from that article is this. A 10% correction happened every other year in history, so you shouldn’t be surprised by it, nor should you be panic. In particular, this 10% correction is kinda over-due since that last one was 4 years ago.

In addition, don’t be surprised by a 20% correction over the next month and a half. The last time we had a 20% correction was in 2009. That was 6 years ago. In history, a 20% correction happened every other five years, give and take. 

Read the rest of this entry »

Two days ago, Greek voters said “No” to the term of EU bailout in a national referendum. Yesterday, the Shanghai Stock Index fell another 5.9%. Cumulatively, the index has fallen 30+% since reaching its peak in June 12. Which of these two events will likely be the black swan that rocks the US market.

I don’t think it will be Greece. The Greek economy is a mere 1.7% of the total EU. It’s basically a rounding error. When the first act of this Greek drama was played in 2011, the US market promptly dropped 19%. That was a wealth destruction ten times the size of the entire Greek economy. This just shows the fear of a disaster can be much worse than than disaster itself. Now that we are in the third act of this Greek drama, global markets are more or less immune to it.

China is an entirely different matter, and it has a potential to become a black swan … Read the rest of this entry »

If you are a client of mine, you would have received a snail mail newsletter from me about two weeks ago that does not look quite right: The letter may look like it was folded clumsily, there might even be some water stains on the letter, the stamp may not be placed squarely on the upper left corner of the envelop. I let these unprofessional newsletters go out, because they were stuffed by my two sons: one six year old, the other mere three.

I want to teach them a lesson about money, so I promised I would pay them once they get the job done. The two boys were super excited since this was the first time they made money. The older one listened very intently as I instructed him what do. What impressed me is that he then created a work process and splited the tasks between himself and his younger brother. He also made himself a little manager by making sure the younger brother follow his process.

After the job was done, I gave the older one a $5 bill and younger one a $1 bill. The older one immediately tried to figure how long it would take for him to afford his own iPad. The younger one apparently did not know the difference between $5 and $1 and he was just happy he was getting as much as his older brother.

Read the rest of this entry »

images-73Ever since it touched bottom on March 9th, 2009, the market has been going up and up and up with barely any hiccup. That’s dangerous! Because our minds could get complacent. That’s why I want to do a mental exercise with all of you: What would you do if the market fall 30%?

First of all, recognize these two important facts:

  1. Market fall of 30% and above happened every ten years or so. If we use history as a guide, we should expect a 10% odds of that happening over the next 12 months. (So don’t be surprised.)
  2. All market tumbles of that magnitude were recovered within 18 months in the US. (So don’t despair.) Read the rest of this entry »

Most investors are very good at hurting themselves financially. According to latest release of Dalbar’s Quantitative Analysis of Investor Behavior (QAIB), the average investor has a return of only 2.6% over the last ten years. That’s pathetic compared to what the markets gave. See the chart below, over the same period, the S&P 500 gave an annualized return of 7.4% and the bond market gave 4.6%.

Return chart
Read the rest of this entry »


Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.

You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]

Twitter: @mzhuang

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