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 …
- Things people in the Finance business don’t want you to know from @awealthofcs: http://t.co/xptc6UzSs011:40AM
- Tax season is over but we’re still working for Uncle Sam say Dan Caplinger via @TheMotleyFool: http://t.co/FyttD7jHhy6:45AM
- @Dull_Investing compiles list of 10 financial tips for kids from top experts and himself via @AARP: http://t.co/WQiZFMY4gQ11:40AM
- @RickFerri argues that ETFs are not the total solution to passive investing in his latest blog: http://t.co/x9R91M5kcr8:34AM
Recently I have a new client. As part of the onboarding process, I examined her old portfolio and found something I don’t recognize:
|25190A104||N/A||Deutsche Bk AG London BRH Ret Opt Secs Lkd Ishare MSCI Mexico Capped||-21.15%|
|25190A203||N/A||Deutsche Bk AG London BRH Ret Opt Secs Lkd Ishare Euro STOXX 50 Idx||-26.60%|
|90273L815||N/A||USB AG London BRH Notes Five 15||-22.30%|
What they have in common is they don’t have a symbol, meaning they are not publicly traded securities, they have weird descriptions and they all lost a lot of money.
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 »