Market Dreams

By |2018-07-02T07:50:24+00:00July 2nd, 2018|Global Market Update|

Are market changes real, or are they more like dreams? Dreams of World War 1 soldiers, by Jan Styka. Source: Lublin Museum There’s a common thought that market gains or losses aren’t real gains or losses – they’re only “on paper” until investors sell their holdings, making them “real.” But that’s a cognitive error – a kind of egocentric bias that says that something is only real if it affects me. In fact, price changes are real changes. When IBM went from $100 to [...]

Allocations Aweigh

By |2017-09-27T07:10:24+00:00September 27th, 2017|Global Market Update|

What’s the right asset allocation? Public Domain. Source: Wikipedia In simple terms, asset allocation is the process of deciding where to invest your money. Not who to have manage it – like Vanguard or an advisor – but what to have your money invested in: stocks, bonds, real estate, bank deposits, commodities. Your asset depends on a couple of basic questions: what do you need the money for, when will you need it, what other resources you have, and other specific issues, like your [...]

Bonded Returns

By |2017-07-17T12:21:27+00:00March 30th, 2017|Global Market Update|

What good are bonds? Source: Credit Suisse Since the beginning of the 20th century, stocks have returned almost 10% per year while bonds have returned about half that. Because of compounding, though, a dollar invested in equities from 1900 forward would now be worth more than 140 times what a dollar invested in bonds would. And this is only reasonable. The best you can do when you buy a typical bond is get your money back, with a little bit of interest. But some [...]

The Hidden Asset

By |2017-07-17T12:21:30+00:00February 1st, 2017|Global Market Update|

What’s the asset that no one talks about? Photo: Bryan Hanson. Source: Morguefile When I discuss asset allocation, I usually focus on stocks and bonds. Bonds are a senior claim on a business’s cash flow, and stocks are a residual claim on cash flow. So stocks benefit from a business’s growth, but they’re riskier – they get wiped out if the business fails. Bonds are safer, but they don’t go anywhere. If everything goes right, you just get back what you put in, with [...]

Politics and Investing

By |2017-07-17T12:21:38+00:00October 31st, 2016|Global Market Update|

Should politics impact our investing? Source: Wikipedia Many folks are concerned about the upcoming presidential election. The two major party candidates elicit strong reactions. Three quarters of those surveyed think it will have a big impact on their personal finances. And many folks are pulling out of the market in response to their fears of a Clinton or Trump presidency. Is this a good idea? It’s helpful to look at a little history. During the dot-com busty from 2000 to 2003 the Nasdaq index [...]

No Safety in Numbers

By |2017-07-17T12:21:38+00:00October 28th, 2016|Global Market Update|

When are sovereign bonds no longer safe? Global Yield Curves, 10-28-16. Source: Bloomberg For decades people have invested in stocks for growth and in bonds for safety. But the global financial crisis and its economic aftermath have changed that. Now sovereign bonds around the world have extremely low yields. 30-year bonds in the US yield just over 2.5%, and that’s the highest yield anywhere. You can get higher yields in emerging markets, but those come with currency, credit, and inflation risk. There have been [...]

Incomes and Outcomes

By |2017-07-17T12:21:42+00:00September 23rd, 2016|Global Market Update|

What can investors do about low rates? Source: St. Louis Fed Low interest rate around the world are challenging investors and savers everywhere. And it isn’t just households: state and local pension funds—once fully funded—are now underfunded by almost $2 trillion. With expected returns so low, governments and employees are being called upon to increase their contributions to make up for the shortfall. The resulting strain on public budgets has led to credit-rating cuts in places as diverse as New Jersey, Kentucky, and Chicago. [...]

Consider the Alternatives (Part 1)

By |2017-07-17T12:21:45+00:00August 30th, 2016|Global Market Update|

What are alternative investments? Duck-billed platypus, an egg-laying mammal. Photo: Klaus. Source: Wikipedia Alternative investments are assets that don’t fit into the normal asset-class categories of stocks, bonds, or cash. They include private equity, hedge funds, managed futures, collectables, commodities, and so on. They’re related to the standard asset types, but they have a slightly different twist. So physical gold is an alternative investment, while gold mining company stocks are not. Real estate is an alternative investment; Real estate investment trusts that trade on [...]

Why Trash Cash?

By |2017-07-17T12:22:07+00:00March 7th, 2016|Global Market Update|

What good is cash? Photo: Aimee Low. Source: Morguefile Central banks around the world have pushed interest rates to zero. In Europe and Japan, short rates are negative. Bank deposits and money market funds pay almost nothing. Why should investors hold cash? Cash used to be thought of as a weapon, or a market sector. Mutual funds held up to 10% of their portfolios in cash. After all, cash allows managers to move quickly when they see opportunities. And when the market falls, cash [...]

Pension Problems

By |2017-07-17T12:22:07+00:00March 4th, 2016|Global Market Update|

What’s wrong with our retirement system? State pension funding ratios. Source: Governing.com It used to be that firms offered pensions as an employment benefit. They were structured to reward employee loyalty—the longer you stayed at a company, the higher the payout ratio when you retired. Then came the ‘70s and ‘80s, with massive restructuring and layoffs. What good was loyalty when the firm wasn’t loyal to you? Workers lost a good deal of their benefits, through no fault of their own. So pensions and [...]