How NOT to Prepare for the Market Correction
- Created on Sunday, 07 September 2014 19:00
Almost everyone believes a stock market correction is inevitable. The financial media whip up a daily frenzy of anxiety by offering conflicting views from "investment pros" on when this correction will occur. Here are some tips for dealing with the "market correction" issue.
Don't try to time the correction
There is no academic evidence indicating that anyone has the expertise to time the markets. One study looked at the results from 1,557 retail mutual funds to determine whether or not the managers of those funds had market timing ability. The author of the study found no evidence, on average, of any ability to time the market.
If highly paid fund managers, with significant resources, are unable to predict market highs and lows, how do you like your chances?
Read the rest of the article at The Huffington Post.
The Strange Allure of Higher Fees
- Created on Sunday, 07 September 2014 19:00
Just about anything that comes with the “alternative” label is automatically enticing to plenty of people. Alternative rock spoke to so many music fans that it became more or less mainstream in the 1990s. On a smaller scale, consider the people you know living alternative lifestyles, like the cousin in the nudist colony or your friend from high school who joined the Rainbow Family.
Alternatives of all sorts, with their capacity to shock, can feel fresh and new. But they can also lead people into behavior that is downright dumb. For evidence of that, consider the world of alternative mutual funds. This is the catchall phrase for funds that bet on whether mergers that companies have announced will actually happen; wager on some stocks to fall while others rise; swap stocks and bonds and commodities around the world as if it were a hedge fund; and employ other far-out investment strategies.
These alternatives are not necessarily dumb in and of themselves, but the way investors have picked these funds is baffling. The vast majority of money going into all mutual funds lands in funds with the lowest expenses, like index and exchange-traded funds. The reason? Simple math. If you have your money in two investments that both earn 8 percent before costs, and one charges you 0.25 percent while the other charges 1.5 percent, you keep more money with the cheaper one.
Read the rest of the article on The New York Times.
Markets keep defying experts and the news
- Created on Sunday, 07 September 2014 19:00
On Aug. 25, the S&P 500 index closed above 2,000 for the first time -- finishing at 2,000.24. It had taken the index more than 16 years to double from its first close above 1,000 on Feb. 2, 1998, when it finished at 1,001.27. That 16-year span is more than five times as long as it took for the index to double from its first close above 500 on March 24, 1995, when it finished at 500.97.
On its way to 2,000, the S&P 500 had to endure two major bear markets. It fell from its high of 1,576.74 on Oct. 11, 2007, all the way to its low of 666.79 on March 6, 2009. That means the index has risen more than 1,330 points from its bottom five years ago.
From March 2009 through July 2014, the S&P 500 returned just over 22 percent per year, providing a total return of 195 percent -- quite an impressive performance for the period. This year alone, it has defied many so-called experts and risen from 1,848 to 2,000, a price-only gain of more than 8 percent.
Read the rest of the article on CBS News.