Asset allocation is the next step in the investment process.
Your asset allocation involves two steps:
- Decide which index funds to include in your
- Choose how much of your portfolio to place in
After you decide which investments to include in your portfolio,
you need decide how you want to combine them. Your asset allocation has a much greater impact on your investment performance
than the individual investments you pick.
The asset allocation process is as much about managing risk as it is about investment performance. In fact, the process lets you deliberately manage your risk. Continue reading
Are index funds good investments for retirement? If you’ve done any amount of reading on investment strategies, you have certainly heard about index investing. In this article I’m going to explain WHAT index investing is and WHY it is such a good strategy for your retirement.
This article goes a little deeper into market theory, so I
want to give you the bottom line up front.
- Index investing simplifies investment selection. When you invest in an index, you are investing in all of the stocks that make up the index and make no attempt to pick the “best” ones. That is good because picking the out-performers is largely a function of randomness.
- You inherently accept the average market return.
- Investing in an index can dramatically reduce your investment expenses.
- The result is that you end up with the average market return, at a lower than average cost. You’ll be slightly ahead.
What are the risks of relying on dividends for retirement income? Like most things used in moderation there isn’t anything wrong with dividends, or the stocks that pay them. In fact, higher-dividend paying stocks are usually older, established, and strong companies. They can be good components of retirement income plans and help provide some diversification in investment portfolios.
The risk comes in their application, and the popular strategy of loading up on dividend paying stocks exposes retirees to more risk than they usually realize. Continue reading
The Hellhound of Wall Street – How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance provides a narrative of the Senate hearings that followed the Great Crash. It is an interesting story for it’s lively details of the personalities involved but also illustrates how far our perceptions of the financial elite have come.
This historical account illustrates how prominent bankers were held in such high regard that they were inherently trusted by the public. That idea is laughable now, but was a crucial truth in the buildup and subsequent unraveling of American financial system of the 1920’s.
In this review I highlight some of the key points of the story. If you are interested in the history of the American financial system, and particularly the crash, this is a great book. Continue reading
Adaptive Markets – Financial Evolution at the Speed of Thought by Andrew Lo is a deep dive into market theory. This book is not a surface-level read on retirement planning or investing. It provides insight into how markets operate and change over time. The takeaway from the book is enhanced understanding of market behavior.
I recommend this book for academics, professional advisors, and those with a deeper curiosity of market theory. Continue reading