You don’t have to pile into stocks to have a good year. One of my favorite balanced funds, Vanguard Wellington, has had a great year—it’s up over 10%. As you can see in this chart it beat the S&P in five out of twelve months. It’s worth remembering that successful investing isn't just about how much you make it’s also about how much you keep. … [Read more...]
Entrepreneurs from Developing Markets Lead the Field in Wealth Accumulation
In 1989 only 21% of the people on the Sunday Times Rich List had made their money themselves, the rest were heirs to great wealth. Now, in 2013 the Rich List has essentially flipped, with 80% of those on the list earning their fortunes themselves. A new study from Barclay’s says that globalization and technology have created a path for entrepreneurs to earn vast fortunes of the type that were once restricted to wealthy heirs. The outcome of these twin forces of globalisation and technology has been an explosion of entrepreneurship around the world and a decline in inheritance as a … [Read more...]
Northern Lights: Investing in the Nordics
Citizens in the four largest Nordic countries enjoy peaceful, happy lives. The U.N.'s World Happiness Report ranks Denmark as the happiest nation in the world, followed by Finland and Norway. Sweden comes in close behind at seventh happiest. The Nordics have a strong rule of law. All four are among the six least corrupt countries, according to Transparency International. IMD ranks the four major Nordic economies among the world's 20 most competitive. The World Economic Forum's Global Competitiveness Index also ranks them in its top 20, with Sweden and Finland ranking third and fourth, … [Read more...]
Are Stocks the Best Long-Term Investment?
The two-decade bull market in stocks that ended in 2000 convinced a generation of investors that stocks are the best long-term investment. Dow 36,000 and Stocks for the Long Run became cocktail-party fodder. There is no questioning that stocks put up some impressive numbers in the 1980s and 1990s. From year-end 1981 to year-end 1999, the index rose at an 18.5% compounded annual rate. At an 18.5% rate of growth, you double your money every four years. Of course, the last decade hasn’t been as kind to investors, but despite a decade with almost no return, the S&P 500 has still earned a … [Read more...]
Stock Returns at Half the Risk
Including dividends, the S&P 500 is now up 7.5% YTD. Not bad. At a 7.5% compounded annual return, you would double your money every 10 years. But when you consider the volatility that stock market investors had to endure to earn that 7.5%, it doesn’t sound so compelling. Study my chart below. The grey line is the growth of a $100 investment in the S&P 500 at year-end 2009. To start the year, the S&P fell more than 4%. Then it rallied about 15% over the ensuing three months. When sovereign debt issues intensified in Europe, the index sold off sharply, falling more than 15% from its … [Read more...]
Vital Intelligence for Investment Success
If you read The Wall Street Journal or the Financial Times, you have likely heard about the “risk trade.” It’s a term journalists have been using with increasing frequency to explain the behavior of financial markets. You see, since the financial crisis struck, risky assets have either been rising together or falling together. There has been much less distinction among the returns of risky assets. You have days where either bonds are up or stocks, commodities, and risky currencies are up—it’s risk on or risk off. This recent phenomenon can be explained by an increase in the correlation among … [Read more...]
Which Portfolio Would You Rather Own?
Given a choice, most investors would rather own the portfolio represented by the blue line in my chart. But in reality, many own something closer to the portfolio represented by the black line. The black line tracks the performance of the S&P 500. The blue line tracks the performance of a balanced portfolio. The balanced portfolio is invested 30% in corporate bonds, 30% in intermediate-term treasuries, 30% in equities, and 5% each in gold and the Swiss franc. The balanced portfolio is also rebalanced annually. Over the last decade, my balanced portfolio earned a compound annual return … [Read more...]
Back to Even and Then Some
Are you tired of the media’s nonstop market analysis yet? It’s distracting at best and harmful to your health at worst. With the Dow up 7.1% in the month of July, it’s worth noting how little ground has been picked up from mid-June of this year through the end of July. Even after climbing out of the valley of the March 2009 lows, the price of the Dow is still only worth three-quarters of its value from its October 2007 peak. Those taking a balanced investment approach had a much better experience. I like using the Vanguard Wellesley fund to illustrate the advantages of a balanced … [Read more...]
My #1 Diversification Tip
I often write about diversification and the benefits diversification offers to investors. Diversification is said to be the only free lunch in investing. It allows you to lower risk, without sacrificing meaningful return. The basic concept of diversification is of course intuitive. Don’t put all your eggs in one basket. And don’t invest your entire portfolio in one security—that would be too risky. You want to spread your assets among many different securities. If one goes bust you only lose a little bit instead of everything. But there is more to diversification than spreading your assets … [Read more...]
Avoid Australian Equities?
The correlation between Australian stocks and Chinese stocks is near a record high. If you are bearish on China, you probably want to avoid Australian equities. … [Read more...]