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What the Dumb Money Can Teach Us

Top 5 of the Week of March 26

In this Top 5, we begin with Real Investment Advice’s Lance Roberts and his advice for curbing our investing expectations. The team at Sellwood Consulting asks if we should fear the rising Fed interest rates. And The Irrelevant Investor Michael Batnick helps us question when we can deal with risk.

From the CFA Institute Magazine, Isaac Presley helps us increase our portfolio’s safe withdrawal rate. And for Institutional Investor, Ted Seides uncovers what the dumb money has to teach…


Don’t Repeat Yourself

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  • Despite the concepts of “efficient markets” and “random walk” theories, investors still repeat emotional mistakes time and again when it comes to their investments
  • Emotional mistakes are the number one reason for investor’s underperformance and comprise of “Loss Aversion, Narrow Framing, Anchoring, Mental Accounting,” and many others
  • If prices rise on a “consistent basis” then investors see stocks as a “no-lose proposition” while in fact, but the current situation is quite the opposite

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Misplaced Fear?

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  • Investor expectation’s of higher rates are rising today due to many reasons, which include anxiety of future inflation, economic growth, a strict labor market, and the Fed reversing its monetary policies
  • So should bond investors be concerned? What will happen to bond portfolios if the current rising rates continue?
  • If you are a long-term investor, then there is “nothing to fear but fear itself” because if your investment horizon is long enough the risks become very minimal

What is your bond market anxiety currently? Share your comments in the section below
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Strike the Right Balance

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  • While it may feel safer choosing to invest in bonds over stocks, if you want to grow your purchasing power, then don’t only focus on the volatility of your portfolio
  • Five-year bonds have shown a good return on investment in the past, but though they don’t fluctuate as much as stocks there is still risk involved
  • Bond performance may not continue the same in the future, but they should still balance your portfolio—just work out when you can deal with the risk; “now or later?”

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Withdrawal Rate Anxiety

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  • Many retirees worry about getting under average returns and running out of money sooner rather than later
  • While it’s impossible to predict or control what the market will do in the future—a factor which impacts retirement withdrawal rates—there is something you can do to decrease your anxiety
  • Adding a 10% allocation of managed futures into your portfolio will increase your portfolio’s withdrawal rate without adding significant overall risk

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What the Dumb Money Can Teach Us

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  • Institutional allocators can learn from high-quality private wealth managers practices
  • By switching investment programs from benchmarks and peer competition to concentrating on goals of risk, spending, liquidity, and the institution’s time horizons
  • Success can be achieved by institutions in this manner; stop assessing individual managers’ underperformance, instead use a holistic investment strategy tailored to specified goals

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Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form—and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.


 

Anything you would like to discuss about this week’s top 5? Do you have another favorite that isn’t mentioned here? Feel free to add it below. Let’s start a discussion in the comments section!

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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article. The Become a Better Investor Team doesn’t necessarily endorse any stocks or shares mentioned in the articles or the author of such articles linked to and summarized in Top 5 of the Week and cannot guarantee the accuracy of its information.