Come in out of the Cold
Top 5 of the Week of January 23
We kick off our final week in January with helpful advice from Cullen Roche of Pragmatic Capitalism on how to melt your assets if they’re are frozen in cash. Vitaliy Katsenelson of the Institutional Investor explains that a company with a solid past doesn’t necessarily have a good future. And A Wealth of Common Sense’s Ben Carlson weighs in on Ponzi schemes and overconfidence.
Barry Ritholtz, Chairman & CIO of Ritholtz Wealth Management, examines active management’s 2017 return. And in the third installment of Early Retirement Now’s multiple part guide to safe withdrawal rates, we check out their view on equity valuation…
Come in out of the Cold
- If, like other investors, you moved your assets into cash after the 2008 scare and are waiting for the right prices before jumping back in, you need to overcome your paralysis
- Begin by taking some stock market risk; with bond aggregate returns of 2.5% and 0% for cash, you’re never going to achieve your financial aims otherwise
- Asset allocation is the key to avoiding this situation again in the future, a 100% stock portfolio is risky these days but by diversifying you can mitigate your risk
Can you relate? Is the major proportion of your assets frozen in cash? Share your comments in the section below
A Good Company ≠ A Good Stock
- Many would consider mature companies, like Coca-Cola, a worthy investment for their portfolio, but in this case, investors are paying 23 times the earnings for a shot at a shiny 3% dividend yield
- Sales and revenue aren’t performing as they once did, sugary drinks are becoming unpopular in an increasingly health conscious society
- Beware of falling into strong global brands’ shiny dividend façades—they do not shine forever
The Danger of Ego
- Of those investors taken in by Ponzi schemes, many will admit that their ego played a major role in failing to spot the deception
- When we fall for financial duplicity, it’s often because, in our overconfidence, we fail to research properly and get a full understanding of what we’re getting into
- If we’re not careful and aware of ourselves, as investors, we’re in danger of being our own worst enemies
The Return of Active Management
- Technically, active management never went anywhere, but low-cost indexing has been dominating the investment scene in recent years
- Investors have fallen out of love with active investing due to the high fees—in company with mediocre performance—and many are starting to resist market timing altogether
- Consider active investing as a change to passive, but be selective when considering the methodology, watch for increased costs, and be extra strict with yourself in terms of behavior
Increase Your Odds for Retirement Success
- The differences between your safe withdrawal rates (SWR) for 30-year and 60-year retirement horizons are major, and the same is true when it comes to your equity weight—there is no one size fits all for success
- Studies show if you attempt a 60-year retirement horizon with a 4% safe SWR and 70-80% equity weight, odds are 1 in 3 that you’ll wipe your money out
- Be more conservative with your SWR (3.25%) and weigh your equity generously (100%) for a much higher probability of success
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.
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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.