Ranakpur Jain Marble Temple Pillars Frescoes

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You want to invest, and you figure the way to do it is to (somehow) pick the best stock out there and load up. What’s the best stock out there? Right now, some people will tell you it’s Apple, some people will tell you it’s some small company in the marijuana industry, some people will tell you it’s Berkshire Hathaway, and they’ll all have their reasons why. For the sake of our discussion, it doesn’t really matter what that one stock is, let’s just pretend that you have picked your one stock and you’re going to put your money into that stock because you believe your money will be best put to use there. After all, what’s the point of diversification if you’ve picked the best stock out there? It’ll only dampen your returns, right? Well, besides the reality that you can’t predict the future, there are a host of threats your investment continuously faces. Through diversification, you can hedge your risk of investing in that one equity high-flier. Utilizing broad-based, poorly correlated assets in a well-balanced lazy portfolio minimizes your risk to each individual stock, protecting you from the possibility of an outright loss. And rest assured, there’s an immense amount of risk out there to mitigate. Continue reading

Tilting Spinning TopTilting, when done intentionally, is generally understood to be the act of pursuing an otherwise seemingly passive or lazy investment approach and then loading up on some specific additional investment so that your portfolio is more heavily weighted or biased toward that investment. This is done for the purposes of trying to earn greater return than the purely passive approach might afford you, i.e. you are attempting to outperform the market. For instance, you may buy an S&P index fund as part of your portfolio and then purchase additional shares of Apple separately. You are then tilted toward Apple in particular and technology more generally because your S&P index fund already contains shares of Apple, giving you exposure to the company and its sector. While there is absolutely nothing wrong with purposely tilting as a practice so long as you understand the risks – it’s your business – you must be wary that you not end up inadvertently doing it in your pursuit of passive portfolio diversification. If you never meant to tilt and your real objective was simply passive diversification all along, then you have done yourself a disservice without realizing it by exposing yourself to unnecessary risk. By paying careful attention to a fund’s holdings during fund selection, you can avoid this. Continue reading

mount-merapi-113620_1280To say that there are some serious headwinds that we as the collective investment community must face these days is putting it lightly. Between financial downturns and outright crises including Japan’s return to recession, Greece’s distaste for austerity, and Russia’s woes with sanctions, collapsing energy prices, and a devastated ruble; the perceived need (not unanimous) for quantitative easing (QE) in Europe eclipsing $1 trillion EUR; stark observations that the world economy is shrinking; and the actions of central banks that catch us on the toilet such as that of Switzerland removing the cap on its currency vis-รก-vis the Euro, there is much to digest. How do you protect and defend your financial positions, your financial worth, your current and future holdings against such startling occurrences and circumstances? How do you protect and defend your financial, and hence personal, goals? You can do so by ensuring that you are passively invested in a well-diversified portfolio of broad-based assets with low intercorrelations, in-line with your true risk profile and investment horizon, and take advantage of the might it affords you. Continue reading

water-balance-280810Having read about how rebalancing can help you enter the financial markets with confidence irregardless of what may be around the corner, you may be wondering as to what is meant by the term in the first place. It’s fairly simple. Ideally, you are invested in a well-balanced portfolio comprised of specific allocations to certain investment vehicles that have low intercorrelations. Over your investment time horizon, you seek to maintain those allocations in order to control risk while striving to achieve your investment objectives given your particular investment profile. Continue reading

Venn_0000_0001.svg_The US equity markets have continued to climb steadily since their abysmal lows of early 2009, so much so that it seems to be making some people nervous (then again, some folks are just perpetually nervous and others make money off creating anxiety). Posts abound voicing expectations at the very least of a correction if not a serious downturn soon. Downturn ahead or no, when it comes to investing you should ask yourself a couple of questions before you go diving down the rabbit hole one more time (or for the first time): How well do I know myself? Should I even be investing at all? Before selecting a fund, before determining your asset allocation, before putting even one cent on the table, you owe it to yourself to have a frank conversation with yourself about…well…yourself. Specifically, you owe it to yourself to assess your true risk profile. Getting a handle on this could be one of the most important activities you ever undertake as a current or would-be investor. The bottom line? Taking a risk-attitude questionnaire is not enough. Continue reading

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History & Overview

In one form or another, mutual fund companies have existed in the United States since 1924 with the advent of the Massachusetts Investors Trust managed by Massachusetts Financial Services and later the formation of State Street Investment Corporation (mutual funds as investment vehicles predate these companies). In many ways, the general idea has remained the same ever since – offer small investors, or savers, access to diversified portfolios as a low-risk means of growing financial wealth. Like other financial services vendors, these investment intermediaries match savers with borrowers and provide both parties with risk sharing, liquidity, and reduced information costs. By an Investment Company Institute estimate, mutual funds worldwide accounted for close to $27 trillion USD in investment dollars as of the end of 2012. The industry is significant, needless to say, and these investment vehicles are a lazy strategy favorite. Here we offer a primer on mutual fund companies and funds, complete with a summary of some key judgement metrics. Continue reading