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Managing Your Portfolio: One Father’s Advice

  • August 20, 2015/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Best Practices, Personal Finance

Writing letter to a friend.Arthur Zeikel, president of Merrill Lynch Asset Management, sent his daughter a letter teaching her some investing basics.

Enjoy!

———

Personal portfolio management is not a competitive sport. It is, instead, an important individualized effort to achieve some predetermined financial goal by balancing one’s risk-tolerance level with the desire to enhance capital wealth. Good investment management practices are complex and time consuming, requiring discipline, patience, and consistency of application. Too many investors fail to follow some simple, time-tested tenets that improve the odds of achieving success and, at the same time, reduce the anxiety naturally associated with an uncertain undertaking.

I hope the following advice will help:

A fool and his money are soon parted. Investment capital becomes a perishable commodity if not handled properly. Be serious. Pay attention to your financial affairs. Take an active, intensive interest. If you don’t, why should anyone else?

There is no free lunch. Risk and return are interrelated. Set reasonable objectives using history as a guide. All returns relate to inflation. Better to be safe than sorry. Never up, never in. Most investors underestimate the stress of a high-risk portfolio on the way down.

Don’t put all your eggs in one basket. Diversify. Asset allocation determines the rate of return. Stocks beat bonds over time.

Never overreach for yield. Remember, leverage works both ways. More money has been lost searching for yield than at the point of a gun (Ray DeVoe).

Spend interest, never principal, If at all possible, take out less than comes in. Then a portfolio grows in value and lasts forever. The other way around, it can be diminished quite rapidly.

You cannot eat relative performance. Measure results on a total return, portfolio basis against your own objectives, not someone else’s.

Don’t be afraid to take a loss. Mistakes are part of the game. The cost price of a security is a matter of historical insignificance, of interest only to the IRS. Averaging down, which is different from dollar cost averaging, means the first decision was a mistake. It is a technique used to avoid admitting a mistake or to recover a loss against the odds. When in doubt, get out. The first loss is not only the best, but is also usually the smallest.

Watch out for fads. Hula hoops and bowling alleys (among others) didn’t last. There are no permanent shortages (or oversupplies). Every trend creates its own countervailing force. Expect the unexpected.

Act. Make decisions. No amount of information can remove all uncertainty. Have confidence in your moves. Better to be approximately right than precisely wrong.

Take the long view. Don’t panic under short-term transitory developments. Stick to your plan. Prevent emotion from overtaking reason. Market timing generally doesn’t work. Recognize the rhythm of events.

Remember the value of common sense. No system works all of the time. History is a guide, not a template.

This is all you really need to know.

When this article was originally published in 1995, Arthur Zeikel was president of Merrill Lynch Asset Management in New Jersey.

Source: Forbes


When Your City Became Unaffordable

  • July 23, 2015/
  • Posted By : admin/
  • 0 comments /
  • Under : Best Practices, Economy, Personal Finance

unaffordable

rent


College Majors Figure Big in Earnings

  • June 25, 2015/
  • Posted By : admin/
  • 0 comments /
  • Under : Personal Finance, Retirement

college-majors

Source: WSJ


Class of 2015: Financial Advice That will CHANGE YOUR LIFE

  • May 28, 2015/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Best Practices, Personal Finance, Saving Money

PDS-CommencementThe following is a brief excerpt from the commencement address by Dr. Chris Mullis to the graduating class of Providence Day School on May 31, 2013. The full text of Dr. Mullis’ speech, that includes career advice, financial guidance, and a few pearls of wisdom, can be found here.

At my investment advisory firm, we developed complex computer algorithms and use them to manage our clients’ investment portfolios. But the basic steps you need to take to manage your own money well are deceptively simple. First, live within your means and avoid being caught up in rapid lifestyle inflation. You will not live like your parents when you first start out. Second, save and invest your money wisely. Let me elaborate on this point.

Wealth accumulation depends on three factors: how much you save, the rate at which your money grows, and how long you save. That last factor, time, is very, very important. There’s an urban legend that Albert Einstein once said that compounding interest is the most powerful force in the Universe. That quote is likely misattributed but the message is spot on. If you save $5,000 a year for 40 years and earn 8% annually, you will eventually have $1.3M. But if you delay starting for merely 5 years, your results after 35 years will be only $860k. That 5-year delay preserved $25k of short-term capital but ultimately cost you >$400k in the long run. Time is the most powerful lever in the machinery of investing. Nothing else comes close to it.

So what do you need to do? Start saving and investing right out of high school regardless of how hard you think it hurts or how unpleasant the tradeoffs. Even if you set aside only 5% of your paycheck starting out, do it to get into the habit of saving. Delaying getting serious about investing until my 30s was a significant financial mistake on my part. No one ever sat me down and explained how important it is to start investing early. Now that we’ve had this little talk, you’ll never be able to say that no one told you.


Renting vs. Buying: Which is Cheaper for You?

  • May 14, 2015/
  • Posted By : admin/
  • 0 comments /
  • Under : Best Practices, Personal Finance

The decision to rent or buy a home depends on where you live, and also on your mortgage rate, tax bracket, how long you’ll stay put—and whether you’ll need to pay homeowners’ association fees. ‘Cause in some markets, this added cost makes renting cheaper than buying.

Click for an interactive graphic.

rent-vs-buy

Source: Trulia


Americans’ Optimism About Finances at 11-Year High

  • April 23, 2015/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Economy, Personal Finance

xjd413-lme6budqtdbasyqAccording to Gallup:

A majority of Americans, 52%, say their financial situation is “getting better,” the highest percentage to say this since 2004. It is also the first time since the recession that this sentiment has reached the majority level.

These data are from a Gallup’s annual Economy and Finance survey, poll conducted April 9-12. The percentage of Americans saying their situation is getting better rose nine percentage points from last year.

Source: Gallup


Younger Generation Faces a Savings Deficit

  • November 13, 2014/
  • Posted By : admin/
  • 0 comments /
  • Under : Behavior, Personal Finance, Saving Money

student-savings

According to the Wall Street Journal,

“Adults under age 35—the so-called millennial generation—currently have a savings rate of negative 2%, meaning they are burning through their assets or going into debt, according to Moody’s Analytics. That compares with a positive savings rate of about 3% for those age 35 to 44, 6% for those 45 to 54, and 13% for those 55 and older.

The turnabout in savings tendencies shows how the personal finances of millennials have become increasingly precarious despite five years of economic growth and sustained job creation. A lack of savings increases the vulnerability of young workers in the postrecession economy, leaving many without a financial cushion for unexpected expenses, raising the difficulty of job transitions and leaving them further away from goals like eventual homeownership—let alone retirement.”

Source: WSJ


Credit Card Comparison Sites are NOT unbiased

  • August 28, 2014/
  • Posted By : admin/
  • 0 comments /
  • Under : Best Practices, Personal Finance

cardsIf you google “credit card comparison” you’ll get a long list of review websites.  These sites purportedly provide an objective, unbiased analysis for consumers looking for a good credit card.   But if you dig into the fine print, you’ll discovered that very often lenders pay to advertise on those sites!  If fact, credit card providers take a heavy hand in dictating how their cards show up on these sites.

These six websites’ credit card comparison tools show only cards from lenders that pay to advertise:

  • Credit.com
  • CreditDonkey.com
  • CreditSeasame.com
  • FindTheBest.com
  • Mint.com
  • MyRatePlan.com

Many others show mostly advertiser cards and those credit cards receive preferential treatment.

Usually, the card-comparison sites get paid only if consumers start the card application process on the site and the lender approves them for a card.

Buyer (or credit card carrier) be ware!

Source: WSJ


75% of Americans get the Most Important Investing Question WRONG

  • August 21, 2014/
  • Posted By : admin/
  • 0 comments /
  • Under : Bonds, Mutual Funds, Performance, Personal Finance, Seeking Prudent Advice

Powerful observation from Vox.com regarding public perception versus reality when it comes to how to best invest your money:

Which of the following do you think is the best long-term investment?

  1. Real Estate

  2. Gold

  3. Stocks/Mutual Funds

  4. Savings Account

Don’t feel bad if you didn’t get the answer right. You’re in good company.

Recently, Gallup asked Americans what they thought their best investment bet was over the long run. 24 percent of Americans named stocks and mutual funds — but the same share named gold, and even more (30 percent) named real estate. The trend lines are actually positive, as in 2011 a baffling 34 percent of Americans named gold as their top pick:

gallupThere’s a right answer here — and it’s one that about two thirds of respondents who answered the question got wrong. If history is any guide, stocks are the best bet in the long run, and gold and real estate certainly are not.

siegel_returns

Source: Vox.com


Student Debt Linked to Worse Health and Less Wealth

  • August 14, 2014/
  • Posted By : admin/
  • 0 comments /
  • Under : Personal Finance, Seeking Prudent Advice

student-debtThe negative effects of student debt are significant and persistent according to a new Gallop poll.  Those who borrowed more than $25,000 are less likely to enjoy work and are less financially and physically fit than their debt-free peers even 24 years after graduation.

Gallop examined five elements of well-being:

  • Purpose: liking what you do each day and being motivated to achieve your goals
  • Social: having supportive relationships and love in your life
  • Financial: managing your economic life to reduce stress and increase security
  • Community: liking where you live, feeling safe, and having pride in your community
  • Physical: having good health and enough energy to get things done daily

Financial and physical well-being show the strongest relationship with student debt.  Conversely, social well-being appears to have the weakest debt link.

“These results offer a new dimension of how college debt affects the rest of your life and it gives us more cause for concern,” said Brandon Busteed, executive director of Gallup Education.

Source: Gallup


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