If you’ve ever worked with a financial planner or investment advisor, there’s a good chance you’re using an investment strategy known as strategic asset allocation. While you may not know it by that name, you’re probably familiar with how it works. What you may not be of aware of, however, are how recent changes in financial markets have made this approach to investing more dangerous than ever before.
In the quest to become a savvy investor, one of the most important concepts you must understand is that of the business cycle. This periodic ebb and flow of our economy exerts tremendous influence not just on asset prices, but on everything from interest rates to the availability of jobs. Since nearly every aspect of your financial life will be influenced in some way by the business cycle, it pays to have a basic conceptual understanding.
With the Federal Reserve having recently raised interest rates for the fourth time since the financial crisis, we thought it was an opportune time to discuss how changes in interest rates affect you as an investor. In this article we discuss the role of interest rates in an economy, how those interest rates change over time, and how those changes affect the value of different components of your portfolio.
With each and every investment that you make, you’re going to be giving up one benefit in exchange for another. Most of the time, this trade-off is between risk and potential return. Understanding this trade-off at a conceptual level will go a long way in helping you to select the right investments (or strategies) on your path to retirement.
The age-old idea of not having all your eggs in one basket is considered timeless wisdom, but could it be working against you? In truth, diversification is a double edged sword. The benefit that it provides comes at a mighty cost. When it comes to investing, most individuals aren’t aware of the hidden price they pay for this so-called “free lunch.”
Stocks? Bonds? Cash? Where should your money be invested? Over the last few decades it has become commonplace to talk about stocks and bonds from a fixed-allocation perspective. This approach to portfolio management has become ingrained in our society; however, it is a very dangerous way to approach investing.
Target-date funds have increased in popularity during recent years as a result of investors continually searching for easy, one-size-fits-all solutions to manage their money. But just how appropriate are these funds for the average investor? The answer may surprise you.
If you’ve done your homework and are aware of the risks of owning bonds, then you might have heard the argument that you can eliminate interest rate risk by owning individual bonds and holding them to maturity. Let’s explore whether or not there is any truth to this line of reasoning.
When it comes to fixed income investing, there are two options available to investors. You can own individual bonds, or you can purchase shares of a bond fund. Both options have unique advantages and disadvantages that make them suitable under certain conditions.
During the last few decades, bonds have developed a reputation as being one of the safest asset classes to invest in. This is unfortunate because that false sense of security is going to take a large bite out of the retirement accounts and portfolios of many investors.
