As the market rally persists, many investors will no doubt be kicking themselves and wishing that they had bought in earlier. Some will convince themselves that they better get on board or risk missing out on this bull market. There are many good reasons to invest money, but choosing to get in because of the potential gains that you could have made is not one of them. In the same way that people capitulate and sell out near market bottoms, there is also a big behavioral driver that seems to make people capitulate and join the herd towards the end of big bull markets. I am not saying that we are poised for decline (I am not a good market timer), but simply noting that buy or sell decisions made on the basis of what you wished you had done last month or last year is often truly dangerous. Continue Reading »
Posted in Behavioral Finance, Financial Advisors, Long-term investing, Regular Investing | Tagged bull market, consistent investing, index fund, investor returns, lost decade, market timing, Morningstar, recovery, retirement planning, return data, under-performance, wealth accumulation | Leave a Comment »
The yield of an asset is a key component of predicting future returns. This is true for the yield on Treasury bonds as well as the dividend yield for stock indexes. The yield on aggregate bond indexes is considered a good proxy for future expected returns. The dividend yield of broad stock indexes has been shown to provide significant value in predicting future stock index returns. In both cases, low yields tend to predict high future returns, and vice versa. These arguments that yields predict returns are not without critics, especially for equities. Continue Reading »
Posted in Bonds, Dividends, ETFs, Real Estate | Tagged analysis, Bill Bernstein, dividend yield, equity REITs, ETFs, future returns, future variability, predictors, REITs, Treasury bonds, volatility levels | Leave a Comment »
Guest post by Contributing Editor, Robert P. Seawright, Chief Investment and Information Officer for Madison Avenue Securities.
Value has persistently outperformed over the long-term. Why is that?
In the most general terms, growth stocks are those with growing positive attributes – like price, sales, earnings, profits, and return on equity. Value stocks, on the other hand, are stocks that are underpriced when compared to some measure of their relative value – like price to earnings, price to book, and dividend yield. Thus growth stocks trade at higher prices relative to various fundamental measures of their value because (at least in theory) the market is pricing in the potential for future earnings growth. Over relatively long periods of time, each of these investing classes can and do outperform the other. For example, growth investing dominated the 1990s while value investing has outperformed since. But value wins over the long haul. Continue Reading »
Time magazine has a new article on changes in the home ownership in America. The article, titled A Nation of Renters: Should We Be Worried That Fewer Americans Own Homes?, explores the substantial decline in the fraction of Americans who own their own homes. I have followed this issue for quite some time and the implications for investors may be substantial. Continue Reading »
Posted in debt, Real Estate | Tagged first-time homebuyers, home improvement, home loans, homeowners, homeownership, income property, investment property, Real Estate, real estate bubble, recent college graduates, REITs, renters | Leave a Comment »
Every year when the forecasts for the hurricane season are issued, there have been a spate of articles on implications for investors. This year was no exception. USA Today reported that U.S. natural gas prices jumped 3% on the basis of a forecast for an active hurricane season in 2013. It is also common to read that companies are attributing poor earnings to unusual weather. Continue Reading »
April is financial literacy month. I believe that lack of financial knowledge is one of the most critical problems that our country faces. Continue Reading »
Posted in Bonds, Books, debt, Diversification, financial planning, Inflation, pensions, Portfolio Investing 101, Retirement, Stock Investing | Tagged college costs, Fees, fiduciary resposibility, financial literacy, saving | Leave a Comment »