When to sell your employee stock

If you work for a public company then you probably struggle with deciding when you should sell your stock options or RSUs. The data, which we’ll share in this post, clearly says you should sell immediately, but if you’re like most people, that just doesn’t feel right. Perhaps it’s because you feel like you’re being disloyal to your employer (you’re not), you would be embarrassed facing your CEO if you did (she will never know), or you fear the regret you would feel if your company’s stock continues to appreciate. In this post, we use historical data to examine the liquidation decision from the behavioral perspective of regret minimization. Strikingly, we find that the longer you wait to liquidate, the […]

Why Diversify a Concentrated Portfolio?

If you work for a successful company, chances are a significant share of your wealth is tied up in your employer’s equity. This likely makes you wonder if you are better served diversifying out of your concentrated position. In this post, we use Modern Portfolio Theory to show why your employer’s stock has to have amazing prospects to justify maintaining a large position in it. Modern Portfolio Theory in Reverse In their Nobel Prize winning work on Modern Portfolio Theory (MPT), Harry Markowitz and Bill Sharpe provided a recipe for the construction of the ideal portfolio given an investor’s beliefs about asset returns and attitudes towards bearing risk. MPT states that one can construct an “efficient frontier” of optimal portfolios […]

Active Investing: Rest in Peace or Resurgent Force?

Editor’s note: Today’s guest post is republished from Professor Aswath Damodaran’s blog, Musings on the Market. I was a doctoral student at UCLA, in 1983 and 1984, when I was assigned to be research assistant to  Professor Eugene Fama, who wisely abandoned the University of Chicago during the cold winters for the beaches and tennis courts of Southern California. Professor Fama won the Nobel Prize for Economics in 2013, primarily for laying the foundations for efficient markets in this paper and refining them in his work in the decades after. The debate between passive and active investing that he and others at the University of Chicago initiated has been part of the landscape for more than four decades, with passionate […]

You Don’t Need to be a Parent to Benefit from 529 Accounts

When I learned that our investment team, a group of talented PhDs, was helping our clients with the problem of saving for their children’s future college education and building our own tax-advantaged 529 college savings plan, I was excited because I have two eight year old girls and I still hadn’t started a 529 plan for them. Now I have one for each of them. Get Ahead of the Chaos Parenthood Brings Since launching our own 529 College Savings Plan, we have spoken with many clients who found clever ways to save on taxes today, while simultaneously saving more towards their future financial goals. These clients know that one of the beautiful things about 529s is that, whether you already […]

Your 2016 Year-End Personal Finance Checklist

Unfortunately, it’s human nature to push off thinking about personal finances until the end of the year, if at all. If this describes you, don’t despair! There’s still time left before 2016 draws to a close to make some meaningful decisions, which is why we put together a checklist of important tasks you should consider before the New Year. Top off your emergency fund Give yourself and your family the gift of an emergency fund. We typically suggest you set aside three to six months of your monthly spending, but everyone’s situation is different. To help determine what’s right for you, we suggest you read Build the Emergency Fund That’s Right for You. Our recommendation is to keep your emergency […]

If You Like Vanguard, You’ll Love Wealthfront

I am often asked by people unfamiliar with our service, “Why should I use Wealthfront to buy a portfolio of Vanguard index funds, when I could buy the same funds directly from Vanguard without paying any advisory fee?” It’s a perfectly reasonable question, but it has a very simple answer.  Wealthfront can save you significantly more money in taxes than the 0.25% a year you’ll pay us in advisory fees — up to eight times as much, in fact. There’s also the comfort of knowing that you can take a “set it and forget it” attitude towards your investment, confident that professionals will be looking after the routine housekeeping tasks that are crucial for any investing strategy. Even Vanguard’s management […]

What Client Data Teaches Us About Chasing the Market

When it comes to investing for the long term, Wealthfront is an advocate of staying the course and making regular deposits, even when your account is down. In a previous post, we compared the returns of two hypothetical investors, one who invested consistently and one who only invested when her total investment returns since inception were positive. Using simulated returns for Wealthfront portfolios, we found that the investor who disregarded market performance and consistently invested outperformed in the long run. What Does Actual Client Behavior Show? Wealthfront has the advantage of having access to actual client behavior and subsequent account performance. In the below analysis, we group clients based on their deposit-timing behavior and compare investment performance of each group. […]

Is Indexing Worse Than Marxism?

Index funds have always been ridiculed by active mutual-fund managers.  Two recent events have fueled a new set of criticisms.  The mid-year 2016 Standard and Poor’s report on index fund performance showed that the superiority of low-cost indexing, whether in the form of mutual funds or exchange-traded funds (ETFs), has increased over time.  Over the preceding five and ten-year periods, index funds outperformed over 80 percent of their active peers.  It has become increasingly untenable to claim that passive index investing produces mediocre results.  The second related event is that investors have increasingly taken note.  Money has been pouring out of active mutual funds and into passively-managed index funds.   Last year investors pulled over $200 billion out of actively-managed […]

Navigating Taxes for the Self-Employed

If you’re one of the many people who work as an independent contractor or self-employed individual, you’ve probably wondered if you’re doing the right thing when it comes to your tax returns.  Are there tax benefits you’re missing out on?  Should you form a business entity?  These are common questions and the answers will vary depending on circumstances.  Let’s explore some basic guidelines for dealing with taxes when you’re self-employed. What’s deductible? I tell my clients that nearly every dollar you spend in relation to your business is tax deductible in some fashion.  There are three keys to remember for staying out of trouble: Expenses should be ordinary and necessary. You can’t deduct personal expenses. Don’t spend more money than […]

Our Advice After Election Night

Last night’s election results came a shock to many people. If the past is any predictor of the future, I would expect a lot of our clients to feel incredibly unsettled as a result. The situation reminds me a lot of what happened immediately after the Brexit vote. Most people have forgotten that the FTSE 100 (an index of the 100 largest market cap stocks on the London Stock Exchange) declined 3.15% the first day after the vote, but finished the week up 1.99%.  Markets around the world dropped, recovered, dropped again and then rose to a level well in excess of where they were before the election. So what’s our advice for worried investors? Same as always: Do nothing. […]