Last month Wealthfront hosted an event that featured our chief investment officer, Burt Malkiel. It’s wonderful to listen to Burt, because he discusses the markets with such clarity. Markets go up, and markets go down. You can’t control them. As an investor, you should instead focus your efforts on the three things you can control that will make a difference: Diversify your portfolio, minimize fees and minimize taxes. During our Q&A session, one of our clients asked Burt, “Does it make sense to diversify across financial advisors?” Burt’s answer was simple: “There is no real benefit to diversifying advisors if your advisor follows my advice of diversifying your portfolio across index funds that represent a variety of asset classes. Hiring […]
Investors throughout the world have been flocking to so-called “safe havens.“ The 10-year U.S. Treasury Bond has recently been trading at a yield between 1.5% and 2%. Short-term U.S. Treasury interest rates are near zero. Even if inflation stays at a 2% rate over the next decade, U.S. bonds will be a sure loser, providing negative real (after inflation) rates of return. If interest rates rise to more normal levels, investors will suffer substantial capital losses. Interest rates are also low in the center of Europe as well as in Japan. There are no “safe” economies where savers are able to earn positive real returns on government bonds. Most of the developed countries of the world are burdened with excessive […]
A few weeks ago, we introduced a new investment mix that excluded real estate from taxable accounts. Some readers asked why I recommended excluding real estate, when in A Random Walk Down Wall Street, I supported the inclusion of REITs in investment portfolios. I encourage people to follow four basic rules of investing: diversify your portfolio, limit fees, rebalance periodically and minimize taxes. When I tell investors to “diversify your portfolio” in my book I mean: Use many asset classes, preferably those that are relatively uncorrelated with each other. When I tell investors to “minimize taxes” in my book I mean: Use index funds to represent asset classes (index funds have very little turnover, which means they have low short-term capital […]
Today I am excited to announce the first significant improvements to Wealthfront’s investment service since I joined the company as chief investment officer. These improvements help minimize taxes and increase returns without exposing clients to more risk. I’ll detail the changes below, but I also wanted to tell you why I joined the company and what my first three months have been like. My mission, through my books, op-ed pieces and speeches, has been to help make it easier for average investors – the little guys — to win in the markets. I was a member of the board of directors of Vanguard, the leader in low-cost index investing, for 28 years. I still serve on Vanguard’s international board, where […]
At Wealthfront, we’re always looking for ways to increase our clients’ net-of-fees, after-tax returns without exposing them to more risk. We’re excited to announce two major enhancements to our investment management service, driven by Chief Investment Officer Burt Malkiel: Differentiated Asset Location: We now offer different asset allocations for taxable and retirement accounts. Tax-efficient asset classes are weighted more in taxable accounts to minimize your taxes. Improved Bond Diversification: We’ve added five new income-producing asset classes to help increase returns (for the same level of risk). We estimate these changes will increase our clients’ annual net-of-fees, after-tax return by an average of 0.5% per year. Assuming you invest $100,000 over 20 years, the changes could add approximately $28,000 to your […]
Over the past six months, Wealthfront has given a seminar on how to invest well to more than 50 Bay Area-based companies, including Facebook (FB), LinkedIn (LNKD) and Yelp (YELP). The seminar helps the audience learn how to use Modern Portfolio Theory to better manage investment portfolios. (Here’s a link to our slideshare presentation covering some of the same ground and to our seminar page) As you might expect, we talk about the idea that investing in individual stocks actually hurts portfolio returns over time. At almost every seminar, we get a question from the audience related to how someone should think about investing in real estate – not the home in which a person lives, but real estate rental properties. The […]
People in their 20s or 30s, you face some of the biggest challenges and the biggest opportunities of any investor. (See Preventive Medicine for One Young Doctor’s Growing Portfolio). If you have a solid income stream, you face a bewildering array of demands on your money. You may want to save to buy a house; you probably have college loans to pay off; and you’re already thinking about socking money away for “big ticket” items in your future like cars, vacations and kids’ college! One crucial realization you’ll have as a young investor is that different goals will require different investment vehicles. Key Investment Vehicles The Rainy Day Fund There’s no clear consensus among experts as to exactly how much […]
Carl Richards, who writes the Bucks blog for The New York Times, wrote a piece illustrating the power of diversification in a portfolio. Unfortunately, he didn’t go far enough with his definition of diversity. We agree that diversification reduces risk, as he writes here: “The magic of diversification is that you can take two individual investments, which when viewed in isolation are individually risky, and blend them in a portfolio. Doing so creates an investment that’s actually less risky than the individual components and often comes with a greater return. In finance, this is as close as we get to a free lunch.” But Mr. Richards used as his example of diversification only two asset classes, stocks and bonds. A […]
When the market takes a sharp dive, two groups of people worry: those who ought to, and those who shouldn’t. If you are an investor comfortable with your portfolio allocations and your risk profile, now is not a time to panic. You can look to the professionals for some clues. Many are treating this shift as an opportunity to buy equities. “We believe this sell-off will provide opportunities to tweak our portfolio to buy more of good companies that have been oversold and sell good companies that have held up well. Since we are fully invested, we can’t buy ‘more’, but we can upgrade the quality and characteristics of the portfolio at this time,” says Glenn A. Dever, president of […]
After many decades of public health campaigns, Americans know the sure-fire ways they can sabotage their health. Smoke. Eat too much. Be a couch potato.
Last year, the SEC asked the Library of Congress to survey the universe of research into investor behavior to come up with a similar list of ways that investors screw up.
Surprisingly, the evidence was clear-cut against nine specific practices, many of which are commonly, often implicity, promoted by the financial services industry and the media that covers it.
According to the Library of Congress, these are the nine most common investing mistakes (In some cases, the links below are to subscription sites, as some of the research is not available online for free.)