Tag Archives: stocks

9 top Personal Tips for Long-Term Index Fund Investments

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Photo by Yan Krukau on Pexels

Long-term investments in index funds can secure your financial future, but what strategies do the experts use? In this article, insights from business leaders and Financial Officers shed light on successful investment tactics.

Learn why diversifying across sectors and regions is crucial, and discover the benefits of adopting a set-it-and-forget-it approach.

This post compiles nine valuable tips to help you navigate your investment journey.

 

 

  • Diversify Across Sectors and Regions
  • Start Early and Invest Consistently
  • Maintain Consistency Through Market Fluctuations
  • Stay the Course During Market Downturns
  • Diversify Across Global Markets
  • Avoid Over-Diversifying with Index Funds
  • Automate and Regularly Invest
  • Stick with a Single Index Fund
  • Adopt a Set-It-and-Forget-It Approach

Diversify across Sectors and Regions

When I invest in index funds for the long-run, I like to spread my money across different sectors and regions. This way, I’m not putting all my eggs in one basket, and can buffer against any market downturn. I also regularly rebalance my portfolio to keep everything in the right proportions as the markets move. By consistently adding to my investments, and avoiding the urge to time the market, I’ve found a reliable way to achieve steady growth over time. — Shane McEvoy, MD, Flycast Media

Start Early and Invest Consistently

The approach is simple: Start early and invest consistently, regardless of market conditions. This method, known as dollar-cost averaging, has proven effective based on my analysis of market trends and investment patterns.

Here’s the gist: Choose a broad, low-cost index fund (like one tracking the S&P 500) and invest in it regularly: monthly or quarterly. The key is maintaining this routine even during market turbulence.

This strategy works by removing the stress of timing the market and allowing you to buy more shares when prices dip. Over time, this can lead to significant returns. — Markus Kraus, Founder, Trading Verstehen

Maintain Consistency through Market Fluctuations

One key tip for long-term investments in index funds is consistency. Regularly invest through dollar-cost averaging, regardless of market fluctuations. This strategy reduces the impact of market volatility and allows you to benefit from compounding returns over time. Additionally, stay focused on your long-term goals and avoid reacting to short-term market noise. Patience and discipline are essential when investing in index funds, as they provide steady growth over extended periods. — Jocarl Zaide, Chief Financial Officer, SAFC

Stay the Course during Market Downturns

One personal tip for making long-term investments in index funds is to stay the course and avoid timing the market. Index funds are designed to mirror the performance of entire markets, and over the long term, markets tend to grow despite short-term volatility. Based on my experience, consistently investing — even during market downturns — through a strategy like dollar-cost averaging can help smooth out the effects of market fluctuations and take advantage of buying opportunities when prices are lower.

Patience is key. By keeping a long-term perspective and regularly contributing to your index fund, you allow compound growth to work in your favor. Resist the urge to react to market drops by selling or trying to predict market highs, as this often results in missed gains. The power of index funds lies in their diversification and ability to grow with the broader market over time, making them a reliable choice for long-term wealth-building. — Rose Jimenez, Chief Finance Officer, Culture.org

Diversify across Global Markets

My top recommendation for long-term index-fund investing is to diversify across global markets. While many investors focus solely on domestic indices, incorporating international exposure can significantly enhance your portfolio’s resilience and growth potential. Consider allocating a portion of your investments to index funds tracking developed and emerging markets worldwide. This approach helps spread risk across different economic cycles and currencies, potentially smoothing out returns over time.

On top of that, as the global economy becomes increasingly interconnected, you’ll be better positioned to capture growth opportunities wherever they arise. Remember, diversification doesn’t guarantee profits or protect against losses, but it’s a powerful tool for managing risk. Regularly review and adjust your global allocation based on changing market conditions and your risk tolerance, always keeping your long-term objectives in sight. — Brandon Aversano, CEO, The Alloy Market Continue Reading…

Market Forecasts: Potential Impacts of Trump’s Victory on U.S. Stocks, Global Markets, and Crypto

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By Toby Patrick

(Special to Financial Independence Hub)

Donald Trump is poised once again to become the president of the United States, becoming only the second president to be reelected after leaving the White House. The last time this happened Grover Cleveland was celebrating his second stint as president from 1893 to 1897.

Two world wars, a Great Depression, and 23 presidents later, it’s safe to say the world looks very different.

Cleveland’s second stint in office began with a decline in the New York stock market in what was known as the ‘Panic of 1893’. Fast forward over 130 years and the U.S. election is still closely linked to the performance of the U.S. stock market. Only this time we’re talking tariffs, tech companies, and cryptocurrencies. 

This article will explore what a Trump victory could mean for markets around the world.

What does Trump’s Victory mean for the U.S. Stock Market?

The general consensus is that Donald Trump’s victory will be good for businesses and the U.S. stock market. If the immediate reaction on the 6th of November is anything to go by, this would be true. Many U.S. shares hit record highs and the S&P surged by around 2.5% as investors bet on Trump’s pro-business policies.

At the heart of this initial boom were companies that stand to benefit from Trump’s hard-hitting tariffs that are to be imposed on international imports. Take the Elon Musk-owned Tesla for example. The world’s richest man acted as the President’s mouthpiece in the run-up to the election, and it’s easy to see why.

Not only do Trump’s policies favor high-net-worth individuals, but his threatened 60% tax on Chinese imports would essentially burden the competition to American-owned businesses. Tesla’s share price subsequently rose to a yearly high as news of Trump’s win filtered in.

On the flip side, Trump’s tariffs might not be good news for all American stocks. Large tech corporations rely heavily on Chinese imports. Increased costs could impact the share price of the “Magnificent Seven” stocks while also seeing the consumer pick up the cost through higher prices for electronic goods.     

What does the Trump Victory mean for the Global Stock Market?

Generally speaking, if a Trump victory is good for the U..S economy, it’s good for major global corporations that export to the U.S. Initial optimism across the rest of the world mirrored that in the U.S. However, unlike the U.S., the euphoria was dying out by Wednesday as investors realized the implications of the tariffs mentioned above and what they could mean for international trade.

While China has been threatened with the strictest of Trump’s tariffs, a 10% tax on all U.S. imports would impact Europe too. Take the U.K. for example. Rolls-Royce is one of the world’s biggest manufacturers of aircraft engines and heavily exports to the U.S. While companies like this may benefit from an upswing in the American economy, this could be wiped out by increasing taxes. 

This view would line up with performance too. Rolls-Royce Holdings initially rose as the news of a Trump victory filtered in before sharply declining to pre-election prices as investors possibly started to consider the future of international trade.

What does the Trump Victory mean for Cryptocurrencies?

Today, it’s becoming increasingly common for investors to look beyond traditional stock markets when it comes to investing. One of the most common alternatives, and a big talking point throughout the election campaign, is Bitcoin and other cryptocurrencies. Trump was seen as the pro-crypto option, publicly stating his positive view on crypto and even previously being involved in the promotion of NFTs. Continue Reading…

Investing in AI: what stocks will it pay off for?

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Investing in Artificial Intelligence: We feel it could have a huge positive potential, but watch for these risks and rewards

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Artificial Intelligence (AI) only crossed the fiction-to-news barrier in recent years, after decades as a staple of Arnold Schwarzenegger films, but it’s already influencing the economy and is likely to increase its impact. We feel it could have a huge positive potential. This development has also caught the attention of many investors who are contemplating the prospects of investing in AI.

Media comments on this subject abound, as do surveys.  The average person seems fascinated with AI’s potential for good, but wary of its potential for harm. You might say this resembles the atmosphere a decade or so ago when self-driving cars started appearing in the news.

In both cases, middle-of-the-roaders were in the majority. Extreme types came up with much different outlooks.

Negative observers said self-driving vehicles would lead to an economic collapse because multitudes of drivers of trucks, taxis, buses and so on would lose their jobs.

At the other end of the spectrum, a smaller extreme felt driver-less vehicles would balloon human productivity and expand wealth around the world. After all, people could do valuable work in traffic, just as well as in an office, or use the time for a nap. They looked forward to a day when owning your own car would be a needless extravagance. When you needed a lift, you’d just summon a driver-less limo on your cellphone. A little further along, new homes will be available with or without garages or parking spots. Your self-driver will be able to valet itself to a community parking lot.

Looking a little further still, your car might be able to take itself out for maintenance, service, fuel, or any number of errands. Artificial Intelligence just might speed the arrival of these advances.

However, there’s an even wider opinion spectrum on Artificial Intelligence. Rather than a booming jobless rate, the negative side foresees Armageddon: humans versus machines.

It seems conflicts of interest are playing a role, along with honest differences of opinion, in disputes over Artificial Intelligence. This reminds me of the debate over Y2K.

The Y2K debate showed there is big money in alarmism. Some of the top Y2K promoters used Y2K fears to build a following and boost their incomes from writing, consulting or public speaking. Pessimists worried needlessly about Y2K and made a lot of money. I expect the same reaction to AI.

Mainstream opinion or Al Gore on steroids?

Ratings for cable news pioneer CNN have been slumping for a decade. Coincidentally, CNN.com recently published an essay entitled: “Experts are warning AI could lead to human extinction. Are we taking it seriously enough?”

The essay begins: “Think about it for a second … The erasure of the human race from planet Earth. That is what top industry leaders are frantically sounding the alarm about … potential dangers artificial intelligence poses to the very existence of civilization.”

It passes along a warning: “… hundreds of top AI scientists, researchers, and others … voiced deep concern for the future of humanity, signing a one-sentence (italics added) open letter to the public … mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war …”

You have to give them credit for leaving climate change off the list.

Read Marc Andreessen’s essay on AI

If you’re investing in AI and Artificial Intelligence fears keep you awake at night, I’d suggest a 7,000-word remedy by Marc Andreessen, entitled, “Why AI will save the world.”

In all I’ve read about AI, this is the best comment I’ve seen. It describes AI in plain English; explains how AI can expand human intelligence; how we have used human intelligence over millennia to create today’s world. It also speculates about the gains we may see in the new era of AI. Continue Reading…

Now (and always) is the worst time to invest in bonds

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Image courtesy AlainGuillot.com

By Alain Guillot

Special to Financial Independence Hub

With friends on a rainy day
With friends on a rainy day

Anytime anyone consults a financial advisor, two things typically occur:

  1. The financial advisor tends to recommend their “in-house” products, which often come with high management expense fees ranging from 2-3%
  2. They inquire about your age and then miraculously present a fund tailored to individuals in your age group.

We’ve discussed point #1 in previous posts. Financial advisors invariably promote funds with high expense fees because they receive kickbacks known as trailer fees, which constitute a significant portion of their income. However, it’s important to note that these trailer fees come out of your pocket. It is in the financial advisor’s best interest to consistently suggest products that offer the most generous commissions.

Despite the fact that there are numerous low-cost index funds and ETFs that might be the best options for their clients, financial advisers seldom recommend them because they do not generate commissions. The success of investment advis0rs often depends on their clients’ lack of knowledge.

As for point #2, they are equally inadequate. The typical formula for selecting a stock-and-bond portfolio is to subtract your age from 100%. This implies that if you are 30 years old, your portfolio should consist of 70% stocks and 30% bonds. If you are 50 years old, the recommended allocation is 50% stocks and 50% bonds, and so on.

Is age really the most significant factor? What if I am already a millionaire? What if I am struggling to pay my rent? What if I am in good health? What if I am in poor health? These factors seem to be overlooked, as financial advisers simply refer to tables provided by their employers and assign clients to predetermined brackets from their sales manuals.

Historically, stocks have consistently outperformed bonds as an investment, but investing in bonds can create a false sense of security. In reality, bonds offer reduced volatility, but less volatility does not equate to lower risk. Over the long term, bonds are not less risky than stocks; they are simply less volatile.

The truth is that the more bonds you hold in your portfolio, the more you limit your growth potential. Why would anyone sacrifice their potential for earnings simply because they are older? When you are older and in need of your money the most, that’s precisely when you would want your money to work its hardest for you. Continue Reading…

Is it reasonable to have irrationally high return expectations?

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Image courtesy Pexels: Jakub Zerdzicki

By John De Goey, CFP, CIM

Special to Financial Independence Hub

When I ask clients and prospective clients about the return expectations they have for their portfolios, the responses vary wildly …  anywhere from ‘about 5%’ to ‘over 10%.’  Almost all of these expectations are too high.

 Admittedly, clients have different risk profiles leading to different asset allocations and ultimately, different outcomes. That’s reasonable.  A problem crops up when otherwise reasonable people have been socialized into having out-sized expectations.  How does one ethically re-calibrate expectations for irrational optimists who nonetheless think they’re within their rights to have those expectations?

The behavioural finance concept is overconfidence, although the attitude involves elements of optimism bias, cognitive dissonance and old-fashioned hubris, too. To quote J.M. Keynes: “Markets can remain irrational longer than you can remain solvent.” Few investors are prepared to acknowledge that the recent bull market seems unlikely to continue and that a recession appears to be on the horizon.

Learning from past Crashes

If we have learned anything from the great crashes of 1929, 1974, 2001 and more recently, the global financial crisis, it is that investors (often spurred by accommodative policy positions) can come to think of themselves as being all but invincible when central bankers are accommodative. Too often, they also lose their nerve when markets tumble and stay low for a prolonged period.

A good deal of personal finance is grounded in social psychology: especially group psychology.  People can get ahead through investing not only by being shrewd about valuations and such, but also by accurately anticipating how other market participants might react to a given set of circumstances.  Of course, it cuts both ways: and having reasonable expectations in the first place often assists investors in staying the course.

My concern is with the messaging being offered by many in the personal finance community these days is something I call “Bullshift.”  The industry shifts peoples’ attention to make them feel more bullish. To hear many in the business tell it, there’s no appreciable need to be concerned about high valuations, high debt levels (both public and private), a long-inverted yield curve and interest rates at generational highs.  Any one of these considerations would ordinarily give a rational investor pause. Taken together, they pose a clear and present danger for investors in the second half of 2024. Few seem concerned and it is that very lack of concern that concerns me.

Misleading investors with “Bullshift”

There is a directionally and mathematically accurate ad running by Questrade making the rounds that doesn’t tell the whole picture, either. Again, even the ‘good guys’ tend to mislead the average investor with Bullshift. The advertisement shows what you would earn over a long timeframe at 8% and what you would earn at 6%.

My question to you is simple: is it reasonable to assume an 8% return is even possible? There is longstanding evidence that higher-cost active investment strategies actually fail to outperform cheaper strategies such as passive index investing and that product cost certainly does matter. Continue Reading…