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Blog | The Portfolio Doctor

The Portfolio Doctor

My blog provides valuable insights into Nobel Prize-winning financial strategies for investors. By utilizing decades of worldwide peer-reviewed capital markets research and analysis, I demonstrate how to build better investment portfolios with lower risks. I also examine common financial media misinformation and how investors can make better financial decisions.

How Evidence-Based Indexing Works

The strategy uses common sense, data and financial science to boost performance.

In the hallowed halls of academia, noted professors at the top business schools are teaching entire semesters on the benefits of investment strategies using passive indexes instead actively managed mutual funds or picking stocks.

As of 2017, more than $4.5 trillion has flowed into passive index funds and exchange-traded funds. What is passive investing, why are trillions of dollars flowing to this strategy, and more importantly is there a better way to invest?

To fully understand passive investing, it is helpful to understand active investing. Here investment managers (or investors doing it on their own) try to outperform the overall stock market or a specific part of the market using strategies such as fundamental and technical stock picking or market timing.

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Mind Over Model

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Checking the weather? Guess what—you’re using a model. While models can be useful for gaining insights that can help us make good decisions, they are inherently incomplete simplifications of reality.

In investing, factor models have been a frequent topic of discussion. Often marketed as smart beta strategies, these products are based on underlying models with limitations that many investors may not be aware of.

To help shed light on this concept, let’s start by examining an everyday example of a model: a weather forecast. Using data on current and past weather conditions, a meteorologist makes a number of assumptions and attempts to approximate what the weather will be in the future. This model may help you decide if you should bring an umbrella when you leave the house in the morning. However, as anyone who has been caught without an umbrella in an unexpected rain shower knows, reality often behaves differently than a model predicts it will.

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To Bit or Not to Bit: What Should Investors Make of Bitcoin Mania?

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Bitcoin and other cryptocurrencies are receiving intense media coverage, prompting many investors to wonder whether these new types of electronic money deserve a place in their portfolios.

Cryptocurrencies such as bitcoin emerged only in the past decade. Unlike traditional money, no paper notes or metal coins are involved. No central bank issues the currency, and no regulator or nation-state stands behind it.

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Home Bias and Global Diversification

Screen Shot 2017 12 05 at 1.44.40 PMEvery day we enjoy the benefits of an interconnected world. We might start our day with a cup of coffee that originated in South America, check our email on a smartphone designed in California and manufactured in Taiwan, then shower and change into clothes woven from Egyptian fabrics before driving a German-made car or riding in a French-built train to work.

As consumers, we rarely think twice about the benefits of access to the cornucopia of goods the global market has to offer. Yet, as investors, we will often concentrate our portfolios in favor of our home market at the expense of global diversification. For example, while US stock markets represent just over 50% of the value of global equity markets, many US investors tend to allocate around 70% of their equity assets to domestic stocks.1 This phenomenon, which can be observed across countries around the world, is known in the investment community as “home-country bias.” Given that certain frictions may be associated with investing abroad, a home-country bias may make sense for an investor in certain cases. For example, for tax-deferred investors in the US, foreign dividend tax withholdings may present a disadvantageous tax drag on international investments. In general, however, neglecting the benefits that global diversification has to offer may increase risks and decrease the investment opportunity set.

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What Happens to Our Digital Assets After We Pass Away?

internet 350So you've crafted a plan for how you want your wealth, possessions and other assets to be distributed after you die. But what happens to your digital assets—online bank and investment accounts, social media profiles like Facebook and LinkedIn, and access to shopping sites like Amazon and eBayThis is a gray area with no definite rules for guidance. But it is possible to set up some common-sense directions to heirs that can help them manage the transfer of our digital presences along with our more tangible assets.  

These are important plans to make while we are alive to make them. Because in the wake of our passing, our spouses, family members, and other loved ones will be dealing with grief. Managing the transfer of monetary assets will be difficult enough. Add to that the challenge of taking care of our digital legacy can create an emotionally overwhelming situation for our family members. 
 

Complicating matters are the Terms of Service agreements we all agree to whenever we set up an online account or social media profile. Buried within the legal jargon in these agreements is language that spells out how our accounts can be closed out or transferred in the event of death. It may seem easy enough just to give a family member access to these digital accounts by sharing usernames and passwords. But by clicking “I agree” in the Terms of Service agreements, we actually enter into a contract with the site manager. Sharing information like passwords with others is a violation of the contract, and can be considered an illegal offense according to federal law. 

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