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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.

Is Your Investing Strategy Really a Strategy?

SPECULATION, RISK, AND A LONG-TERM PLAN FOR BUYING AND SELLING SECURITIES

Many people are hesitant to invest heavily in the stock market because they consider it similar to gambling or taking too much of a risk with their hard-earned money. With volatility on the rise in our current climate, more investors are pausing to consider the risk they are taking with their investments and whether they should be so bold.

The idea of losing more than they can afford to in advance of their retirement weighs heavier on them than the possibility of capitalizing on the money they invest. Sadly, this type of behavioral bias--fear and herd mentality--can do more harm than good.

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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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Preparing Essential Documents Before Your Child Goes off to College

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Preparing for college is exciting and expensive. Any parent who has painstakingly spent hours in Target and Bed Bath and Beyond finding the perfect dorm sheets, blankets, refrigerator, desk and lamp among the countless other items you’ll likely buy along with those, can tell you that sending a child off to college is not just emotionally draining it is financially draining. While you are making these important purchases to ensure your child is well-prepared and comfortable in her or his new living environment, there are some legal documents that need to be prepped as well.

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Give Yourself a Gift This Holiday Season: Hire a Fiduciary not a Salesperson

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With a new Republican administration in the offices of President and dominating both the House and Senate it comes as no surprise that, since taking office nearly a year ago, President Trump and the GOP have decided to delay the DOL fiduciary rule indefinitely. Many opponents of this roll back on regulation say that it is denying the American people of transparency and their right to hire someone that they know will act in their best interest as an advisor. What is overlooked is the fact that investment advisors are already required to act in the best interests of their clients as fiduciaries. Brokers, on the other hand, are salespeople who are recommending investment products that, although may be suitable, are not always the best choice for their clients.

The issue is not whether the government should pass a law requiring brokers to live up to the same standards that I and many of my colleagues have been sworn to uphold for decades. The issue is that people should know the difference between an investment advisor and a salesperson.

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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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Key Questions for the Long-Term Investor

Focusing on what you can control can lead to a better investment experience.

Whether you’ve been investing for decades or are just getting started, at some point on your investment journey you’ll likely ask yourself some of the questions below. Trying to answer these questions may be intimidating, but know that you’re not alone. Your financial advisor is here to help. While this is not intended to be an exhaustive list it will hopefully shed light on a few key principles, using data and reasoning, that may help improve investors’ odds of investment success in the long run.

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1. What sort of competition do I face as an investor?

The market is an effective information-processing machine. Millions of market participants buy and sell securities every day and the real-time information they bring helps set prices.  This means competition is stiff and trying to outguess market prices is difficult for anyone, even professional money managers (see question 2 for more on this). 

This is good news for investors though. Rather than basing an investment strategy on trying to find securities that are priced “incorrectly,” investors can instead rely on the information in market prices to help build their portfolios (see question 5 for more on this). 

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