Bad weather outside, rainy, dark, dismal—I’m thinking about economics. A retired friend asked about QE3, the acronym for Quantitive Easing 3—the Federal Reserve’s (Fed’s) newest effort to boost the economy. There have been two related efforts in the past few years, hence this new one is number 3. “I don’t understand it—is there anything in it for me?” he asked.
A great deal!—to answer the title question. Three examples will illustrate the loss associated with active investing, or, stated positively, the gain from passive investing. The examples build on last week when I showed that active and passive investing had to achieve the same average gross returns. Yet active investing costs more, so in the end, the net returns to retirees are smaller with active investing.
Active investing links retirees with financial planners, brokers and actively managed mutual funds. Active investors believe they can identify low-priced stocks to buy, or that they can predict which stocks will drop in price so they can sell. In addition to individual stocks and bonds, they often buy actively managed mutual funds where a fund manager does the buying and selling. Continue reading
Last week we added Real Estate Investment Trusts (REITs) to a retirement portfolio, and this week we add international investments. The completed portfolio will now have domestic stocks, domestic bonds, REITs, and international stocks. Just these four investments can carry a retiree a long way into efficient, reasonably stable returns.
Why international investments? Diversification and growth are the best answers. Fifty years ago the United States dominated the world of investment opportunities, but today many countries have growing economies, well-run innovative companies, and good opportunities for investing. Continue reading
Good investment literature always recommends diversification. It counsels investors to forget about trying to pick the next Apple or Microsoft. That is a guessing game, and the odds are against small investors. Here at Later Living, I have followed the literature and used example portfolios consisting of broadly diversified stock and bond index funds. Today I will include real estate, or REITs, in the retirement portfolio.
REITs are real estate investment trusts, and they owe their modern form to legislation enacted in 1960 and subsequently modified. REITs provide investors easy ways to participate in investments like apartments, office buildings, shopping centers, timberland, and others types of income-producing real estate. Continue reading
Warren was recently interviewed for a short piece in Investment News about empowering individuals to manage their own investments.
Read the full article here. Free registration required, but if you don’t want to register, you can bypass registration by clicking here to Google search for “Warren Flick Investment News” and then clicking on the first result.
Investments can be complicated, but they don’t need to be. Investors just need to know their objectives and some intelligible ways to achieve them. Generally, investors want high returns and low risk. Once they achieve suitable exposure to both, rebalancing—maintaining balance among components—keeps investors on a steady course.
High returns usually come from owning stocks. History has shown that over long periods of time, stocks almost always out perform bonds, real estate, and many other investments. Alternatively, stocks are often risky.
Bonds usually produce lower returns, but they tend to be less risky. A portfolio that combines a diversity of stocks and a diversity of bonds is likely to generate good returns with only moderate risk. Continue reading