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Diversified Portfolio

How Can You Prepare for the Next 2008?

By | Diversified Portfolio | No Comments

In early October 2007, the S&P 500 Index hit its highest point, then lost more than half its value over the next year and a half during the global financial crisis. In the coming weeks and months, we’ll see anniversaries of other major crisis-related events (for example, Lehman Brothers collapsed ten years ago next week), and we’ll likely see a stream of retrospectives detailing what happened and offering opinions on how today’s financial climate may be similar or different from the period leading up to the crisis. Because financial markets are habitually unpredictable in the short run, it’s challenging to draw useful conclusions based on these observations. However, there are important lessons investors would be well-served to remember: Capital markets generally reward long-term investors, and having a resolute investing approach may better prepare you for the next crisis and its aftermath. But What About Really Bad Market Meltdowns? In 2008, the stock market value dropped by nearly 50 percent. A decade removed from the crisis, it may be easier to take it in stride. And undoubtedly, the years of double-digit gains that followed have also helped our perspective. But as the events of the crisis were unfolding ten years ago, […]

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Review: Wealth-building strategies financial advisers won’t talk about

By | Diversified Portfolio, Weekly Review | No Comments

Most financial advisors are pretty investment-centric. This is understandable – the financial advisory industry evolved from (the bad old days of) old-school stock brokers. While it’s understandable, it’s not a good situation. Preparing for retirement is a complex and multifaceted problem. You can’t just focus in on your investments. There are all sorts of other things that you need to be considering: what are your different goals? What about your different sources of reliable income – Social Security, Annuities, Reverse Mortgage, etc? How about your reserves and insurance needs? Your investments are a really big part of your retirement income plan, but it’s a whole tapestry that you need to be weaving. The strategies listed in the article I linked above are all pretty good things to think about – especially the one about using a fiduciary advisor (like McLean). But for an article about strategies advisors “won’t talk about,” this article sure features a lot of advisors talking about them. The fact is, these are all things that good advisors talk about with their clients. You can certainly find folks who just want to sell you something, but thankfully they’re becoming (slightly) less common. A good advisor will approach […]

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How Good Is the VIX Index at Predicting Market Volatility?

By | Diversified Portfolio | No Comments

The VIX Index is one of those things people mention to sound smart. It’s just obscure enough that most people have heard of it, have some inkling of what it is, and feel like they should understand – but they don’t really get it. In short, the VIX Index is the market’s estimate of what the volatility of the S&P 500 Index will look like over the next month. The VIX has been in the news a decent amount recently. While we aren’t at the record lows we saw a little while ago, the VIX is still pretty low – it’s only at about two-thirds of the index’s long term average. The question I want to explore today is this: Does this actually tell us anything? Should we expect the S&P 500 Index (and by extension, the market) to be more volatile over the next month or so? Let’s take a look at the numbers. Before we test how much trust we should put in the VIX, let’s set up a control. How well does the volatility of the S&P 500 Index over the previous twenty trading days predict the volatility of the S&P 500 Index over the next twenty(1)? […]

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