Sound Advice

Why Asset Allocation? Asset allocation is a fancier way of describing diversification.   For Wall Street purposes, it’s a variation on “don’t put all your eggs in one basket.”   That phrase is the bottom line for what’s known as Modern Portfolio Theory.   Sounds complicated, but it’s nothing more than the reality that in the world of Wall Street, all investments do not always move in the same direction.   In fact, with rare exception, their paths of progress differ considerably.   Equities, more familiarly known as stocks, move up and down in reflection of the trend of profits of the underlying companies.   When business is good, companies make more money and stocks go up.   And vice-versa. Fixed-income holdings, most of which are bonds, rise and fall in price in response to changes in interest rates.   When rates are rising, the prices of most fixed-income investments will fall.   In the U.S., interest rates are largely controlled by t...

Crypto Eulogy Late last March, when bitcoins were at their year’s peak above $47,000, I was interviewed by Paul Vigna of The Wall Street Journal, who asked me about my thoughts on cryptocurrency.  Rather than an extensive response with all the reasons for my opinion, I offered a simple answer: “My clients would kill me if I bought bitcoins for their accounts.”  Since then, the ceiling has all but caved in on this and other fantasy currencies, not surprising since, in the words of Mihir A. Desai, professor at Harvard Business School and Harvard Law School, “. . . they are a manifestation of a magical thinking that had come to infect part of the generation who grew up in the aftermath of the Great Recession . . .” Cryptocurrencies have no underlying value.  There is no consumer protection.  There are no dividends.  So long as they are trading and prices are swinging up and down, those who are willing to accept extraordinary risk may buy for brief periods in expe...

The Bigger Retirement Question Although financial planning is best begun as early as possible, the reality is that most folks don’t begin giving serious thought to what lies ahead until they are in their 50s . . . or even 60s, a time when it’s getting perilously close to being too late.   I recall a couple who pulled up in two brand new Mercedes sedans when they arrived for a talk about their retirement years.   Those who would be impressed by this display might have speculated that this couple’s finances were in good shape.   The reality was otherwise.   When we began their review, we noted that their assets were barely more than $200,000.   That was before getting to their debts and how their prospective income stacked up against their expected expenses.   Sad to say, it only got worse from there.   Even so, the question about whether you will have enough pales in comparison with an even more important concern: What will you be doing when you a...