Americans concerned about their portfolios (everybody) woke up to more bad news Thursday, as headlines about a global selloff permeated the media. If you believe, as we do, that it’s important to invest for the long term, rebalance in a disciplined way, and limit your emotionally driven moves to the level of tweaking (if you really need to), then getting consumed in these reports is counterproductive. Here’s a great piece on the topic: There’s no reason why stocks are down today. Check out the graph at the bottom of the post that shows the long-term gain in U.S. equities.
Thanks to Abnormal Returns for the link.
Investors are taking out their fear and frustration with the political system on the market, which is the only arena in which they feel they have power to make immediate changes. Indeed, the market fell even though the index of leading economic indicators actually rose more than expected last month.
The role of loss aversion in investing and football
Falling prey to loss aversion is one of the 9 mistakes investors make. Here’s an interesting story from The Wall Street Journal’s Smart Money section about how NFL coaches make the same mistake. The article provides a few pieces of advice to investors, but it doesn’t get to the heart of the matter: The way to get beyond the human tendency toward loss aversion is to decide on a disciplined rebalancing strategy and stick to it. (See Rebalancing Lessons from the Yale Model and Seven Pitfalls For Market Timers).
Customer service in the banking industry looks like it’s sinking to the depths of that in the health insurance business. See Chase Freezes Couple’s Account … With No Explanation.
Another IPO pushed back
LivingSocial is said to be considering pushing back its IPO, after news from Groupon and Facebook that they were, too. Here’s our take on whether IPOs make good investments.
529 plans for trips
Planning for a European vacation next year, I found this nifty idea for using tax-free dollars to pay for certain qualified aspects of it. The Wealthfront blog posted a piece about 529 plans a few weeks ago. Turns out they can also be set up for your benefit and used to fund part of your educational trips.