Investing Guide

That is a common phrase people will say when they open their latest 401k statements. It is shocking. Not checking 401k everyday is a good thing. But don’t avoid looking at your account because you’re scared. Looking at your account from time to time can help you assess your risk tolerance and rebalance your portfolio when the time comes. (I recommend once a year)

Here are some reasons why people are surprised at the large losses they incur.

1. They underestimate risk. People were too aggressive. During good times, people over estimate returns and have more money in equities than they can handle. I know I did. I was leveraged at the peak. At least I was investing for the long term, so I have time to recover. But the lesson I learned is a very painful one indeed. It will take a long time for me to recover. I never expected the worse-case scenario to appear.

2. Not diversified enough. Being diversified may have helped a little bit in the previous bear markets, but not in this one so far. All equity asset classes were hit hard. But bonds held up okay, so if you were diversified between cash, bonds and equities, you would have less downside vs someone like me who was over 100% equities.

The good news is, most of the pain is hopefully over. We are near a bottom, and the future expected rate of return looks better than other. Tune out the media who are too short-sighted to see the attractive opportunities out there. Invest more now than you normally would and you will be happy you did in 5 years.

By Loi Tran

Here are my three ways to earn a higher investment return.   Avoiding mistakes are more beneficial to an investor’s return than scoring home runs, which do happen on occassion, but are negated by even bigger mistakes.  People will only remember their winners and forget their losers.  It’s done unconsciously to protect the ego so that they can continue on investing.

1.)  Lower the amount of fees you pay.

This includes trading less, having lower management fees (expense ratio) and more tax efficient strategies (tax loss harvesting, low turn over mutual funds, using index funds, tax shelters (401k, IRA, Roth).  That 1% management fee does not seem like much, but over 20 years, the difference in ending market value can be as much as 50% or more.

2.  Stay invested.

Trying to time the market will only lower your returns and make you regret the bad decisions you have made.  No one can consistently time the market in the long run.  Do you see a lot of rich day traders around?  Move to cash now cause make you miss out on the unexpected rebound that will be sure to come.

3.  Spend more time researching and less time checking price quotes.  I am guilty of checking the prices on my holdings everyday.  It is a waste of time.  Instead, I can and should be using this time to do some fundamental research.

4.  Stay diversified globally.  Invest globally, in small, mid, and large cap stocks.  It doesn’t have to be complicated.  A world stock index fund from Vanguard (VHGEX) will do the trick for those who are lazy.

Utilizing these tips will definitely earn you a higher return in the long run.  They are common sense tips that will work if applied, but most do not.

I’m sick of hearing predictions on the news, in articles, on blogs, and on CNBC.  When will people give up on predicting what will happen in the stock market.  There are too many variables and the stock market is mostly efficient.  It is especially the short term predictions (3 months - 1 year) that are laughable.  Most pundits get it wrong over half the time and rationalize their mistakes.  Behavioral finance explains a few of their tricks they use.

But I think it is possible to get some longer term predictions right.  The Three Questions that Count showed me that it is possible.  So have we reached a bottom?  I think we’re near one.  And it’s a great time to be a long term investor.  If I’m wrong and it’s the end of the world, I still have nothing to worry about.

By Loi Tran