Monthly Archives

July 2019

Hindsight Bias

Hindsight bias, remembering facts as if we knew them in advance. It's what causes us to make big investment mistakes. People like to believe that they saw the last six months' fantastic rally coming, and yet interestingly, their behavior suggests that they didn't. Consequently, they believe that their insights looking forward are valid when in reality they're not. I call this a self-induced bear trap. As social animals, we squirm when not following our herd. The herd right now is chasing a late-stage bull rally. Some are even questioning having anything but a hundred percent equities in their portfolio. This is not a call to action. If you have an appropriate asset allocation then you're currently enjoying nice returns, while positioned to weather the inevitable storm. Hold the line. Resist your reptile brain's instinct to follow the herd over a financial cliff like a lemming. Try this experiment. Close your...
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Will the SECURE Act Upend Your Retirement Savings?

Congress loves its acronyms. The SECURE Act—Setting Every Community Up for Retirement Act. Did they pay someone to come up with this? I'm getting a lot of pings on this law. Will the SECURE Act upend your retirement savings?There're a lot of articles out there catastrophizing. They're making a big deal out of certain provisions. This is not an overhaul of the American retirement system. It's mostly a tweak. And most of the tweaks will benefit most Americans. Let's briefly summarize those provisions that affect your retirement security and the wild card in the bill, the elimination of the inherited IRA stretch provisions. One of the biggest things is they've changed the required minimum distribution date, the date at which you must start taking withdrawals from your IRA, from 70 ½ to 72. Now, this is not a long stretch. This is 18 months. But it will permit more flexibility...
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Does the Inverted Yield Curve Signal a Recession?

The U.S. Treasury yield curve has stayed inverted for nearly eight weeks, and briefly nudged back into the positive territory on Friday. How does this affect your portfolio and the outlook of the economy? As of Monday, the three month treasury bill still sits above the 10-year note yield by seven basis points. While the difference between the short-term maturity and the 10-year yield has narrowed since May 22nd, we are still experiencing an inversion of the yield curve. Now the question is: does the inversion signal a recession? Over the last nine recessions since World War II, investors followed the yield curve closely as an inversion of that spread has historically preceded a recession. However, it is not just about whether the curve is inverted, it is also about how long the curve inverts. The length of time that the short-term yields remain above the long-term returns is worth...
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