How to Use Dollar-Cost Averaging

What should you do when you have a large chunk of money to invest? Deciding whether to invest it immediately or wait for what you think is the right time can be a difficult decision.

Markets go up more often than they go down, so in theory you should invest your money as soon as possible in order to “put it to work” and have the best chance of maximizing your wealth. But markets certainly don’t always go up, so investing a lot of money at once can be nerve-wracking. Markets could fall shortly after you make your investment, and you could easily regret your decision.

Topics: Blog Dollar-Cost Averaging

Understanding the “Momentum Effect”

Often it’s safe to assume that what goes up must then come down. With investing, however, it’s not quite so simple. Studies have shown that stocks tend to have a “momentum effect,” meaning that stocks that have recently gone up are more likely to do well in the near future (and that stocks that have recently gone down are more likely to do poorly in the near future).

Topics: Blog Stock Market Momentum

Q3 Recap: US Dollar Rises as Political Risk Predominates

The third quarter of 2014 was full of geopolitical turmoil: Russia’s proxy war with Ukraine, renewed US military involvement in the Middle East, and Scotland’s independence referendum were among the notable events that took place. In the investment world, this mayhem translated into weak stock markets and a rising US dollar relative to most other currencies.

Topics: Blog Recap Political Risk

Could Brazil Be the Next Japan and India?

In recent years the world has experienced two elections in large countries that ushered in new governments pledging dramatic economic reforms and led to surging stock markets. In Japan in December 2012, the election of Shinzo Abe and his Liberal Democratic Party led to economic reforms known as “Abenomics” and big stock market gains in early 2013. In India, the election in May of Narendra Modi and his Bharatiya Janata Party also led to higher stock prices. Could Brazil’s stock market similarly benefit from its upcoming election?

Topics: Japan Blog Political Risk Brazil India

The Outlook for Inflation

The US inflation rate has been extremely low since 2009, averaging only 1.6% per year. That’s below the Federal Reserve’s target of 2%. But recently Fed Chair Janet Yellen warned of a phenomenon called “pent-up wage deflation”, which is a complicated way of saying that inflationary pressure could suddenly surge as the economy picks up steam. So how much risk is there of a spike in inflation?

Topics: Blog Bonds Inflation Interest Rates Janet Yellen

The Effects of Scotland’s Vote

On September 18th residents of Scotland will vote on whether to break away from the United Kingdom and become an independent country. Even if the Scots vote for independence (polls suggest the vote will be close), Scotland wouldn’t actually become its own country until early 2016. But for investors a “yes” vote on independence could have negative effects long before that for British stocks, particularly those of Scottish companies in industries such as banking.

Topics: Blog United Kingdom Scotland

How to Determine the Right Amount of Risk

We recently discussed the importance of sticking to a set risk level. But what should that risk level be? Since more risk can result in larger potential gains but also larger potential losses, correctly answering this question is one of the most important parts of successfully managing your wealth.

There are two key factors that should determine your risk level. The first is how much risk you are able to take. The second is how much risk you are comfortable taking. While these two ideas sound similar, they can often be very different.

Topics: Blog Risk Goals

Can Australia’s Winning Streak Continue?

The past two decades have been tough for most international developed economies. Japan has experienced mediocre economic growth for the past 25 years. Europe has recently suffered through two recessions as it battled the global financial crisis and then a sovereign debt crisis. Australia, by contrast, has been a star of the global economy: it hasn’t had a recession since the early 1990’s. Its stellar economic performance is a key reason why its stock market has returned an average of 12.4% per year over the past 10 years, compared with 6.8% for international developed markets overall. Can its winning streak continue?

Topics: Blog Australia China

Sticking to a Set Risk Level

When the stock market is rising—as it has been for much of the past 5 years—it’s common to think that you should be taking more risk with your investments. When the stock market goes down, it’s common to think the opposite. But constantly shifting around the amount of risk you’re taking in response to how financial markets are doing is a recipe for poor long term performance. A better idea is to take a longer-term view of the risk you want for your portfolio and stick to that risk level.

Topics: Blog Risk Goals

The Outlook for High Yield Bonds

High yield bonds have done well since the end of the global financial crisis, providing positive returns of at least 5% every calendar year since 2009. This performance has largely been driven by an improving economic outlook combined with low (and generally declining) interest rates. As the Federal Reserve cuts back on its attempts to stimulate the economy and gets closer to raising interest rates, are the good times coming to an end for this asset class?

Topics: Blog Interest Rates High Yield Bonds