Investing Pitfalls

People keep asking me for my thoughts on Lending Club. I finally capitulated last week and read the prospectus and accompanying supplements/disclosures. My thoughts are as follows:
High-risk, high-yield lending isn’t new. Investors have had access to such investments for the last few decades. They’re called junk bonds.
In fact, it may be illuminating to compare Lending [...]

{ 21 comments }

One of the fundamental principles of economics is the “scarce resource” problem. In short, we (humans) have a limited supply of resources with which to attempt to fulfill an essentially unlimited list of wants and needs.
When you use a mutual fund manager to invest for you, you’re each contributing a resource:

You’re contributing capital, and
The fund [...]

{ 0 comments }

As I mentioned recently, after leaving a job, the best route is almost always to rollover your 401(k) into an IRA. There are, however, a few specific situations in which it doesn’t make sense to rollover a 401(k)–or other employer sponsored retirement plan–after leaving your job.
Are You Between Ages 55 and 59½?
If you are “separated [...]

{ 2 comments }

We have a little toaster oven in our kitchen. Right on the glass door the following warning is painted:
“IF CONTENTS IGNITE, KEEP DOOR CLOSED AND UNPLUG OVEN.”
I like that. Right upfront, it warns you about the worst-case scenario and gives you sound advice about how to react in case such an event occurs.
Everyday when I [...]

{ 14 comments }

Style drift refers to a situation in which a mutual fund begins to follow an investment strategy other than the one it originally followed. It can occur in any number of ways: The manager could begin to invest more heavily in international stocks, in stocks of distressed companies, in growth stocks, etc.
The danger of style [...]

{ 3 comments }

I’ve written before about the importance of reading a mutual fund prospectus. Just the other day as I was researching my article on low-cost, socially responsible investment options, I experienced a perfect example of why it’s so important.
According to the fund list I found, Pax World Investments’ Pax World International Fund was the lowest cost [...]

{ 11 comments }

The most basic skill in picking stocks is the ability to read financial statements. From an income statement, balance sheet, and cash flow statement, a skilled reader can supposedly glean all sorts of valuable/actionable information.
As someone whose career and educational background is in accounting, I’ve spent my share of time creating and reading financial statements. [...]

{ 6 comments }

Closet index funds are actively managed funds that claim to attempt to beat the market, but in reality they simply mimic an index fund (at a higher cost).
The problem, of course, is that if a fund manager is investing in the same stocks that make up the index (and in similar proportions), while [...]

{ 11 comments }

Nope. I’m not talking about any bailout-related spending. I’m talking about money that gets wasted every single year, financial crisis or otherwise. According to a study done by Kenneth French, $100 billion is the amount of money that U.S. investors collectively spent in attempts to beat the market in 2006 (the most recent year for [...]

{ 6 comments }

We all know (or have read about) people who are eligible for a 401k match, but who don’t contribute enough to get the maximum employer match. Big mistake, but nothing new there.
I’ve always assumed that the reason that people don’t take advantage of employer matches is that they don’t want to have to put money [...]

{ 11 comments }