The Diversified Blog

A wealth management blog dedicated to creating a long lasting sustainable retirement.

Prediction Season

Here is a nice article provided by Dimensional Fund Advisors:


Predictions about future price movements come in all shapes and sizes, but most of them tempt the investor into playing a game of outguessing the market.  READ MORE HERE:

Prediction Season.pdf


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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What Motivates Your Investment Moves?

When the stock market falls sharply as it did following the recent Brexit Referendum in the United Kingdom, it is not unusual for investors to react emotionally -- to act on impulse before thinking through the potential long-term consequences. Why does emotion sometimes cloud your judgment when it comes to making investment decisions? The answer may be found in the study of "behavioral finance."

Scholars of behavioral finance believe that investors are too often influenced by psychological or emotional impulses that run contrary to the fundamental principles of long-term planning. But the study of behavioral finance involves more than pointing fingers at past mistakes. Its proponents encourage investors to develop skill in recognizing situations that may lead them to make emotionally driven errors, so those errors may be avoided in the future.

Investor, Know Thyself

Behavioral psychologists have identified several common behaviors that may be exhibited by investors. See if you recognize yourself in any of these examples.

Fear of Regret/Risk Aversion -- The threat of a potential disappointment or a short-term loss is a powerful force that often inspires second-guessing of portfolio strategies. Common responses are to avoid investing altogether, to hold on to a losing stock for far too long in the hopes that it will bounce back one day, or to sell winners too soon -- before they may have reached their full potential.

Overconfidence -- Some investors tend to overestimate their knowledge and skills. For instance, they may overload their portfolio with stocks of a certain sector or geographic region they know well, because they are confident of their ability to understand and track these investments. As a result, they may tend to trade more actively than is in their best interest.

In addition, overconfidence may lead to irrational expectations and, ultimately, to a financial shortfall. For example, the Employee Benefit Research Institute's 2016 Retirement Confidence Survey revealed that a majority (63%) of workers are "very" or "somewhat" confident that they will have enough money to live comfortably throughout retirement, even though fewer than half have actually tried to calculate how much money they would need.1 In other words, many people may have a false sense of security based on incomplete knowledge of their situation.

Anchoring -- This behavior involves reading too much into recent events, despite the fact that those events may not reflect long-term realities or statistical probabilities. For example, investors who believe that a market surge (or downturn) will continue indefinitely may be anchoring their long-term expectations to a short-term perception. Anchoring causes investors to hold on to their investments even after an extended period of poor performance. As we all know, things change. Mental anchoring prevents us from adjusting to those changes.

Today's investor needs a plan of action to help maintain a disciplined strategy and resist making common mistakes. Work with your financial advisor to construct a fully integrated financial plan that reflects your needs and risk tolerance. Such a plan will help you avoid potential pitfalls and stay focused on the long term.
 

Source:

1.  Employee Benefit Research Institute's 2016 Retirement Confidence Survey, March 2016.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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Avoid These Financial Traps -- They May Be Hazardous to Your Wealth

Money. It's hard to get and easy to lose. It doesn't take long for the wealth you've accumulated to disappear if you don't manage your money well or have a plan to protect your assets from sudden calamity.

Snares like the ones mentioned below could easily threaten your financial security. Planning ahead can protect you and your loved ones from getting caught.

Undisciplined Spending

The more you have, the more you spend -- or so the saying goes. But not paying close attention to your cash flow may prevent you from saving enough money for your future. Manage your income by creating a spending plan that includes saving and investing a portion of your pay. Your financial professional can help identify planning strategies that will maximize your savings and minimize your taxes.

High Debt

With the easy availability of credit, it isn't hard to understand how many people rack up high credit card balances and other debt. Short-term debt will become long-term debt if you're paying only the minimum amount toward your balances. If you can't pay off your credit card debt all at once, consider transferring the balances to a card with a lower interest rate.

Unprotected Assets

Your life, your property, and your ability to work should all be protected. Life insurance can provide income for your family if you die. Homeowners and automobile insurance can help protect you if your home or car is damaged or destroyed and provide liability coverage if someone is injured. Disability insurance can protect your income if you're unable to work.

Unmanaged Inheritance

A financial windfall is great, but it also can be dangerous. Without solid advice on managing and investing the money, you could find that your inheritance is gone in a much shorter time than you would have thought possible. Your financial professional can help you come up with a plan for managing your wealth. Setting aside a portion of the money to spend on a trip or other luxury while investing the rest may be one way to reward yourself and still preserve the bulk of your assets.

Neglected Investments

Reviewing your investments to make sure they're performing as you expected -- and making changes in your portfolio if they're not -- is essential. But it's also essential to periodically review your investment strategy. You may find that your tolerance for risk has changed over time. You'll also want to assess the tax implications of any changes you plan to make to help minimize their impact.

Retirement Shortfall

If you're not contributing the maximum amount to your employer's retirement savings plan, you're giving up the benefits of pretax contributions and potential tax-deferred growth. Maximizing your plan contributions can start you on your way to a comfortable retirement -- hopefully with no traps along the route.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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