Tis the season when people’s thoughts turn to evaluating how the year went and what they might want to do differently during the next.
How mature is the average eight-year old? Thinking about myself, the answer was ‘not very’ but the stock market (as measured by the Standard and Poors 500 index) has been climbing since reaching bottom on March 8th, 2009.
Many great fortunes have been made by purchasing the right stock at the right time but the risk inherent in the stock market means that there will always be a role for bonds to play.
Hedge funds are periodically in the news, so let’s shine a light into that corner of the market beginning with a definition. When used as a verb, hedge means to limit or qualify (something) by conditions or exceptions. Since we know that a fund is a pooled investment strategy, we can see that a hedge fund is a pooled investment used to limit risk.
If an investor decides that stock ownership seems like a workable strategy for making money over time, how does she or he decide which company to become an owner of, i.e. which stock to purchase? Choices abound. There are shares of around 8,000 companies currently available on US exchanges and at least that many more on foreign exchanges.
A recently widowed woman visited our office not long ago asking for help understanding her investment portfolio. Fortunately, she was in good financial shape but I was struck by some of her questions. While I strive for clarity both in person and in print, at one point she asked me what an index fund was.
My last article featured a couple of sketches by Carl Richards, a Utah-based financial planner who uses a pencil to illustrate various financial planning concepts. I’d like to enlist his help again this week as I talk more specifically about investing.
Over the years I’ve been involved in the world of investments, I’ve found that my clients have been able to make money in all three of stocks, bonds and real estate, though rarely at the same time. Since no one knows the best time to invest in any one of them, we encourage most of our clients to use all of them.
During the past seven years or so, interest rates have fallen to generational, if not all-time, lows. Here’s a chart showing the rate of the two year Treasury Note over that period courtesy of the Department of the Treasury: