Novel Investor

Compounding investing wisdom...

The Importance of Diversification

by Jon

DiversificationIf you’ve ever heard “don’t put all your eggs in one basket”, it’s used to describe a simple investing principle known as diversification.

What Is Diversification?

Diversification is a way to lower risk by allocating your portfolio across various investments and asset classes. In doing so, it should limit your losses and lower volatility while still providing the best possible return for your money.

Diversification is the heart of many asset allocation models. When used correctly, it will help you reach your financial goals without taking on undo risk.

Why You Diversify

The purpose of all this is to reduce investment risk and prevent losses. You do this by dividing your portfolio among different assets classes – stocks, bonds, real estate, cash, and other investments. Continue Reading…

Happy Hour: Twitter Crash And Technical Difficulties

by Jon

Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of  money.

Twitter Crash

There was a lot of drama this week thanks to a fake Associated Press tweet claimed $200 billion in market cap in a matter of minutes. A well-respected news organization getting hacked is big news. A bigger concern is the how the market reacted to a fake story in large part due to computerized trading.

High Frequency Trading (HFT) involves computers that use algorithms to place thousands of orders in milliseconds based on specific parameters. The argument HFT firms use is that it provides liquidity to the markets. Which is arguable, based on what we saw this week after the AP hacked tweet.

To be clear, a coding error didn’t cause this weeks flash crash. But it’s the biggest concern going forward, having already been a cause of most minor crashes so far. Continue Reading…

TD Ameritrade Review: Why I Use It

by Jon

TD Ameritrade ReviewTD Ameritrade is one of the biggest online brokers. It’s won many awards and receives high ratings from the financial press. That all sounds great, but it’s not why I use it.

The broker you use is just as important as how you invest your money. While there are a lot of good online brokers to choose from, it makes sense to choose the broker that best fits your investment needs.

If I started from scratch and had to find a new broker today, these would be the key requirements I’d look for: Continue Reading…

Happy Hour: Bad Behavior And Tax Dollars

by Jon

Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of  money.

Bad Behavior

Not everyone is cut out to invest like the pros. Some people aren’t cut out to invest at all. Our behavior only allows us so much room to work. Which is why Carl Richard’s recent blog post is so appropriate. It’s a response to a prominent business news channel that now offers its own ETFs. Something I’ll never endorse.

While ETFs may be a great fit for your portfolio, that doesn’t mean it has to be. ETFs are just one possibility of many for your investment strategy. A strategy that needs to take your behavior, intelligence, time, and goals into consideration. Your portfolio is built to protect your money. And sometimes it’s being protected from you. Continue Reading…

The Two Sides Of Investment Risk

by Jon

Investment RiskThere are many different types of investment risk. Most of the time the market does a good job interpreting those risks.

But not always.

As an investor, its your job to keep those investment risks low and decide when the market is right or if it’s wrong.

What is Investment Risk?

Investment risk in the simplest of terms can be defined as a permanent loss or a lower than expected return.

The permanent loss is easy enough. You invest in a stock. That stock drops in price and stays down indefinitely. Or until you sell, making the risk of loss permanent. Continue Reading…

Planning Around Gold And The Weeks Ahead

by Jon

GoldNow that the tax deadline is over we can get on with everything else. Enough has happened in the last two weeks to make big waves in the markets. Earnings season, Japan, and falling gold prices all made news. Two matter, one does not, unless you owned gold.

Japan kicked things off with an aggressive monetary policy announcement. It will follow the Feds playbook to jump-start its economy.  If you didn’t know, the Bank of Japan has fought deflation for the past two decades and failed.

It’s latest attempt to jump-start inflation will throw 60 to 70 trillion yen at the problem. If it works, it would push more money out of savings accounts and into stocks. Sound familiar?

We can add one more country to the list of long-term debt buyers trying to boost an economy. Continue Reading…

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