Why 2018 Might Be Dangerous For Investors

If you could follow your ancestry back 2,000 years, you would be impressed.

You come from a bright and tough stock of humans. That might be surprising if you’re a 90-pound weakling–or if you dine 7 days a week on fatty fast food. But make no mistake. Your lineage was awesome.

Weaker and less intelligent bloodlines died out. Yours didn’t. Yours were strong, smart and lucky enough to attract mates, reproduce, and care for their offspring. They also noticed patterns. If a massive tiger ate one of their friends, they were smart enough to avoid big tigers. If a grizzly bear wanted to eat them for lunch, they had to know how to fight–or run faster than their friends.

They found patterns to survive. Such pattern-seeking tendencies are now part of our DNA. But what was helpful back then is like a poison berry today –especially for investors. We seek financial patterns. If certain stocks or sectors soar, we think they’ll keep rising. When sectors fall or flat-line, we run away in fear. Jason Zweig explains this neurological science in his excellent book, Your Money And Your Brain.

Some time periods, however, are deadlier than others. We’re in one now. Almost everyone is making bucket loads of money, much as they did in the 
mid-to-late 1920s and the late 1990s. During those times, reckless investors earned the greatest spoils. They bought stocks on borrowed money. They failed to diversify. During the late 1990s, they stuffed their portfolios with popular tech stocks. For a while, such investors earned blistering returns. But when those blisters popped, they gushed the most blood.

Before such bursts, they mistook luck for genius. That’s happening again now. 

Image by Pixabay

Read the rest of the article here, at AssetBuilder.com




 



Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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7 Responses

  1. Peony28 says:

    hi there, I am vested 85%bonds / 15% stocks. my desired allocation be 50bonds/ 50stocks. been staying side lines for way too long . From a sale of property, I will soon have a very large lump sum of cash coming in about a month’s time. instead of staying sideline again, would it be advisable to go ahead and invest the cash split 50bondetf/50eq etf first ?

    as my portfolio is already now so overweight with bonds, I am at lost how to rebalance portfolio. if I were to rebalance the entire portfolio to 50/50, likely I would end up buying only equity ETF entirely in 2018 to achieve the 50/50. any advice be appreciated !!!

  2. Peony28 says:

    To add, I am 41, planning to stop work anytime soon, hence not at the accumulating wealth stage… Hence the deliema of how to rebalance my portfolio given I am so overweight on the bonds/cash component this year .

  3. Mitos says:

    Hey Andrew!

    Great article as always. I’ve just got my online brokerage account setup and want to start BUT gosh, the markets are crazy high. Do you really think it’s wise to enter in now? Also, my parents have funds from a sale of their apartment years ago and it’s stuck in a private bank. I want to help them but I find it hard to put in such a large amount into ETFs only to watch it possibly go down in the next year or two.

    Appreciate your advise please!

  4. Ken says:

    Hello Andrew,

    Could you kindly advise me on my following situation in switching to index investing. I have sold off my previous blue chips and have a sum of approx 50k sgd waiting to be deployed. What would be a good way to invest this sum into namely, STI ETF (Local Index), IWDA (Overseas index) and SG Bond.

    Should I put in 5k into each of the component and continue my DCA every month. Which means after one month I come back and put in all my fresh money into the laggard. Or should I just invest the 50k entirely into the 3 components.

    Also, every month when I buy the laggard do I exactly put the entire fresh money into one component? Example, the allocation changes from 45% STI ETF, 45% IWDA, 10% Bond to 50% STI ETF, 42% IWSA, 8% Bond. The laggard in this case would be IWDA (-3%) and Bond (-2%), so how do I allocate the fresh money to buy the laggard? Do I buy entirely IWDA or entirely Bond?

    Apologies for the lengthy question & Thanks Andrew!

    Regards,
    Confused Ken

  5. Barry Spencer says:

    Timely article considering what has followed of late Andrew

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