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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11 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

  6. Dmitriy Beer says:

    Hi Andrew,

    Recently bought both The Global Expatriate’s Guide to Investing and the Millionaire Expat books. Finished reading the first one – what a great eye-opener for someone who doesn’t know much about investments. Thank you so much for sharing the knowledge! Getting started with the second book!

    Having finished the book I’ve had a few of questions, as you’d expect, some of which have been answered by your excellent articles, like the one above, however there are a couple questions I wasn’t able to find an answer for (maybe I just couldn’t find the right search terms, if so then please just point me towards the right article), so I would greatly appreciate if you could kindly reply to this comment and shed some light.

    I’m a British expat, 33, currently not resident in the UK (based in Qatar at the moment) and not envisaging to retire in the UK, but instead maybe somewhere in Eastern Europe, e.g. Bulgaria due to low cost of living.
    So as I understand from your book, I should probably look at Global (and possibly European) index funds, rather than British, and as explained in this article I should not be afraid to kick off my investments with a lump sum despite the expected stock market crash.

    So, firstly I’m still somewhat confused as to what is better – index funds or ETFs? Could you please elaborate a bit more on this topic, maybe using some of the info from the next question as example?

    Secondly, I bank with HSBC – I have both a UK account and an Expat Premier account (though only the Expat account can be used for investments, as I understand, due to my UK non-resident status), and as a result I have access to their investment platforms, so I was wondering whether I could utilise that instead of opening a new account with someone like Saxo UK. With that in mind I’d be grateful if you could provide your opinion on how HSBC funds compare with those you normally recommend.
    Specifically (and this is where this question ties in with the previous one, as I’m not sure whether a normal index fund is better or worse than an ETF) taking as example the following:
    1. HSBC “Economic Scale Index Global Equity” fund available through HSBC Freedom Plus platform with an on-going charge of 0.95% and an initial investment charge of 5.54%.
    2. or HSBC MSCI WORLD UCITS ETF available through HSBC InvestDirect platform with on-going charge of 0.15% (plus transaction costs, and this is what I have no clue about and therefore struggling with comparing on my own).
    3. or something like the Vanguard’s FTSE All World UCITS ETF
    If I get your advice on the above I can then apply your reasoning to the selection of the right bond index fund too.

    And lastly, I’m not sure if you are in a position to answer this, but if I understand correctly investments in the above ETFs would be subject to UK tax, is that correct? So how does that add to the comparison between the HSBC Freedom Plus index fund which is not UK taxed and the ETFs which are taxed?

    Thank you very much indeed in advance!

    Kind regards,
    Dmitriy

    • Hi Dmitriy,

      I’m glad you liked the book.

      You mentioned this fund: 1. HSBC “Economic Scale Index Global Equity” fund available through HSBC Freedom Plus platform with an on-going charge of 0.95% and an initial investment charge of 5.54%.

      It’s expensive for an index. Plus, it has a hefty sales charge.

      I don’t know what HSBC would charge, in terms of transaction charges, for the HSBC MSCI WORLD UCITS ETF. But it should be less than a 1% commission if you are buying with at least 1000 pounds at a time. Plus, as I mentioned in my expat book, the ongoing charge difference is very important. There’s a big difference between 0.15% and 0.95%. Over time, your difference would be tens of thousands of pounds.

      The ETFs listed in my book are all excellent options. I’m glad you have a copy of Millionaire Expat, the most up-to-date version.

      The ETF fund options and brokerage options mentioned in my book are not less tax-efficient than HSBC’s premier account (with their in-house index funds).

      I hope this helps. And I hope you enjoy reading Millionaire Expat.

      Cheers,
      Andrew

      • Dmitriy Beer says:

        Hi Andrew,

        Thank you for such a prompt response!

        Just wanted to clarify, so the transaction charge only applies when I’d add money (e.g. monthly) to the fund? Or did I misunderstand you? I was always under the impression that it also includes the costs of buying and selling of shares within the ETF as carried out by the fund manager on regular basis, or is that already covered for in the 0.15% ongoing charge? I am a novice at this, so please excuse my ignorance if I’m talking non-sense.

        Cheers,
        Dmitriy

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