Book of Wise Investors

As mentioned earlier, an observation regarding the large discrepancy between the returns of small and large caps at any given year and that fact that this discrepancy last for several years mean that investors can generate greater returns than just simply buy and hold for more than 20 years. As you shall see in the following illustrations, one just needs to follow two simple steps when deciding to hold either all small or large caps ETFs in the coming year.

The stated asset allocation model is based on a single assumption.

As will be expected from historical data and the

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First and foremost, there is a large discrepancy in performances when measured over more than 5 years period, between small and large caps throughout the decades. There are times when large caps stocks gained as much as 30% while small caps lost 2% or doubled in value. As a result, there have been greater returns than simply buy and hold ETFs that tracked the broad market when ordinary investors switch from small caps to large caps and vice versa at suitable times. The bad thing is neither your commission based financial adviser or mutual fund managers are going to decide…

When it comes to analyzing the value of an asset, for example, stocks, ideas of discounted cash flow, competitive advantage of a business and whether the prices are reasonable enough came to mind. However, when investing in a particular asset classes and sub classes as a whole, you need some other perspectives that will assist greatly in generating higher returns and further reducing risk. These additional mental models include social conditions, market cycles, worse case scenarios analysis, financial analysis and financial market analysis.

When considering investing in any of the major asset classes, it will be wise to…

We kept talking about risks when investing in the three well known asset classes like if we were lost some or all of our capital due to many factors involved but failed to consider one particular risk that will result us in losing some or all of our capital that has got nothing to do with what we actually invest in.

We all know that mutual funds are in general are diversified, how diversified it is for active managed funds will depends on each specific fund and for the case of passively managed index…

With an increasing educated population, particularly in personal finance and investing area, people are more likely to take charge of their financial affairs themselves rather than leave everything and blindly listen to financial advisers. As exchange traded funds is one essential investment vehicle for the masses, there is a need to provide a good introduction on it.

This blog post will touch on this type of product from several different aspects, including costs, size of markets that ETFs tracked, trading details, and tax considerations.

Exchange traded funds is without doubt, a very cost effective…

The author of this website recommends equity exposure through index funds and exchange traded funds as opposed to direct stocks ownership (if not enough capital) and actively managed mutual funds. See that there are basically only three ways to own stocks, not considering an investment linked insurance policies that invest some of the policy holders’ premiums in equities.

As of now, there are more than 1000 index funds and exchanged traded funds available in the United States, without including other countries. Out of these 1000 passively managed funds, around 300 consisted of index mutual funds and…

The standard and most talked about measure of risk in finance is standard deviation. While standard deviation has its reasons for existence in academic literature, a more applicable and intuitive measure of risk would be drawdown.

The drawdown of an investment is simply defined as the largest loss that occurs in the past. That is the difference between the highest and lowest price in all the historical price movements of the asset. Measurement of drawdown needs to consider the time period. In other words, the percentage lost from the highest point to the lowest point within a period.

In equation…