Why Diversification Hurts...Sometimes

Why Diversification Hurts...Sometimes

Q: I am frustrated. I was told to diversify my holdings using index funds, so I did. I was told to put part of my investments in foreign stocks, so I did that too. Now I find that my portfolio isn’t keeping up with the market. If diversification is such a great idea, why does it hurt so much?

A: If you diversified your portfolio hoping it would boost your investment performance, I can understand why you might be frustrated. Though it can sometimes help with performance, diversification is mostly an exercise in risk management.

Financial planning for those with special needs

Financial planning for those with special needs

Q: Our adult daughter has Down’s Syndrome. We have been thinking of setting up a special needs trust to help provide for her care. Should we open an ABLE account, as well?

A: Financial planning for individuals with special needs poses unique challenges. The goal is to help an individual receive needed support from family and friends without losing government benefits. Special needs trusts and ABLE accounts can help you do this.

Special needs trusts are very flexible and come in three varieties: first-party, third-party, and pooled. Given your circumstances, I suspect you are probably considering a third-party trust.

Where to get the straight scoop about money

Where to get the straight scoop about money

Q: I am trying to learn about investing, but I always feel like financial people are trying to sell me something. Where can I get the information I need without having to worry that someone is trying to take advantage of me?

A: I understand why you might feel a bit wary. Historically, most financial advice has been given by individuals who have had strong financial incentives to sell you products. That has been changing in recent years, but the feeling lingers. While most advisors are honest and ethical, it is always wise to keep your eyes open for conflicts of interest. Above all, it is important to do your homework.

The Volatility Paradox

The Volatility Paradox

Investment risks come in many different flavors. Some risks are like biting into a jalapeno pepper—they really grab your attention. Other risks are much more subtle.

Market volatility is a jalapeno kind of risk. It is so compelling that entire cable channels are dedicated to following the minute-by-minute swings in stock prices. However, unless we are careful, focusing on volatility can blind us to other risks that may be even more significant to our long-term economic well-being.

The Antidote for Market Angst: Stay Invested

The Antidote for Market Angst:  Stay Invested

Not long ago, a friend expressed concern about the stock market. He talked about problems in Washington, D.C. and terrorism abroad and then he asked, "Doesn’t it concern you that the stock market keeps going higher even though the world is going crazy?"

My friend isn’t alone in his worries. In a recent Gallup poll, 25 percent of Americans mentioned dissatisfaction with government or poor leadership as the top problem facing the United States. Economic issues came in second place with 19 percent, while terrorism (8%) and healthcare (7%) were a distant third and fourth.