The Attraction of Pessimism


"The sky is falling" seems to have an innate appeal, especially when it comes to investing. Listen to hear why pessimism appears so attractive and optimism naive.

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Is the Middle Class Disappearing?

The claim that the middle class in America has been losing ground provides much of the heated rhetoric in this year's contentious election campaign. But is it true? The answer is not so simple. Without disputing the notion that many Americans are suffering economically -- and without opining on what the causes or solutions may be -- it is worthwhile to consider the matter further.

Last year, a Pew Research Center report found that slightly less than half of American households are "middle-income" as defined in the study. That's down from 61% in 1971. So the middle class appears to be shrinking. But the study shows that this occurred due to more people joining high-earning households (7% growth), whereas the share of low earners grew at a slower rate (4%).

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Oil Prices & The Stock Market


 Recently oil prices and the stock market have moved in tandem. But does it make sense that stocks should decline as the price of oil drops? Based on articles in the New Yorker, Bloomberg, and Barron's, there are reasons to believe that the answer is no. Listen to hear why. 

Impediments to Gauging How Your Investments are Performing

It's clear that the stock market has gotten off to a bad start in 2016. Maybe less apparent was how challenging 2015 was as well. And what about 1987? The stock market was up over 5% that year (including dividends), which seems decent. Yet the 20% drop on October 19, 1987 probably didn't leave investors feeling too good about their portfolio at the time.

Our perception of market performance can be clouded by certain biases. In the case of 1987, it was a major traumatic event. The precipitous decline, however, was only one day. Scary? Yes. But there was no long-term impact if you hung in there as the market made new highs less than one year later. (Of course, I was a young lawyer at the time with no real savings, just a mortgage and an eight day old son.)

The difficulties last year were easy to miss since the S&P 500 Index eked out a small gain. But the broader investment universe in 2015 fared less well. The focus on just one aspect of investments -- large U.S. stocks -- may have prevented us from seeing the bigger picture.

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Investment Tip for 2016: Be Boring!

One of the hardest questions I'm asked is some variation of "I have an extra $10,000 to invest and want to know the best place to invest it." The investment part is relatively straightforward. The hard part is making the boring answer I provide seem appealing.

Various external sources prod us to expect out-sized investment results, whether it's financial industry advertising or stories from friends of high returns with minimal risk. (It doesn't exist.) Thus it's not unusual for people to seek the investment equivalent of a home run. Advisors are not always popular when they recommend playing "small ball" instead.

Carl Richards, an advisor/author, describes a small ball strategy as one that "doesn't focus on rare, showy and hard-to-predict events, but on making small, relatively easy-to-repeat moves that compound into positive results over time."

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