In 2006, Former President George Bush signed a well intentioned law which allowed companies to automatically enroll employees in the company retirement program – and to automatically choose the investment in which they were enrolled. The Pension Protection Act of 2006 authorized companies to automatically enroll new participants and enroll them in three types of funds – lifecycle funds, balanced funds, and managed accounts – while absolving the companies of any financial liability for losses in the funds. As expected, the law has effectively increased the rate of participation in company 401(k) accounts.
wall street journal
… is higher than credit card debt in our country (hat tip: Wall Street Journal). How can this be?, you may ask, when the number of news stories on credit cards seem to vastly outweigh the corresponding reports on student loans. Well, yes, credit card stories seem to outnumber student loan stories by a ratio of about 15 to 1, according to StudentLoanJustice.org. How did this happen?
How about this title in the Wall Street Journal? “Credit Cards Take From Poor, Give to the Rich” is the name, in reference to a Boston Federal Reserve Bank report on credit card reward programs. The paper says just that: credit card rewards programs and merchant fees for credit card usage are increasing the overall cost of goods for check and cash customers.
My friend sent me an article the other day which really summarized my thoughts succinctly – he sent me this piece from Evan Newmark writing at the Wall Street Journal. If you haven’t noticed the crazy action in the stock market in recent weeks and days, let me be the bearer of bad news: the major US indicators are down from their yearly peaks. You’ve probably lost some money on paper, even. Between oil in the Gulf, the Greece Drama, and even North Korea, there is a lot to be worried about. Here’s the thing – these are all known unknowns, and generally priced into the stock market already.
One of the more interesting risks you’ll face in investing in stocks (or bonds, or any security of a single company for that matter) is headline risk. Headline risk, as you may know, is the effect that news can have on a company (or sector, etc.). Often times, negative news which is only loosely related to a company can hurt it negatively. Of recent note: Tiger Woods’s “transgressions” on the companies that pay him to sponsor their products.
Is Journalism, as suggested by the Washington Post’s Michael Gerson, dying a slow death? Or is Mr. Gerson simply being melodramatic? The issue boils down to how you define journalism. If journalism- in the mold of the traditional magazine and newspaper journalism- is dying, is that the end of news? Tough questions, for sure, but what is the goal of media? To train journalists?
What better way to start writing again (Happy October!) then to write about an investing fallacy: over periods of 20 years or longer, many investors automatically assume that stocks are the best investment. Really, it isn’t fair. Stocks have behaved (before this decade anyway) in such a controlled fashion, gaining 10% or so on average every year, that it is only natural for many investors to assume that this trend will continue. Well, as Jason Zweig of the Wall Street Journal makes clear, that isn’t the case.
Ever made a mistake in investing? Yeah, I bet you have. I have too.
The reasons that investors make mistakes are numerous and hard to detail, but the Wall Street Journal took a really good shot at it today. Covering everything from the pain of selling at a loss to mental accounting, it’s one of the best personal finance articles I’ve read in a long time. Oh, and I read a lot. Everyone has biases which make mistakes possible, the question is how can we recognize them and adapt? Read on…
What explains the difference in returns between stocks and bonds?
One theory is that the difference in returns is due to the safety of bonds when consumption declines (the so called ‘risk premium’ is built into stock returns). One of the issues with testing this hypothesis is that the most commonly quoted measure of consumption, the National Income and Product Account, is too nonvolatile to explain the risk premium on its own. Alexi Savov, a grad-student at Chicago, has produced a fascinating look at using residential garbage production in order to take a closer look at the correlation between stock returns and consumption.