Don’t Quit Your Day Job – Personal Finance, Economics and Investing

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.

What should you make about the Mark Hulbert article claiming that top market timing newsletters are bullish heading into the new year? After a 27.76% increase in the value of the S&P 500 (not counting dividends) in 2009, how much further does the stock market yet have to run? And what does a bullish consensus among market timers mean, exactly?

Who is your favorite investor? Warren Buffet, Peter Lynch? Do you wish you had their insights? What if you could link your brokerage account to theirs? That exact concept is brought up in an article from the New York Times hosted on Yahoo! Finance: for a fee, your brokerage account can mirror that of an expert investor.

The Money Hacks carnival for the week hosted a DQYDJ article. Check it out!

Do psychological barriers matter to you in investing?

The Dow Jones Industrial Average is poised to climb, once again, to the psychologically important level of 10,000. 10,000 has been a memory since last October. As Brett Arends of the Wall Street Journal points out, we first crossed the 10,000 barrier over 10 years ago, and the dollar has lost 23% of its purchasing power in that time. What does Dow 10,000 mean?

I hope I convinced you in my earlier article you’ll soon be dealing with higher taxes. I’ve got some more slightly depressing news for you… you might be dealing with a reduction in the amount you can contribute to your 401(k) in the near future.

Yes, as Robert Powell says in this MarketWatch article, to go along with retirees not getting an increase in their Social Security payments, you may be losing some of your ability to sock away money in your 401(k). Nice.

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…

Carnivals DQYDJ articles are featured in for the week of August 10, and select links from around the internet on interesting and relevant topics.

Our article, “Investing in the 79th Element”, is hosted over at Man vs. Debt for the Carnival of Personal Finance! Go check it out, the theme is New Zealand!