Most of the benefits of investing are obvious. Many would say they amount to zero – or rather all the zeros you hope to see at the end of your bank balance!
More thoughtful souls ask what successful investing could translate into, whether it be the sports cars and fancy holidays you imagine as a young investor to the early retirement, freedom, or even health care opportunities you’ll probably find are as important when you’ve actually made it.
What about living for longer? That’s not a benefit of investing you hear about often, but perhaps we should, since most of the great investors lived long lives.
Every week I read a large number of personal finance and investing articles. Here’s my latest weekly shortcut to the best.
- Rebalancing asset allocations
- How to rebalance your portfolio
- When should you rebalance your portfolio?
- Factors that may influence how and when you rebalance
- Getting older? Admit it when you rebalance your portfolio
- Rebalance your portfolio for your benefit, not the tax man’s
- The simplest way to rebalance your portfolio
- Use threshold rebalancing to lower your portfolio’s risk
- Rebalance with new contributions to save on grief and cost
Very few private investors give much thought to asset allocation, even though it’s far more important than picking stocks or funds in determining your investment returns.
Even worse, those who do set up a nicely diversified portfolio often forget all about their ideal asset mix once they’ve made their initial decisions!
This is foolish, and potentially bad for your wealth, since like this you’re leaving asset allocation to the whims of the market.
Often the only time people wonder whether they should have rebalanced is when a big bear market slices more money off their net wealth in six months than they’d ever imagined possible.
If you’ve diversified your portfolio into different assets to reduce its volatility and improve its risk/return characteristics, it makes no sense to abandon that just because one asset class has boomed and another slumped.
Instead, periodically rebalancing your portfolio by selling down winning assets to buy more of under-performing assets can boost your returns, help keep volatility closer to your own tolerance levels, and reduce the risk of your portfolio being exposed to bubble markets.
Alas it seems Zopa, the UK peer-to-peer lender, isn’t immune to the downturn – at least not if my recent experience is anything to go by.
Readers may recall I was worried that bad debts would rise at Zopa as far back as March 2008.
My fear was that consumers starved of finance by the credit crunch would get loans at Zopa (which claims to have more rigorous credit checks than the banks) before eventually succumbing to their debts.
Rising interest rates were obviously attractive to Zopa lenders, but did it suggest consumers were more desperate?
This is important because with Zopa, unlike a bank saving account, you can lose your money if your borrowers default.
Do not mistake Zopa for a savings account! Read my earlier article for more on the pros and cons of Zopa.
It seemed like my fears were misplaced as recently as January, when bad debt was still below Zopa’s projections. I’d not seen any bad debts!
But in the past few weeks two of my late payers have officially been written off as bad debts. That’s out of the 100 minimum-sized loans I’ve originated, and it represents 17% of my earnings to date from lending, though less than 2% of my initial Zopa ‘pot’.
This series has previously looked at the general principle of investing during a crisis, as well as how you might react to particular headline news events.
But crisis investing is also relevant to particular company stocks.
