Wealth in Words

The Robo-Advisor concept is relatively new to the mainstream investment crowd. The product is applicable across many demographics spanning different age, wealth, income, and financial goal categories. In essence, Robo-Advisors are to the advisory business what ETF’s are to the fund business.* In other words, the product is a disruption to the traditional asset management industry and is worthy of consideration for your investment plan. To begin, a Robo-Advisor is a passive investment management strategy that employs ETF’s to build a portfolio based on Modern Portfolio Theory (MPT). MPT originated from the research of Harry Markowitz. His paper’s premise suggest that investors can tailor a portfolio of investments based on their risk tolerance, therefore implying that assuming some risk is an inevitable part of investing. While risk is inevitable, that risk can be mitigated through diversifying one’s holdings in a portfolio. Markowitz’s work implies that building an efficient portf

What is an ETF? How is it used? What are its benefits? These are a few of many questions that will need to be explored to adequately understand this popular investment product. ETF is an acronym for Exchange Traded Fund which is an investment product that works similarly to a mutual fund.  However, there are several key differences between these products which ultimately give ETF’s an advantage. As the name implies, ETF’s are listed on an exchange and traded during market hours. This provides instant liquidity and exposure for market participants without having to wait to buy or sell funds based on closing values (i.e. Net Asset Value or NAV) as you would have to do with a mutual fund.  ETF’s also provide an alternative to equity index futures for money managers who desire timely market exposure or hedging ability. ETF’s can offer this exposure since most are “indexed” or created to mirror an existing basket of securities (e.g. S&P 500 Index). In other words, an ETF is structu

A common question I receive is “What is a bull market and a bear market?” Contrary to initial thought these are not just cute names to inoculate something potentially hazardous to your wealth such as investing or trading. The use of bull and bear delineates disparate market environments. Simply put, asset prices go up in a bull market and trend down in a bear market. Defining a bull or bear market always depends on the time frame that one is referencing. It is possible for a market to be in a long-term bull and short-term bear or vice-versa.  In other words, understanding the time frame being analyzed is essential to understanding the implications from market perspective and putting it into action.  There are several heuristics that can be used to identify bull and bear markets, however no rule holds up perfectly every time. In my opinion, the simplest and easiest way for investors to ascertain the state of the markets is to look at the historical price action. Price data displaye