This week’s AAII Weekly Digest highlights these “must-read” AAII articles:
Mutual funds—and more recently, exchange-traded funds (ETFs)—have offered safety and diversification by allowing individual investors to buy shares in many companies to spread risk. It is important for investors to understand what role they play and what role the fund managers’ play in ensuring proper diversification of their portfolio. Additionally, investors need to understand when fund companies fail on proper diversification, how that results in improper diversification and what impact that could have on their portfolios. We highlight what diversification is and why it is important, then discuss why an appearance of being diversified may not mean that your portfolio is truly diversified. Finally, we identify ways that fund managers and investors can damage their portfolio diversification.
“How can I construct a portfolio that is capable of producing returns different from those of the S&P 500 and long-term Treasuries and that is also capable of warding off the threat of inflation?” Here, we highlight a portfolio that does just that. This alternative portfolio does complement a more traditional portfolio. It includes a mix of assets that provide diversification benefits to a traditional portfolio and enhanced returns over the time period studied.
Modern portfolio theory is the accepted approach to portfolio management today, with its implications embedded in the portfolios of most major mutual fund families and the advice given by well-known investment advisers. But many investors are unfamiliar with the underlying principles. What you need to learn from investment theory, and how to apply it to your real-world investment portfolio.
Investors are undoubtedly familiar with the concept of diversification, which is a fundamental idea underlying modern portfolio theory. The phrase, “Don’t put all your eggs in one basket” is one that has been familiar to investors for thousands of years. When one is properly diversified, one is not overly concentrated in one investment. However, it is becoming increasingly difficult for investors to know which baskets they should be using. This article sets out to answer the questions related to selecting asset classes that fit your personal risk and return goals.
Our Member Question for this week is:
How significant of an impact do you think President Trump’s executive order restricting travel to the U.S. will have on U.S. multinational corporations?
Vote to answer this week’s Special Question:
How might the global economy change under the Trump administration?
Last Week’s Results:
How likely is it that fundamental tax reform will occur during the 115th Congress?
Now that the 115th Congress has convened and a new president has been sworn in, it is time for those in Washington, D.C., to get down to actually governing. As is typically the case, a lot of promises were made during the campaign season. Often these promises are just empty words. One promise that is a perennial favorite, especially among Republicans, is tax reform. With a Republican president and Republican-controlled Congress, the likelihood for “true” tax reform seems high. AAII readers weigh in whether they think fundamental tax reform is on the agenda for the current Congress and how they think the federal government can boost the stock market.
The AAII Personal Finance library was developed by the editors at the American Association of Individual Investors. It is designed to serve as a starting point for anyone interested in learning to become a better and more profitable investor. This library covers the following investing topics: portfolio management, personal finance, stocks, bonds and mutual funds. AAII’s Personal Finance area is your key to successful investing.