Everyone knows about the great crash in 1929, how we first coined the term Black Thursday (Oct 24th), Black Monday (Oct 28), and Black Tuesday (Oct 29)… but did you know that the Dow Jones Industrial Average wouldn’t recover to the 1929 peak until 1954? It took twenty-five years. Given the recent volatility and how records are being broken (Dow’s largest single day loss of 777.68 just two weeks ago was eclipsed yesterday by the largest single day gain of 936.42 points), I thought it would be appropriate to fire off some more stock market trivia facts.

Is the bull zigging today, or is he zagging?

Wall Street Firsts

1. Wall Street was laid out behind a 12-foot-high wood stockade across lower Manhattan in 1685. The stockade was built to protect the Dutch settlers from British and Native American attacks.
2. The “stock market” began in May 17th, 1792 when 24 stock brokers and merchants signed the Buttonwood Agreement.
3. The buttonwood tree was simply the local name for the sycamore tree.
4. The first stock ticker was invented by Edward A. Calahan in 1867.
5. The Securities Exchange Act of 1934 creates the Securities and Exchange Commission, charged with the responsibility of preventing fraud and to require companies provide full disclosure to investors.
6. Despite the New York Stock Exchange’s notoriety, it was not the first stock exchange in the United States. That distinction belongs to the Philadelphia Stock Exchange, which was founded in 1790.
7. The Massachusetts Investors Trust was the first official mutual fund, created on March 21st, 1924.
8. The Wellington Fund, created in 1928, was the first mutual fund to include stocks and bonds.
9. Wells Fargo Bank established the first index fund in 1971. John Bogle would use it as the basis for building low cost index funds at The Vanguard Group.
10. The first exchange traded fund, or ETF, was SPDR. It was cretaed in 1993 by State Street Global Advisors and tracks the S&P 500 stock index.

New York Stock Exchange

11. The New York Stock Exchange (NYSE) began in 1817 as the brokers formed the New York Stock & Exchange Board (NYS&EB), renting rooms at 40 Wall Street and adopting a constitution.
12. The twenty four brokers or firms became the first NYSE members, they were: Leonard Bleecker, Hugh Smith, Armstrong & Barnewall, Samuel March, Bernard Hart, Alexander Zuntz, Andrew D. Barclay, Sutton & Hardy, Benjamin Seixa , John Henry, John A. Hardenbroo , Samuel Beebe, Benjamin Winthrop, John Ferrers, Ephraim Hart, Isaac M. Gomez, Gulian McEvers, Augustine H. Lawrence, G. N. Bleecker, John Bush, Peter Anspach, Charles McEvers, Jr., David Reedy, and Robinson & Hartshorne.
13. Anthony Stockholm was the first President of the NYSE.
14. William McChesney Martin, Jr., became the first full time salaried president in 1938.
15. Originally stocks were traded in what’s known as a “call market.” The President would read out each stock and the brokers would trade them. There was a morning session and an afternoon session.
16. There are 2,764 listed securities on the exchange.
17. It is fourth largest in terms of listings behind the Bombay Stock Exchange, the London Stock Exchange, and the NASDAQ.
18. The NYSE was originally organized at the Tontine Coffee House, located at the northwest corner of Wall and Water Streets, at 82 Wall Street. Business was transacted there until 1817.
19. The Tontine Coffee House was located across from the Meal Market, where enslaved workers could be hired or bought.
20. The first listed company on the NYSE was the Bank of New York.
21. In 1868, there were 533 seats on the NYSE.
22. There are currently 1,366 seats available on the NYSE.
23. On December 1st, 2005, the highest price was paid for membership in the NYSE at $4 million.
24. Thirty days later, December 31st, the NYSE moves away from seats to annual trading licenses.
25. Muriel Siebert was the first woman to own a seat on the NYSE in 1967.
26. Joseph L. Searles III was the first African-American member of the Exchange in 1970.
27. Merill Lynch & Co., Inc. became the NYSE’s first member organization in July 27th, 1971.
28. The NYSE merged with publicly-traded Archipelago electronic stock exchanged, formed NYSE Group, Inc., and is now publicly traded under the ticker NYX.
29. The longest period in which the exchange was closed occurred during WW1, when the NYSE was closed for four and a half months starting July 31st, 1914.
30. The highest price per share stock on the NYSE is Warren Buffet’s Berkshire Hathaway (Class A).

NYSE Volume Growth

31. The NYSE has its first million share day (where a million shares are exchanged) on December 15th, 1886.
32. Since October 10th, 1953, there has never been a sub-million share day.
33. In 1961, the average daily volume of the NYSE breaks 4 million.
34. Finally, in 1982, the NYSE has its first 100 million share day.
35. By 1992, the average daily volume exceed 300 million shares.
36. On October 28th, 1997, over a billion shares are exchanged.
37. January 4th, 2001 - Volume breaks 2 billion.
38. On February 27th, 2007, the NYSE has its largest volume day of record at over 4 billion shares.

NASDAQ

39. The NASDAQ was created in 1971 and was the first electronic stock exchange, focusing on the trading of OTC stocks.
40. NASDAQ stands for “National Association of Securities Dealers Automated Quotation.”
41. 2,500 stocks were traded that first day, February 8th, 1971.
42. In 1998, the NASDAQ merged with the American Stock Exchange, which focused on options and derivatives, to form the NASDAQ-AMEX Market group but both exchanges still operate separately.
43. The NASDAQ purchased the Philadelphia Stock Exchange for $652 million on November 7th, 2007.
44. The highest price per share stock on the NASDAQ is none other than Google.

Dow Jones Industrial Average

45. The Dow Jones Industrial Average was created by Dow Jones & Company in 1896.
46. The DJIA breaks 1,000 for the first time in 1971.
47. The DJIA breaks 5,000 on November 21, 1995.
48. The DJIA breaks 10,000 (for the first time) on March 19th, 1999 (and it just broke it the other way on October 6th, 2008).
49. There are thirty companies on the DJIA, with the list constantly being revised. For example, Kraft Foods recently replaced AIG on the index (September 22, 2008).
50. The oldest DJIA component is General Electric, added in November 7th, 1907.
51. The newest DJIA component is Kraft Foods, added September 22nd, 2008.
52. Yesterday (October 13th, 2008) marked the largest single gain of the DJIA of 936.42 points. To put that into perspective, the second largest gain was March 16th, 2000, the peak of the stock market boom, when it increased 499.19 points.
53. As mentioned earlier, the largest single day drop was 777.68 on September 29th, 2008 when the House rejected the bailout bill the first time through. To put that one into perspective, the second largest drop was on September 17th, 2001, the first full day of trading following the attacks on September 11th. Incidentally, #3 on the big time falls was last Thursday, 10/8/2008, when it fell 678.91. Heck of a ride huh?
54. Percentage wise though, these spikes and drops don’t break the top five in either category. Four of the top five largest single day gains were in the late 20s to early 30’s (the other one was in 1987). Three of the five largest losses occurred in 1929 (Black Thursday, Black Friday, and Black Monday) taking up spots #2 - #4. #5 was a drop in 1899 and #1 was the 22% haircut that was the Stock Market Crash of 1987. (list of largest daily changes in the DJIA)

If fifty(plus) interesting trivia facts about the stock market isn’t enough, there is a wealth of stock market trivia at Stockmarkettrivia.com.

(Photo: babblingdweeb, brianglanz, inanutshell)

Muriel Siebert was the first woman to hold a seat on the New York Stock Exchange and the namesake behind SieberNet, a discount broker. If you have three minutes, check out this brief profile of her and experiences getting that seat (here’s the full article).

The video is just a little taste of her personality, the article goes much deeper. Also, personal finance proponents will be interested to read that she also developed a personal finance program back in the day. Definitely worth the watch and read though.

The commentator is none other than Mary Pilon, the blogger behind the Wall Street Journal’s The Wallet blog.

I quit investing in the stock market.

OK, just kidding, I didn’t really quit. I haven’t changed my retirement contributions in anyway (though I feel foolish every time I see a contribution go through, followed by the stock market falling even further). I left my retirement contributions alone because my time horizon gives me the the benefit of time, the one certain cure for this economic malaise.

However, we have stopped contributing to our taxable brokerage accounts simply because of how violent the market has become. Check out the CBOE volatility indices:

• VIX - S&P 500 Volatility Index
• VXN - Nasdaq 100 Volatility Index
• VXD - DJIA Volatility Index

The volatility indices show the market’s expectation for volatility over the next thirty days and as you can see on their charts, they’re at all time highs. That’s why we’re not putting in any more money, we are going to wait until things calm down before we add back in. (That account was for savings on items we need beyond the next five years)

So, without the stock market, the next question is where should we go with our savings?

Bolster The Emergency Fund

This is never a bad decision. With the economy the way it is, we should use any abundance we have left to start saving for potentially leaner months (or years) to come. If you listen to any experts, you might notice more and more are bolstering up their cash positions. As regular people, emergency funds (and CDs/High Yield Savings) are our cash positions and it’s never a bad idea to squirrel away a few nuts for the winter.

Pay Down Debt

If you have any debt, whether it’s a 6% mortgage or a 20% credit card, paying it down is a smart move. Some would say that you should invest your money and take advantage of the leverage, but I think that’s a little too risky given the volatility of the market. The rewards you will reap by getting rid of your debt will far outweigh the potential gains you’ll earn in our current market. I’m not saying that the money you put into the market will be lost, maybe we have hit the bottom and its on its way up, but by paying down debt you free yourself in a way a few extra dollars in stock gains simply won’t. Also, when you pay down a debt, that rate of return is guaranteed.

CDs & High Yield Savings Accounts

There’s nothing wrong with taking the 3-5% APY of a certificate of deposit (the best cd rates are hitting 5% APY) or a high yield savings account (the best high yield savings account rates are near 4% APY). I think there is a stigma against taking these “safe” gains because we have it in our heads that the stock market can yield returns of 10%. The reality is that the 10% metric is one that’s been overplayed and so ingrained that people are looking at the volatility in the market today and wondering how that figure could possible be correct. It’s not. The market may have yielded gains of 10% since the beginning of time but as all mutual funds state - “past returns are not indicative of future performance.”

One thing is certain though - a certificate of deposit or high yield savings account will get you that yield. The worst case is that you get your money back (bank failure). Unlike money market accounts, CDs and savings accounts are FDIC insured and you’re protected from loss.

Take the safe bet, it’s OK!

Invest In Yourself

Now is the perfect time to invest in yourself by taking some classes, buying some books, and otherwise augmenting your skills to make yourself a more attractive employee or prospective employee. Investing in yourself is one of the best things you can do with your money as knowledge is something that can stay with you for a very long time and there’s always something you can learn.

You don’t have to go as far as taking a class but if you’re in an industry where certifications, and the knowledge those certifications confirm, are important, go out and test for them. In certification heavy fields, many requisitions are filled by those certificates.

Invest In Money-Savers

It’s often said that replacing a ten year old refrigerator can yield significant cost savings (some figures claim $100-$200 of savings [1] [2]). If you have a ten year old refrigerator, consider taking your investment money and replacing it. Let’s say you buy a $2000 fridge and it saves you $100 a year in energy costs - that’s a 5% return on your investment. Since that 5% isn’t taxed, that’s the same as a 6.67% return in the stock market if you’re in the 25% marginal tax bracket. 6.67% return, a new fridge, and being nicer to the environment isn’t too shabby, is it?

There are plenty of other money-savers you can find both in and outside of your home.

Do you have any suggestions on where people can invest nowadays?

(Photo: cishore)

For the month of October, TradeKing is running a $50 promotion where you can get $50 by opening a new account, fund it with $2,500 or more within thirty days, and then make one trade within 180 days. It’s just like the promotion they had for National Friend’s Day but for the entire month of October.

To take advantage of the promotion, you’ll need to click a TradeKing link on this site so they can track your sign-up. You should see a special sign-up page with this graphic:

If you’re curious about TradeKing, I’ve written a TradeKing review. They have also received numerous awards including #1 in Customer Service in Smart Money Magazine’s 2008 ranking of brokerages as well as four stars by Barron’s.

Here’s the fine print:

To qualify for this offer, new accounts must be opened and funded with $2,500 or more. Account opening and funding must occur within 30 days from the date this email was sent, and one trade must be executed within 180 days of account opening. Offer is not transferable or valid in conjunction with any other offer. Open to US residents only. One offer per household. TradeKing can modify or discontinue this offer at anytime without notice. A minimum balance of $2,500 is required in the account (minus any trading losses) for the first six months or the credit may be surrendered. Other restrictions may apply. Offer applies to new non retirement accounts funding for the first time. Click here for Promotional Rules.

Here’s an idea I spotted in the lasted issue of Money Magazine:

Consider your job as an asset in investment asset allocation decisions.

The gist of the article was that when you’re young, your greatest asset is your human capital. That is, your ability to take your time and turn it into money (salary, commissions, etc.) is your greatest asset. As you get older and accumulate other assets, your financial assets will begin taking up a larger and larger piece of your portfolio. It’s the old adage of making your money work for you. As this happens, remember to treat your job and your income as an asset when you make decisions about your asset allocation.

For example, consider a young twenty-something analyst at a financial services company. Even in its heyday, you would probably consider that job more a small cap stock than a Treasury bond right? You work long hours, the work is at times unstable, but you have the potential to reap tremendous rewards. If you were, say, a tenured university professor, your job is more like a bond than it is a stock. Even in times of economic uncertainty, when a young analyst at a financial services company might fear for his or her job, students will still need to be taught and research will still need to be conducted - a professor is pretty safe (even if you don’t consider the tenure aspect).

How do you take that into account? Some places will tell you to consider your take home pay, compare it to your investment portfolio and try to balance your allocation that way. That’s a good approach but that depends on so many judgment calls (is your job a stock or a bond? Is it 100% either way or more 50-50? who really knows!?) but the one thing you can do is skew more conservative or more aggressive based on your analysis of your own job.

Just an idea to mull over.

(Photo: fsims)

I did something very bad today.

I just day-traded shares of AIG.

I instant-messaged SVB earlier this afternoon and asked her to convince me not to buy shares of AIG (she didn’t). AIG is an insurer that had been getting pummeled lately because of, you guessed it, liquidity concerns. They needed to get a loan to help with short term liquidity but their fundamentals were pretty sound. The downgrades made it necessary for them to get additional collateral but the consensus was that they’d be OK if they got a loan.

My belief was that the Federal Reserve would be willing to lend them money because it would be in the best interests of the financial system. This wasn’t a bailout, it was simply a large loan, so that made it more palpable. The big catch was that Treasury Secretary Paulson said that they wouldn’t loan it any money… I didn’t believe them.

So I bought some AIG at $3.42. I watched as it fluctuated wildly in the low $3 but when it broke through the $2.90 mark (an artificial measure) I sold it. It eventually sold for $2.99. That’s when I repurchased shares at $2.85 and watched activity bringing it as high as $3.90. I put in a sell order at around $3.65 (as it went back down from $3.90) and it executed at $3.36.

All told, I actually earned a profit on the two trades of $226 after commissions.

A few minutes later, there were reports that the Fed is considering a loan package for AIG (this was information that was reflected in the share price prior to the Bloomberg report). Shares are now trading in the $4’s (at one point breaking $5 a share) as I hit publish.

I’m such a fool.

After-Hours Update: AIG dropped to $1.79, a fall of -$1.97, or -52.39%, from the close on news that instead of a loan, the Feds are considering conservatorship!

There isn’t a single reason why you shouldn’t like index funds. They’re cheap, they offer market rates of return without fail, and they are simple to buy. They beat actively managed mutual funds a majority of the time and they are often advocated as the best investment the average Joe can put their money in. So why not put all your money into an S&P 500 Index fund like the Fidelity Spartan 500 Index or the Vanguard 500 Index, call it a day and enjoy more time with the family? Because that would be a huge mistake.

The reality is that you can’t just open an account a online discount broker, buy only index funds or index ETFs, and then call it a day. The advice of personal finance experts isn’t that you should invest only in a single index fund, it’s to invest in a basket of index funds that diversifies your risk and offers you a fair return for the risk you are taking. An index fund represents only a small part of your diversified portfolio, it shouldn’t represent the entire portfolio because it exposes you to risk without paying you adequately for it.

Risk #1. Domestic Risk

If you have everything in an S&P 500 fund, then your portfolio depends on the performance of the United States economy. As anyone who has seen their brokerage statement lately, the stock market has declined significantly since last October and the economy has been slowing down since at least six months to a year beforehand. If 100% of your investment portfolio is in domestic investments, you’re over exposed to one single country. While it’s the best country in the world, it’s still risky to put all your eggs in this basket. Some of the greatest investment gains the last few years, helped on by the decline in the value of the dollar, has come in the emerging markets funds. While I wouldn’t advise plowing all your money there (especially now that the dollar is recovering), experts recommend around 5-10% of your assets in emerging markets funds.

Risk #2. Equity Risk

An S&P 500 index fund is 100% stocks (duh), which is probably at least double digit percentage points higher than what you probably want your stock allocation to be. As I mentioned earlier, the stock market had a 20% haircut from its highs last fall and if you held just an equity index fund like the S&P 500, you took on the full brunt of that fall. Experts advocate the 120 minus age rule when it comes to stock allocation: your stock allocation should be [120 - your age] percent of your portfolio, with the rest being in bonds. While the equation is subject to tweaking based on your situation and risk tolerance, the idea behind it is that you shouldn’t be too exposed to equities because they’re riskier than bonds.

Solutions

Are you convinced yet that 100% into an index fund is a mistake? I couldn’t just leave you with an explanation of what not to do without giving you a solution! There are two solutions for those who like to “set it and forget it:”

Solution #1. Target Retirement or Lifecycle Funds

Target Retirement or Lifecycle funds (Vanguard calls them Target Retirement, Fidelity calls them Lifecycle) are funds that adjust their asset allocation as the years pass. The idea is that you buy a 2045 Fund if you intend to retirement in 2045 and the broker adjusts the asset allocation such that the risk gets lower and lower as that date nears. Target retirement and lifecycle funds are composed of other mutual funds, many of which are passively managed. These funds are truly for the “set it and forget it” types because the broker rebalances the fund for the investors based on their models (and each broker’s model is different, I once wrote about how these target retirement funds compared with the 120 stock rule).

Taking a look at Vanguard’s 2045 fund, you’ll see that the asset allocation is composed of six funds in varying allocations:

• Vanguard Total Stk Market Idx Fd Inc - 70.22%
• Vanguard European Stock Index - 10.10%
• Vanguard Total Bond Market Index - 10.00%
• Vanguard Pacific Stk Idx Fd Inc - 4.38%
• Vanguard Emerg Markets Stk Idx Fd - 3.81%
• Vanguard Total Stock Market ETF - 1.46%

Solution #2. Lazy Portfolios

Lazy Portfolios are cleverly named portfolios that are designed specifically for the lazy “set it and forget it” crowd, which includes yours truly. They are simply asset allocation recommendations that rely on a basket of low cost mutual funds, which include index funds, to build a portfolio that is easy to manage. The most well known of these portfolios is the Couch Potato Portfolio, created by Dallas Morning News columnist Scott Burns, and it’s a 50-50 split of the Vanguard 500 Index Fund and the Vanguard Total Bond Fund Index Fund. Other cleverly named titles includes the Margaritaville Portfolio, the Coffeehouse Portfolio, and others.

The lazy portfolios aren’t entirely “set it and forget it” because they don’t rebalance themselves every year. Think of the portfolios as a recommended asset allocation, you still have to go in every year and rebalance them back to their recommended percentages.

(Photo: DustinMatthews)

Did you know that National Friendship Day was August 3rd?

I didn’t, but that’s because my friends never told me! (I just lobbed a softball, someone crush it out of the park already…)

Well, my friends at TradeKing (har har, I think they just like my money) just sent me an email reminding me of a promotion they have where if you refer a friend to TradeKing, both of you get $50.

Here are the important details of the $50 referral promotion:

• It must be a new account opened between July 31st and August 31st,
• The referred friend has to fund their account with at least $1,000 within 30 days,
• The referred friend has to execute at least one trade (trades are $4.95 a piece) within 180 days of opening the account,
• The funds must remain in the account for at least 180 days.

Is this a good deal? If you don’t have a TradeKing account and have been thinking about it, now’s a good time to do it. If you just want the money, trades are $4.95 a piece so you’re talking a round-trip cost of $9.90, plus your trade is at risk in the market, for a promo of $40.10 on a $1,000 six-month deposit (puts the interest APY, if you like to think in those terms, at ~8%+ APY).

Want in? Shoot me an email with this contact form and I’ll send you a referral. (or directly email me at: )

Here are the microprint terms & conditions from the email:

(1) New qualifying account must be opened within the dates of 7-31-08 to 8-31-08. New referred client must fund their account with a minimum of $1,000 within 30 days of opening the new account. New referred client must also execute at least one trade in the new account within 180 days of the account opening. The minimum funds of $1,000 must remain in the account (minus any trading losses) for a minimum of 180 days or the credit may be surrendered. Account types that don’t qualify include: traditional IRA, ROTH IRA, Rollover IRA, SEP IRA, Simple IRA, Solo 401K and Coverdell IRA. Click here for complete Payment Rules and Eligibility Requirements.

One of the best things I ever did was read Wall Street: A History: From Its Beginnings to the Fall of Enron by Charles R. Geisst. In it, I learned about the famous tulip bulb craze in 1630s. During that craze, people were buying exotic colored tulips like they were going out of style (which they soon would) and many folks ended up with little more than a couple pretty flowers (check Wikipedia for the full scoop).

Let’s compare that with the dot com bubble and the housing craze and see if there are any similarities. In the dot com boom, investors were putting money into companies that were little more than an idea and a URL. In the tulip bulb boom, someone was able to sell shares in a company that claimed to one day be involved in the trading of tulip bulbs (this is based on my memory of what was included in Geisst’s book, there’s no mention of this on the Wikipedia page), only to run off with the money. In the housing craze, people were given 100% LTV loans based on the magic lenders were able to make in the books and not based on the borrower’s actual ability to pay (in this case, the lender was the investor). So in all three cases, the bubbles formed because people were so greedy that they invested in the “symbol” and not the fundamentals.

The lesson here is that you shouldn’t let greed cloud your judgments. Remember that Rule #1 is “don’t lose money.” Warren Buffett is plenty rich and he basically skipped the dot com boom. Some had written him off because he missed it but he said that he was just fine. Buffett only invests in things he can understand. He couldn’t understand why people were paying these ridiculous valuations for companies that had zero earnings.

So, the next time you see people acting all crazy (how many people told you to invest in a hot stock or to buy a house because it can’t do anything but go up?), don’t jump in. Watch from the sidelines and you’ll save yourself a lot of money.

(Photo: powi)

The key to a successful investment plan is to pick one that fits your personal style. If you’re always busy and simply can’t find the time to pay attention to your investments, you need to pick a style that matches your life. There’s no sense adjusting your life to your investments, it should be the other way around. It’s difficult to pigeonhole anyone into one particular bucket but find the various suggestions in each grouping to see how best to use them to match your life.

The Novice

Everyone starts as a novice, there’s absolutely no shame in being a beginner when it comes to the stock market. In fact, it’s probably better that you’re a beginner. It was the experts that got us into the whole sub-prime mortgage mess. Until they closed their doors, the halls of Bear Stearns was full of experts. That being said, if you’re a novice when it comes to the stock market, put your money into a high yield savings account and start playing with a “play portfolio” at one of the finance sites. While you’re learning, your savings will still earn a nice interest rate.

When I was learning, I used Yahoo! Finance and a tool over at The Motley Fool (if you’re a novice, The Motley Fool is a great place to learn more about the markets). You can use one of any number of play portfolios to hone your skills and get used to the stock market (without the pesky “losing money” part).

The Regular Joe (or Jane)

The Regular Joe is someone who likes to check up on stocks every once in a while (whether that’s once a day, once a week, or once a year) and keep up to date on the financial news. He or she has the time and inclination to read the news but simply isn’t terribly interested in everything that’s going on in the financial word. The solution? Try a “Lazy Portfolio.”

A lazy portfolios are buy-and-hold portfolios that consist of low-cost & no-load index funds. They are the bane of Wall Street and brokers hate them. They are created by financial experts and they perform quite well. Here are a few of the cooler sounding ones:

• Couch Potato: 50% Vanguard 500 Index & 50% Vanguard Total Bond Fund Index
• Sophisticated Couch Potato: 75% Vanguard 500 Index & 25% Vanguard Total Bond Fund Index
• Margarita: “One part total stock index, one part international stock index and one part inflation-protected Treasury securities.” (if you went Vanguard, that’d be 33% Total Stock Market Index fund, 33% Total International Stock Index fund, and 33% Inflation-Protected Securities Fund)
• Coffeehouse: 40% Intermediate Bond Index, 10% in each of Total Bond Index, S&P 500 Index Fund, Large-Cap Value Fund, Small-Cap Fund, Small-Cap Value Fund, International Fund, and a REIT index fund.
• No-Brainer: 25% in an S&P 500 Index Fund, Small-Cap Fund, European Stock Fund and a Total Bond Market Fund.

There are plenty of other options out there, and you don’t have to go with Vanguard, but those should get you started.

The Gambler

Everyone has a bit of gamble in them, some have more than others. I used to play quite a bit of online poker and blackjack in college, so I know that feeling. I know that rush of seeing good things happen and the despair when bad things happen (all too well), so I’m familiar with that mentality. I don’t gamble much anymore but it’s easy for one to fall into the trap of playing a little too much with the investment portfolio. So many of the same features of the stock market mimic the casino. Your money isn’t “real” money, it’s just numbers on a screen. Stock prices can jump and fall so quickly (even more quickly once you start talking options and derivatives) that it can give you that rush. (I wouldn’t recommend for gambling addicts!)

The solution is to go “Regular Joe” (i.e. Lazy) on 90% of your portfolio and allow yourself to “play” with the remaining 10% (any safe percentage, or absolute number, will do). With the 10% you can put it on individual stocks, experiment with options or futures or even foreign exchange, and feed desire for excitement.

The Compulsive Ticker Checker

When I first started working, I checked Yahoo! Finance every half hour while I was at work. I had some individual stocks in my Roth IRA and I was checking them every few minutes just to see what was going on. I did it because I didn’t really have much else to do at the time and it was just a way for me to read up on news, check to see if anything crazy was happening, and otherwise just kill time. The real solution to a compulsive ticker checker, if you want to reduce risk and still maintain market returns, is to select broad market index funds and add them to your online portfolio tracker. You’ll have plenty of information in those index fund news articles to keep you busy all day. Or get a hobby that isn’t investment related!

The Overworked

If you’re the type of person who wishes there were twenty-eight hours in a day, then you know that the reason your investments are being neglected is because you simply have too much on your plate. Rather than adjust your life’s priorities so you can invest properly, you should adjust your investments to match your life’s priorities. If you’re way too busy to look at your investments, even just once a year, then go with entirely lifecycle or target retirement funds. They are simply mutual funds comprised of other mutual funds, designed for a specific retirement date in mind. They handle all the allocations, all the re-balancing, and all the headache you simply don’t have the time to do yourself. They are also very affordable so you aren’t paying out the nose for someone to manage your investments.

Selecting the right style is crucial to ensuring long term success. If you’re a gambler (or have the itch of a gambler) and try to stick with a portfolio that doesn’t let you satisfy your desire for risk, you’ll end up making bad decisions somewhere once those bottled emotions get uncorked. If you’re overworked and don’t stick with something simple, things will fall through the cracks and your assets will suffer.

Which type(s) are you?

(photo: spencereholtaway)