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Understanding the Behavioral Advantage and Trade-Offs of Bucket Portfolios

Bucket portfolios aren’t rational, but they are perfectly normal and can be an effective tool for investors. Bucket portfolios are aimed at providing spending resources during investors’ decumulation periods, usually in retirement. They are typically composed of three buckets, arranged by time horizon and investment type. The first bucket contains cash, such as a money market fund, sufficient for spending as planned in the short horizon and set at one, two or perhaps five years. The second consists mostly of
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The Difference Between a Forecast, a Wish, and a Worry

David Booth DFA Chairman and Founder When I was growing up, our local newspaper, the Kansas City Star, was full of news and had one page for opinion. After decades of cable news and nonstop digital postings, I see more opinions these days than news. That’s not a bad thing. But when it comes to investing, it’s crucial to remember the difference between news and opinion, and how they are sometimes used to forecast the future. Any time the government
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People Have Memories. Markets Don’t.

Start the new year off with a clean slate—just like markets do every day. One of the best things about markets is that they don’t have memories. They don’t remember what happened last week or last year. They don’t even remember what happened a minute ago. Prices change based on what’s happening right now and what people think will happen in the future. People have memories. Markets don’t. And that’s a good thing. So as you start 2023, take a
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This Has Been a Test: Developing a Financial Plan You Can Stick With

Think back to December 2019. The economy was humming. Unemployment, interest rates, and inflation were at historically low levels. But then what happened? A global pandemic hit. By the end of March, the S&P 500 had dropped nearly 20% in value.1 Later in the year, scientists announced that they’d developed a vaccine, and markets roared back. FAANG stocks soared … before giving up a lot of gains.2 Meme stocks shot way up … and fell back down. Bitcoin and other
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Time the Market at Your Peril

Technology enables immediate access to everything wherever and whenever we want it. In many cases, such as staying in touch with friends and family, or learning about world events, that’s a good thing. However, when it comes to investing and money management, my fear is that faster and easier ways of investing will allow people to lose more money faster and easier. As access to investing expands, it becomes even more important to adopt an investment plan that doesn’t try
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Markets Don’t Wait for Official Announcements

Some investors may worry about the stock market sinking after a recession is officially announced. But history shows that markets incorporate expectations ahead of economic reports. The global financial crisis offers a lesson in the forward-looking nature of the stock market. The US recession spanned from December 2007 to May 2009(1), as indicated by the shaded area in the chart. But the official “in recession” announcement came in December 2008—a year after the recession had started. By then, stock prices
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What History Tells Us about the Market and Control of Congress

Nearly a century of US stock market returns suggests that making investment decisions based on control of the chambers of Congress is unlikely to lead to better investment outcomes. From 1926 to 2022, stocks trended higher regardless of whether Democrats or Republicans controlled the House and the Senate, or whether control was mixed. Actions by Congress and the other branches of the federal government may impact returns, but other factors like geopolitical events, interest rate changes, and technological advances do
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Active Management Hasn’t Shined in Volatile Markets

Many investors have likely heard the adage that active management performs better in times of market turbulence. This may sound like an emotional hedge for market stress akin to betting against your favorite sports team to balance an adverse outcome with financial compensation. However, a historical analysis of active US-domiciled equity funds finds no meaningful relation between market volatility and managers’ success rates; the implication is that traditional active investments may compound your concerns during times of market uncertainty. The
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Include a Family Meeting in Your Next Family Reunion

Along with warmer weather and lazy days spent at a pool, summertime also often includes a family gathering, such as a Fourth of July barbecue, a family vacation, a reunion, or time spent at a family cabin or lake house. Whatever the form, in our always-on-the-go society, getting the whole family together is a rare occurrence. Consider taking advantage of this time together to discuss your estate and financial wishes with your family by including a family meeting in your
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So What’s Your Plan for the Bear Market?

A lot of people are stressed out about a lot of things right now. Markets are down. Prices are up for many of the things you need to buy. Interest rates are rising and make it a confusing time to consider buying or selling a house, or making other major financial decisions. This all adds to the stress you may be feeling about your job, the ongoing pandemic, and the health of loved ones. If you’re stressed out about what
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