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Bias For Clarity

Bias for action. Gets things done. Go-getter. Traits companies big and small look for. And for good reason, you're being hired to do things! However, action is a secondary step that often overshadows the primary step, direction.   Clear direction is the foundation that enables our actions to takeoff. Without it, we're stuck in the mud.  Striving for clarity is an underrated skill. Having the courage to ask ( seemingly ) obvious questions, and to check in, making sure we're all on the same page. "O bvious " questions are a low risk, high reward way to add value. At worst, you'll add confidence to our actions. At best, you discover a misalignment that saves us from a dead-end.  The more people, the more clear we need to be. The bigger the initiative, the bigger the risk of reaching the finish line, only to realize expectations were off.  Success is always uncertain. But we can be certain about what we want and what everyone's job is. Things that can be clea

5-Star Past, 1-Star Future

Morningstar is renowned by professionals for their research and insights. For us everyday investors, we might recognize their signature 5-star rating system. Big banks love to brag about their stars! But do more stars equal more returns? The rating is fairly simple. Morningstar groups funds with their peers. Funds that have beaten their peers will get 4 to 5 stars, funds that underperformed will get 1 to 2. Based purely on historical data, it doesn't do much in predicting the future. Past 5-star performance doesn't equal future 5-star performance. The  Wall Street Journal  studied thousands of funds since the star rating's inception (2003-2017) and it was clear that top-performers don't persist. Only 12% of 5-star funds did well enough over the next five years to earn the top rating. 10% of past top funds did so poorly they ended up with an 1-star rating. This is consistent with SPIVA's findings on  persistent performance , top performers from one peri

Stock Market Vs. The Economy

The stock market has been on fire. Rocketing up over 50% from the March lows taking the S&P 500 to new highs. This recovery has been the fastest - and for many the most puzzling in history. "Businesses can't open, millions lost their jobs and the pandemic rages on. Stocks don't make any sense!" There's a common misconception that the stock market and the economy are one and the same. While they're related, key differences explain the negative correlation we're seeing. Where You Looking?  Economic data is backwards looking. It tells you  historical results. Stocks are forward looking. Investors make buy and sell decisions on  future expectations.  If investors believe stocks will thrive again, then despite damning economic data, they will buy and markets will rise. The reverse is also possible. If GDP and employment is at all time highs but if investors believe we've peaked and starts selling, markets will dive. Keeping Things Pr

RRSP Myths Debunked

The RRSP (Registered Retirement Savings Plan) is one of the most misunderstood things in finance and for good reason . There's a lot to it - taxes, investments, contribution limits, employer matching plans. These alone can create anxiety, put them together and now you're just scaring people. As a result, it gets taught through the grapevine. Casual chats with friends, families and coworkers. This informal learning has led to a lot of misconceptions. Here are some of the most common myths. 1) "My money's locked up until I retire" While yes, the goal of the RRSP is to help fund retirement, you can withdraw anytime you want. There's no age or employment status you need to reach before you can access to your money. It's always available to you.  This leads us to our next big myth.  2) "I have to pay big penalties if I withdraw early" There's no penalty. You simply pay taxes. The applies no matter when you withdraw. The RR

Big Drawdowns: The Wild Ride To Riches

Every investor daydreams about going back in time and getting in on the ground floor of a super successful company. Amazon went public at $18 and now trades above $3000 . That's a whopping return of 17,000%! Being an early investor would've made you filthy rich - if you were able to hold on. Staying invested is much easier said than done. Hindsight is 20/20. We have the privilege of knowing things worked out for Amazon, but it was a bumpy ride. While there were many years of amazing returns, there were also tense moments where all seemed lost. To endure these drawdowns you would've needed an iron stomach.  Year Annual Return 1998 966.39% 1999 42.18% 2000 -79.56% 2001 -30.47% 2002 74.58% 2003 178.56% 2004 -15.83% 2005 6.46% 2006 -16.31% 2007 134.77% 2008 -44.65% 2009 162.32% 2010 33.81% 2011 -3.83% 2012 44.93% 2013 58.96% 2014 -22.18% 2015 117.78% 2016 10.95% 2017 55.96% 2018 28.43% 2019 23.03% Would you've been able to hol

ELI5: What is Direct Indexing?

The way we invest is ever-evolving. First it was private shares, then we had public stocks, followed by mutual funds and ETFs. Taking it to the next level, we're now seeing the growth of direct indexing .