Frequently Asked Questions

For a number of years, I have been a contributor to a site called “Quora”. It’s a question and answer site that covers just about every conceivable topic you could think of.  Anyone and everyone can submit questions and then await an answer. And the answer(s) could be written by a Rhodes Scholar or a high school drop out and everyone in between.

As a result, the site is a genuine ‘font of knowledge’ spanning theoretical expertise right through to hard-earned experience. It’s a fabulous place to while away some spare time!

So I thought I would include in this post some of the answers I have submitted over the last few years. I have steered clear of anything too specific, and concentrated my selection on general financial topics that you should find interesting. So let’s begin.

How often should I rebalance my investments?

One method is to review your portfolio 6 monthly and rebalance when one asset class is skewed more than 10% +/- from the desired weighting. By the way, 10% difference can be less if you so chose, but usually not more.

What was the best advice given to you about investing in stocks?

 “When even shoeshine boys are giving you stock tips, (or the barber/hairdresser or the taxi driver or the waiter or the bartender), then it’s time to sell.

A saying, reputably by Joseph Kennedy, and a fantastic indicator of investment “bubbles” ready to burst.

What is the safest investment?


What does risk premium mean in investing?

It is the rate of return an investor expects for taking a risk. The premium is the bit above the current risk-free rate (bank deposit)

When did you realize your financial advisor knew absolutely nothing about investing?

When they told me “not to worry” when my investments fell, as they “always come back” When I asked them why this happens, they had no answer!

What is some financial advice that poor people always ignore?

Stay clear of credit. If you can’t afford to pay cash don’t buy it!

What has created more millionaires – real estate or stocks?

My first thought would be ‘who would know’ It is a bit like asking who is the most beautiful person in the world. Until you check the total population of earth you will never really know!

But I can’t help but draw a comparison between President Trump, a well-known property developer, and Warren Buffet a well-known share investor. A comparison of their total wealth is sufficient to form an opinion.

Do you make more money in the long term from property investments or shares?

I am of the opinion they are both pretty much line ball. Success in both though will depend on what point in the cycle you are buying in at. Buying either shares or property during a boom can be a rather disappointing strategy. Although it seems that’s the exact time a lot of new investors begin their investment journey.

As was told to me many years ago, “ profit is made with the buying price, not the selling price”

My investment suggestion would be to stay away from vacant land that doesn’t produce any income. Unless of course, you are 100% sure of selling quickly and for a profit. A good investment always has 2 components; the potential for capital growth and an income stream.

Which commonly given financial advice is misleading?

The phrase “It’s time in the market, not timing the market” is, I believe, an incredibly misleading piece of financial advice. Often, holding on for very long periods is the salve applied to poor investment selection. But there are plenty of examples over the last 40 years of investments that certainly didn’t improve with time.

Take the Japanese market for instance. If you decided to buy the Nikkei index in the year 1990, you would still be underwater 29 years later. Surely 29 years is time enough? Obviously not.

Many investors believe “timing the market” is defined as being able to enter at the bottom and sell at the very top. This is impossible. But in lieu of this, the advice suggests accepting ‘time in’ as the alternative for investment success.

All investment markets are cyclical. Understanding this is the key to timing entry and exit points for investors. It’s certainly not a matter of waiting for the top or bottom but rather selecting investments appropriate to their cycle.

Interestingly, I recall the first time I heard this phrase, was in the early ’90s as a slogan used by a fund manager to advertise their funds. Not long after the 87 share crash and much market turbulence, as a result, of the gulf war 1.00.

I am certainly not suggesting the phrase wasn’t in vogue prior to this. However, it seems its prominence as an investment ethos was ramped up by the funds’ management industry at a time when many investors were deserting the share market. And of course, retaining funds under management at all costs was the business model of this industry

An image depicting investment paraphernalia

How should we diversify portfolios? By asset class or geographically?

Diversification is normally achieved through the use of different asset classes. The concept is to include assets that will be negatively correlated. That is, when one is going down, another is going up. This has the effect of providing smoothness to your total portfolio.

Usually, a great many stock markets act in a positively correlated manner. That is when one goes down, other markets across the globe tend to follow. Of course, there are exceptions, but in general, they all seem to react in similar ways. And most particularly when major geopolitical upheavals occur.

Alternatively, individual geographic markets do tend to increase over time without much reference to other global markets, being driven predominately by domestic factors. That is why you often see some geographic segments shooting the lights out, whilst others are underperformers in comparison.

Therefore the reason you diversify it is to smooth your returns and provide a reasonably constant upward impetus of the value of your portfolio. It is also to protect your downside risk. As such geographic diversification might not provide adequate downside protection if used on its own.

If no one can time the market, why do we need charts for stock investing?

I believe that when people suggest timing the market they often mean buying at the bottom and selling at the top. As any reasonably experienced market watcher will tell you, there is plenty of activity between these two extremities.

And it is for this activity that a chart will assist technical traders with their entry and exit points.

Share charts actually map human behaviour and this human behaviour is essential for creating market activity. The close analysis, therefore, allows experienced traders to interpret market behaviours to make a profit. That’s the theory anyway

What moves stock prices?

Supply and demand are the factors moving stock prices. Fear and greed are their motivators.

What equity sectors tend to outperform others during a bear market? How do they compare to alternative options like fixed income and other asset classes?

During a bear market, an investor is best served to be looking at adding to a portfolio rather than selecting investments expected to outperform. Bear markets ‘take no prisoners’ and usually, every stock gets hit, with some worse than others. You will often hear the concept of defensive stocks during times of duress, which is a bit of a misnomer.

Defensive stocks are the prevail of professional fund managers who are mandated to stay invested no matter what the market conditions. Therefore they look for candidates that are not as prone to major falls when compared to other stocks. We individual investors can just sell up and go to cash or just sit it out in our current holdings.

The best strategy of bear markets is to wait until the finale is reached and then begin to accumulate across the market at no doubt pretty good prices

How do you know when the stock market has reached the bottom? When should you start buying again?

An old saying in the market is ‘no one rings a bell at the top or the bottom’ which suggests each investor needs to assess when they feel either is occurring. Market tops are easier to spot just through their immense crowd participation. As Joseph Kennedy was once quoted saying ‘it’s time to get out when my shoeshine boy is recommending stocks” (You can replace shoeshine boy these days with any number of non-market related occupations)

Bear markets are usually measured by the amount of selling taking place, with the final phase being exasperation selling. This final phase is where all but professional money managers sell out and desert the share market. These investors have finally had enough of continuously losing money and just want out!

Look for this phase to occur well into the bear market. It will be easy to spot with severe market falls, graphically depicted as almost a straight line down. The culmination of this last leg will then herald the next bull market. Therefore it is after this final leg down that is the best time to accumulate shares.

There are many technical indicators available that will give you guidance and probably somewhat greater precision, so become knowledgeable in Technical Analysis to enhance your investing.

An image showing investment graph going up.

I want to save some money for my retirement. How can I make a beginning now?

I suppose a simple answer to your question would probably be, ”just start putting money aside into an account” This is obviously easier said than done and retirement as a goal does require a somewhat more sophisticated strategy.

Initially depending on where you live there could be compulsory retirement savings. For example, in Australia, 9.5% of everyone’s gross wages must be credited to a retirement account. If this is the case where you live it becomes a very good start to build from.

If not you do need to select a savings account that can provide varied investment strategies as well as some tax incentives. Again, compulsory retirement accounts usually have these features built in.

Next, you need to draw up a budget for your current expenditure. By doing this you will be able to locate spare cash flow to be put aside for retirement. By the way, a feature of all retirement accounts is the inability to access funds until you have reached retirement age. Keep this in mind.

If you can’t locate spare cash flow you will then need to examine closely your expenditures to determine what can be cut from your budget. It will be the cash freed up from this cull that is to be allocated to your retirement account.

Is there any reasonable way to time the stock market?

Market timing is predominantly described as being able to pick the top and/or the bottom of the share market. All market pundits seem to agree that this is an impossible task to achieve, and I certainly agree with them.

However, markets always traverse well-defined phases within their journey from top to bottom and back again. And it is these different phases of the market cycle that can serve investors as strong indicators to either invest or alternatively to sit on the sidelines.

Therefore knowledge of the market cycle should give an investor a reasonable insight as to the particular chance of success or failure of an investment.

As a result, I probably do subscribe to the notion of being able to time markets, but certainly not with the precision of being able to pick the top and the bottom

What is the single most important thing a beginner should know when using an app to invest in the stock market?

In my estimation, an app is merely a ‘black box’ enabling you to act on your investment desires without any knowledge. Unfortunately, the single most important thing a beginner requires prior to investing is knowledge! And this is easily achieved with a mixture of desire, time and persistence.

There is a myriad of avenues to examine from courses, books, magazines, and websites that will introduce you to investing and help you to build your knowledge base.

But, there are certainly applications that will gladly replace your own efforts with their database and make all your investment decisions. But before you commit, try growing your own vegetables and then compare them to what a supermarket sells you! I think you will then learn the difference between the benefits of your own efforts and those promised by a corporation.

What are the best choices for long term investment accounts, I’m regretting choosing Acorns and looking for something smarter?

The robo investment concept is in its infancy and offers very little benefit for investors other than cheaper fees. Index investing, its mainstay also has a lot of drawbacks, especially in retreating markets. Put the two together and you have a pretty poor investment strategy.

Unfortunately, that is what most (all) automated, app-based investment offerings can offer.

Either seek professional advice or spend some time researching how to invest for yourself. You will be much better off.

For a beginner investor, what type of investing should I get into?

Before actually ‘putting some skin in the game’ firstly educate yourself about the world of investing. This is not to suggest that you should embark on a lengthy University degree, nor enroll in some get rich quick investment program “available to the first 50 people who click on this advertisement!”

Rather, spend some time reading. There are plenty of books that have been written over the years with the express purpose of building knowledge about investment principles. Then there are blogs and websites to scan in order to develop your critical thinking. (Not everything you read from this source is accurate funnily enough!)

Devote time to the business section of the newspapers, do this daily. Get to know what is going on domestically and globally. There is always plenty of variety of articles through these pages about properties, shares, economic news, government legislation and everything else that can impact investment markets.

Now, when all this reading suddenly starts to become interesting and then becomes totally fascinating and exciting, you are ready for actual investing. But by that time YOU will actually know what you are doing.

What are your best finance tips?

  1. Do your own research
  2. Don’t just follow the crowd
  3. Banks lend you money because that is how they, make money, and for absolutely no other reason!
  4. There are only 3 major asset groups cash, shares, and property
  5. Forecasting is not accurate, no matter what algorithm or AI is being used.
  6. Do you really think index investing is the answer?

There are plenty more answers over at Quora. I might do a 2nd post similar to this in the future. I hope you enjoyed reading the answers and I truly hope it helps when developing your investment philosophy.

Thanks for visiting, good luck with your investing and see you again. Homepage

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