Ignore the Hype

BRIAN PERRY is Executive Vice President at Pure Financial Advisors. In that role, he uses his extensive background and experience to promote financial education and help individuals meet their financial goals. In his quest to help people live the life they deserve, Brian has published widely, appeared on TV and radio, and spoken at countless seminars, workshops, conferences, and classes. Having spent more than two decades in the financial arena, Brian previously worked as an institutional portfolio manager and as a bond trader for several investment banks. He has an MBA in international business as well as a master's degree in international affairs. He also holds the designation of Chartered Financial Analyst and is a Certified Financial PlannerTM professional. Brian previously wrote From Piggybank to Portfolio: A Financial Roadmap for New Investors, in 2009.

• Acknowledgments xiAbout the Author xiiiPreface xvIntroduction 1Part I: Yes, The Game is Rigged, But You Don’t Have to Play 7Chapter 1: The Times They are a-Changin’ 9There is a World of Difference Between Speculation and Investing 10So, Why is It So Damn Hard to Ignore the Hype?! 12To Play, or Not to Play, That is the Question 14Life at the Speed of Light 15Lower Transaction Costs 17Self-Directed Investing 20High-Frequency Trading 23The 24-Hour News Cycle 24Globalization 29The Rise of the Institutional Investor 31The Bottom Line 33Chapter 2: Don’t Play a Game That’s Rigged 35The Upward Path of Markets 36Asset Class Returns 38A Twist in the Plot 40Time in the Market versus Timing the Market 41Why are Las Vegas Casinos So Nice? 43The True Cost of Sitting on the Sidelines 45Does Crisis Equal Opportunity? 48Chapter 3: Guess What? A Forecast is Just a Guess 51But Forecasting is Fun 52Economists 54Wall Street Analysts 55Media Pundits 57The Federal Reserve (the Fed) 58So, What’s the Problem? 59The All-Star Team 60What Should You Do with Forecasts? 62Part II: If You Don’t Know Where You’re Going, You Probably Won’t Get There 65Chapter 4: You Must Know What Drives Investment Returns 67You Can Beat the Dealer, But Can You Beat the Market? 69It’s Hard to Stand Above the Crowd in a Room Full of Tall People 70So, What’s the Solution? 71Indexed Products 72A Rules-Based Approach 75Fundamental Factors for Success 78Stock Market Factors 79Growth Stocks 80Value Stocks 81Bond Market Factors 87The Bottom Line on Factor Premiums 93Chapter 5: You Must Have a Specific Financial Goal 95Step One: Determine Your Vision of Retirement 96Step Two: Determine How Much You Spend Today 98Step Three: Determine When You Want to Retire 99Step Four: Determine How Much Income You’ll Need in Year One of Retirement 99Step Five: Determine Your Sources of Retirement Income 103Step Six: Determine How Much You’ll Need from Your Savings and Investments 103Step Seven: Determine a Sustainable Distribution Rate 104Step Eight: Determine How Much Money You Need to Retire 105Step Nine: Determine Your Plan to Accumulate the Money You Need to Retire 105Putting It All Together with a Step-by-Step Example 107Already Retired? 111The Bottom Line 111Chapter 6: You Must Invest to Meet Your Goal 113How Much Money Do You Want to Make? 114How Much Money Do You Need to Make? 115How Much Risk Should You Take? 116Sleeping on a Bed of Money 120Adding Some Stocks to the Mix 121Portfolio A 123Portfolio B 123What Portfolio Do You Want? 124Still Not Convinced? 125Enjoy Your Retirement! 127Chapter 7: You Must Practice Smart Diversification 129What is Smart Diversification? 130You Don’t Want to Be a Pig! 130Owning What You Know May Not Be Best 132It’s a Big World 137Sometimes You’re Trapped by Your Own Success 140Dealing with Concentrated Positions 143Smart Diversification Enhances Your Odds of Success 145Winning the Lost Decade 147Chapter 8: You Must Learn How You’ll Be Taxed 151But First, the Hype 153And Now, the Truth 154Income Taxes: A Quick Primer 154Are Taxes Going Higher? 157Tax Diversification 158Do You Know Who Your Partner Is? 159As If That’s Not Enough … 162What’s Certain in Life? 163Part III: Just Because You’re Paranoid Doesn’t Mean They Aren’t Out To Get You 169Chapter 9: How to Avoid the Taxman Without Going to Jail 171Building Your Tax-Free Pool of Money 172Accelerating the Flow of Funds to Your Tax-free Pool 176Building Your Taxable Pool of Money 177Do You Want to Keep More of What You Make? 181Chapter 10: Sorry, But You’re Probably Your Own Worst Enemy 185Tales Your Parents Told You 187Anchoring 189Confirmation Bias 190Overconfidence Bias 192Herd Behavior 194Framing Bias 196Hindsight Bias 198Self-attribution Bias 200Myopic Loss Aversion 201Chapter 11: FYI, the Media Doesn’t Care If You Make Money 205But Then There’s the Media … 206Did Black Monday Spell Doom for Investors? 211What Side of the Aisle are You On? 214Would You Hitch Your Family’s Future to the Circus? 217Chapter 12: Avoid the Wolf in Sheep’s Clothing 223Does It Pass the Sniff Test? 224Who’s Got Your Back? 224Focus on Minimizing Unnecessary Fees 229Is What You’re Buying Even an Investment? 232Drowning in a Sea of Complexity 234Do You Even Know What You’re Buying? 236But My “Regular” Bonds are Free from Commissions, Right? 237What are You Using Derivatives For? 241Market Voodoo (AKA Technical Analysis) 243Let Me “Sell” You an Annuity… 244Now, Let Me “Explain” an Annuity… 245The Bottom Line 247Chapter 13: How to Survive a Bear Attack 249Prepare for the Bear 250Risk Capacity versus Risk Tolerance 252Rebalance to Stay on Course 254Buy-and-Hold Investing 257Buy-and-Forget Investing 258So, What Do You Do When Market Valuations are Extreme? 259Does What Gets Measured Get Improved? 260Ready for Some Good News? 262A Better Life 263Conclusion 267Index 271