Personal finance articles aimed to educate and sometimes entertain written by highly experienced Certified Financial Planner with deep expertise in integrating retirement, investment, and tax planning into a well-integrated retirement strategy. (This site is for educational purposes only. See disclaimer.)
A recent Wall Street Journal article, citing a study by the Center for Research in Security Prices, tells us something remarkable about the times we are investing in: the number of stocks on the U.S. market has quietly diminished by more than half over the last 20 years. In November 1997, investors could choose from 7,355 U.S. stocks. Today, there are fewer than 3,600.
Most of the decline has come from vanishing companies ranging from small to microcap — the sort of names you probably haven’t heard of. Small stocks have diminished from more than 2,500 in 1997 to fewer than 1,200 today. Microcap companies that are even smaller numbered nearly 4,000 in 1997, compared to 1,900 today. Some went out of business, while others were gobbled up by larger companies or private equity firms. Meanwhile, instead of new companies going public to replace those that have retired from the market, venture capital firms are allowing younger ventures to stay private for longer.
The article talks about several possible consequences. Since the surviving companies tend to be larger and better known, it becomes harder for professional asset managers to get an information edge or find small undiscovered gems that are undervalued. The declining roster of stocks may also mean that a long era of higher returns from small cap stocks compared to larger firms could be coming to an end or somewhat diminished. But the truth is that nobody knows what the investment consequences will be from the quiet shrinkage of investment options, or for that matter, if this trend will reverse itself.
The most common way to transfer assets to your heirs is also the messiest: to have a will that is so out of date that it doesn’t relate to your property or estate, to have your records scattered all over the place, to have social media, banking and email accounts whose passwords only you can find—and basically to leave a big mess for others to clean up. Is there a better way? Recently, a group of estate planning experts were asked for their advice on a better process to handle the transfer of assets at your death, and to articulate common mistakes. The list of mistakes included the following: Not regularly reviewing documents. What might have been a solid plan 15 or 20 years ago may not relate to your estate today. The experts recommended a full review every three to five years, to ensure that trustees, executors, guardians, beneficiaries and healthcare agents are all up-to-date. You might also consider creating a master document which lists all your social m
This NY Times article Hot Stocks Can Make You Rich. But They Probably Won’t provides a succinct take on the odds of picking the next big winner. Before you jump headlong into stock picking, you should consider the odds. Over the long run, while the total stock market has prospered, most individual stocks have not. “A new study by Hendrik Bessembinder, a finance professor at Arizona State University, demonstrates persuasively that while investing in the overall stock market makes sense, the obstacles facing individual stock pickers are formidable. Professor Bessembinder found that a mere 4 percent of the stocks in the entire market — headed by Exxon Mobil and followed by Apple, General Electric, Microsoft and IBM — accounted for all of the net market returns from 1926 through 2015. By contrast, the most common single result for an individual stock over that period was a return of nearly negative 100 percent — almost a total loss.” Yet more evidence that stock picking ca