I am one of those people who have 100% of their long-term portfolio in stocks (both in individual stocks and diversified index funds). I have an investment horizon of 50 years, so by &quot;long-term&quot;, I mean 50 years. I have recently began to question the wisdom of a 100% stock allocation for my long-term portfolio. Most people seem to prioritize stocks over bonds. Some even ignore bonds completely. Newer brokerage firms such as Robinhood do not even support bonds! Common reasons for preferring stocks include:  Stocks prices can go up a lot, but the upside in bonds is severely limited (i.e. unlike stocks, bonds can't double in value within a few years) On a 50-100 year price chart of American stock indexes, stocks had an astronomical return compared to bonds.  Therefore, trade stocks instead of bonds, and hold stocks for the long-term. I used to subscribe to the &quot;common wisdom&quot; above. However, I have recently become more skeptical:  The S&amp;P 500 has not beaten bond indexes over the last 20 years (2000-2020). Indeed, by looking at the price chart of the S&amp;P 500, one observes that 2000-2020 is not the only 20 year period when stocks have underperformed bonds! Although it is possible that stocks have the magical property that makes them outperform bonds over a very long period (e.g. 100 years), there could still be decades where stocks underperform. The 50-100 year price chart of American stock indexes is irrelevant on its own, because it exhibits survivorship bias. With hindsight, one could say that the performance of the American economy was exceptional. Over the last 50-100 years, the stock markets of countries with revolutions, wars, famines, and long-term economic stagnation have probably had lower returns. By only looking at American markets to conclude that stocks outperform bonds over very long periods, one is probably submitting to survivorship bias and hindsight bias.  My questions are:  Why do people recommend a portfolio allocation in bonds when the historical record says that stocks outperform bonds over the very long run? Are the reasons I listed above correct? Is it wise to hold 100% stocks in long-term (50 year) portfolios?  By &quot;stocks&quot;, I mean both individual stocks and diversified index funds (diversified across industries, geography, and economies). I do not care about year-to-year volatility. I only care about what the returns will be near the end of the 50 years.
120973
My wife and I (ages 35 and 38) have 25-30 years until we reach retirement age, and I'm doing some research regarding our asset allocation. In addition to various podcasts, articles, and online posts, I've read A Random Walk Down Wall Street, The Investor's Manifesto, and am currently reading Common Sense on Mutual Funds.   Our current plan is to move (in the next month or two) our retirement investments (~$100,000) from some Nationwide front-loaded funds to a combination of Vanguard index funds - probably largely composed of the Vanguard Total Stock Market Index and the Vanguard 500 Index Fund.  Although I'm currently leaning towards something like a 70%/30% stock/bond split, I'm wondering if there is any wisdom to holding a 100% stock portfolio (50% Vanguard Total Stock Market Index, 50% Vanguard 500 Index Fund) for the next 5-10 years.  I know we can't predict future returns, but wouldn't 25-30 years allow time to recover from a potential market downturn in the next few years? As we got older, we could begin to incorporate bonds.
55058
The general consensus is that the single best indicator of a fund's future performance is the its expense ratio . If you look for more than 5 minutes online you discover the  approach to investing; the , etc. It looks like the less you pay for a fund (and therefore the less it's managed), the better it does in the long run.  So why is it that in peoples' 401(k)s there are so many high-cost actively managed funds? Furthermore, why are there so many high-cost actively managed funds in the first place? Shouldn't the market reflect the fact that actively-managed funds typically don't beat the index they benchmark to and and react by purging itself of these crappy funds?
65524
The first thing I learned about bonds is that when interest rates rise, the price of existing bonds tends to fall. Unfortunately, I didn't learn much else about bonds. So I have a couple questions about them.   If interest rates rise I'm sure it will affect some kinds of bonds more than others. What are the different kinds of bonds and how do they fare in time of changing interest rates? My financial planner suggested 20% of my 401(k) should be in bonds. (I am decades away from retirement.) What do they add to my portfolio in terms of risk and diversification? (I guess I'm asking why wouldn't I drop most of the bonds from my portfolio since they've been outperformed by my mutual funds over the last couple years when interest rates have been stable?)
43446
Whereas companies like Google, Facebook, Netflix, Amazon, Apple have all increased anywhere from 3x-6x in value in the past 5 years. If you just stuck with those companies, you would have easily beaten the S&amp;P 500's 1.5x gains. Then there are some companies like Tesla and Square that have 10x'd in value over the past 5 years. To me it seems that if you just pick a handful of good businesses to invest in, you'll be able to beat the S&amp;P 500. You can even just google the top 10 companies in the S&amp;P 500 and invest in them. The average gains from all of those companies including dividends, have also beaten the S&amp;P 500 in the past 5 years. I am just curious at what I am missing, because every time I research this question common advice seems to be to just stick to an index fund of the S&amp;P 500 as most investors can't beat its returns.
16366
Two years ago, I bought 100 shares of XYZ.  Yesterday, I bought another 100 shares of XYZ.  Today, I sold 100 shares of XYZ.  Which 100 shares did I actually sell? If it were the 100 shares from 2 years ago, then that contributes to my long term capital gains tax. If it were the 100 shares from yesterday, then that contributes to my short term capital gains tax.
96762
I sold an investment in a standard brokerage account at a small loss because I needed the money for a down payment.  I still think it is a good investment, can I buy the same investment in a standard IRA without running into wash sale problems?  I will probably just wait the 30 days any way to avoid any headaches, but I want to know if there is a definitive answer on this.    Being as the cost basis in the traditional IRA doesn't matter, I wouldn't think there would be a problem.
103979
I'm new to financial markets and how they work is still fuzzy, so bear with me. This question actually has multiple questions :( ... and a bit of a story.  I was watching a YouTube video on the history of stock markets and happened to mention the 1920 crash. Apparently the cause of the crash was due to the reason that investors were panicking and thus selling. I didn't think too much on it until my brother mentioned in a discussion that investors selling meant there was a counter party buying.   Since then I have been trying to reason as to when "investors starts to panic and thus start selling".   My guess is that if buying and selling have low volatility or the share prices are fluctuating up and down predictably or is going long then things are grand. But investors start to panic and sell when shares drop below a certain threshold. Maybe prices drop by 5-10%? I dunno..  But then if investors are now going mad in fear and selling like crazy, who buys this bad stocks?   The answer I could come up with are short sellers. So, I'm guessing that short sellers make up the counter party that panicked investors sell their shares to.. otherwise who in their right mind would buy a falling stock?  So the short seller makes a tidy profit and returns the shares to the broker. The broker loses the bet, what does the broker do with these worthless stocks?  Can't sell to other investors unless they think the stocks will go long. But let's assume no one thinks the stock will go long anytime soon or that day.  Maybe they can sell to other short sellers?  If so, what happens when short sellers "run out"? I'm getting a headache thinking about it.
3971
Assuming I'm paying long term capital gains tax, what is the break even point where it is more worthwhile to switch from one fund to another?  For (a hypothetical) example, if I have a fund with an expected return of 3.5%, what would be the minimum expected return of another fund to make it worthwhile to pay the capital gains tax and switch to the other fund?  (I'm assuming the answer to this question is an equation involving investment horizon, capital gains tax rate, and my current taxable gains)
32933
In the picture below, Citigroup's stock split 1 to 10. My guess is this means that everyone who had 1 share now has 10 shares? This can't be right though, because the value of the stock after the split should be 1/10th of the value prior to the split. Somebody help me out here.
80220
Stock A has a bid price of $100.08, an ask price of $100.10 and a last trade price of $100.  I take that to mean that if I buy the stock at $100.10 then I will have lost a total of two cents. How does a person make a profit when buying and selling stock?  Do I wait until the bid price is higher than the ask price that I paid? I hope that I don't confuse anybody because I'm pretty confused myself.
80045
Background: I am currently employed by a start-up that, so far, is doing really well. As part of my contract, I have stock options that will come available on a typical vesting schedule. A quarter of my options are set to vest later this year. Also, the company is not public yet, and it may be several years before it is public / I could sell my shares of the company.  My question is, is there any reason I should exercise them as soon as they vest? As far as I know they don't expire as long as I work at my company (if I leave for any reason, then I only have 3 months to exercise).  I don't foresee leaving any-time soon, and if I did, I would have 3 months to make a final decision.  Is there any disadvantage to just letting the option stay an option for a while?
123683
Let us assume there is a listed company x. Currently it has 100 shares issued to trade in free float market. Current price of stock is let say 10. Now please let me know if I purchase one share of company x at the market price of 10. How it will effect the stock price. And please add and exemplify some other scenarios whichever you find good to explain more. For more information let say promoters of the company holds 100 shares with them like 50% of the company is with promoters and the other half is with people who invest or trade in that company. If I've missed to tell or assume any other vital info. needed please assume it yourself while mentioning it. Thank You
44439
Why are American-style options worth more than European-style options?   I realize I can exercise American-style options anytime before the  expire, but I can only exercise European-style options during their  "exercise period" (usually right when they expire, but no earlier).   So it makes sense that an American option is worth at least as much as  a European option.   But why is it worth more? If I exercise my American option early, I  may make more money than waiting until expiration, but I also may make  less. Mathematically, there's no advantage, since I'm equally likely  to make as much money by waiting for expiration.   Mathematically speaking, is there ever a good reason to exercise an  American option early?   I realize people don't always behave logically, but even the formulas  that valuate options show that American options are worth more.   EDIT (answering comments):    Many of the comments people made would apply to lookback options  (), but not to American  options.  American options can do everything European options can and more. I  understand that, and that means American options can't be worth any  LESS than European options, but I'm still not clear on how you would  mathematically calculate this extra value.  @Aaronaught: "The difference between an American and European  option is the difference between getting N chances to get it right (N  being the number of days 'til expiration) and getting just one  chance. It should be easy to see why you're more likely to profit  with the former, even if you can't accurately predict price  movement."    REPLY: I don't think you really get N chances. Once you exercise the  option, that's it, no more chances. And, if you decide not to exercise  the option today, and the underlying's price falls, you can't go back  in time and exercise it yesterday.    @jdsweet: Think of it this way, if you traveled back through time  one month - with perfect knowledge of AAPL's stock price over that  period - which happens to peak viciously then return to its old price  at the end of the period - wouldn't you pay more for an American  option?    REPLY: Well, no. I'd simply buy a cheaper European option that expires  right at the spike. Or, I'd buy a European option that expires later,  and sell it when the spike occurs. American options don't give you  precognition, so you're still guessing as to when to sell/exercise.    @jdsweet: "one of the more common reasons people exercise (as  opposed to sell) an American option before expiration is if an  unexpected dividend (larger than remaining time value of the option)  was just announced that's going to be paid before the option contract  expires"    REPLY: This makes sense. I'm actually trading FOREX options, so there  is no dividend. In that scenario, are European and American options  worth the same?
118248
My company offers RSUs — restricted stock units — as a benefit. These vest after a certain amount of time, and in 2013, my first chunk vested with a value of about $6400. As I understand it, at that time, when I accepted the distribution, that was reported as income, and Fidelity even sold some fraction to cover withholding, leaving about $4000.  Slightly more than a year later, I sold the entire lot; the stock price had gone up, so the total amount was $5200.  I'm new to all of this, but my understanding was that this would be a long term capital gain of about $1200.  However, my 1099-B from Fidelity has:  1b date acquired           :   10/16/13 1c date sold               :   10/28/14 1d proceeds                :   $5200 1e cost or other basis     :   $0 1f code / 1g adjustments   :   - Gain/loss                  :   $200 4 Federal Inc Tax Withheld :   $0  Box D Long-term realized gain: $5200   There is, however, a "2014 Supplemental information" form, which notes "This information is not reported to the IRS. It may assist you in tax return preparation". On this form, there is "Ordinary Income Reported" of $4000, "Adjusted Cost or Other Basis" is also $4000, and the final column is Adjusted Gain/Loss: $1200, just as I expected.  I'm confused. Why does the 1099-B say "0"? Is that $4000 actually taxed both as regular income and then again as capital gains? (That doesn't seem right, and I found  on this site, which seems to agree with my expectations. On the other hand, I don't want to put down what I think is right and have Fidelity tell the IRS that I owe a lot more.  What is the right thing to do on my tax return?
70675
I've read Einsteins quote stating "The most powerful force in the universe is compound interest." However, everywhere I read this is basically only possible with dividend paying stocks and then applying a dividend reinvestment plan.  Is there a re-investing strategy like this for non-dividend paying mutual funds (or even non-dividend paying stock)? I figured that the only way would be to sell all your funds and then buy x+1 funds again, but this would cause a big loss because of transaction costs from the broker.
80865
Sorry if the below seems like a conspiracy theory. It probably is, but I probably don't understand something. (This has bugged me to no end as long as I can remember.)  Okay, so here is what I understand about the stock market?   The main way money enters the stock market is through investors investing and taking money out. The only other cash flow is in through dividends and out when businesses go public.   In a Ponzi scheme, there is usually some small source of income to hide the fact that it's a Ponzi scheme. Dividends are pretty insignificant. For the purposes of this question, we will only consider non-dividend stocks.  When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets.   For example, if I bought $10 of Apple Stock early on, but it later went up to $399, I can't go to Apple and say "I own $399 of you, here you go it back, give me an iPhone." The only way to redeem this is to sell the stock to another investor (like a Ponzi Scheme.)  The stock market goes up only when more people invest in it. Although the stock market keeps tabs on Businesses, the profits of Businesses do not actually flow into the Stock Market.   In particular, if no one puts money in the stock market, it doesn't matter how good the businesses do.    Based on the above, it seems like the Stock Market has little to do with investing businesses to create growth, and primarily grows in a similar way to a Ponzi Scheme. (Some differences include that it is Stochastic (so when it collapses, it can be blamed on luck or the economy) and it has no top operator (similar to a Pyramid Scheme)).  Am I missing something? Does the stock market create value for investors?
54125
seems to be a well known and renowned machine learning expert in the field of finance. I am very far from his level, as have not yet finished my PhD in economics, and only have an applied level statistical knowledge. I have encountered a much . I can not say I completely understand all the mathematical parts. But there are some claims in the paper, which seem to completely contradict things, which I have learned on statistics and economics thus far, or at least seem to be illogical for me. For a specific example, the paper under the section Pitfall #4 and Solution #4 suggests, that by differencing time series to make them stationary for classical statistical models (ARIMA etc.) removes the memory of the series and thus makes them lose the predictive power:     The conclusion is that, for decades, most empirical studies have   worked with series where memory has been unnecessarily wiped-out. The   reason this is a dangerous practice is that fitting a memory-less   series will likely lead to a spurious pattern, a false discovery.   Incidentally, this over-differentiation of time series may explain why   the Efficient Markets Hypothesis is still so prevalent among academic   circles: Without memory, series will not be predictive, and   researchers may draw the false conclusion that markets are   unpredictable.   In economics there really is a simplified theoretical model on equity returns, which posits, that it is a memory-less white noise, and the prices (the integrated returns) follow a random walk. But from an empirical perspective, as far as I understand the memory-less attribute of returns pertains only to the individual data points themselves, not the series as a whole. A differentiated series still should have a "collective" memory put together, and it has almost the same information as the integrated version, only lacks a constant value. So it should have the same predictive power as well, should it not? Or it is me, who has a lack of understanding?