From: Chuck Donalies, CFP®
Sent: Friday, November 6, 2015 10:00 AM
Subject: The Frugal Planner's Weekly Dispatch, Issue 7
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Want to be a Better Investor? Stop Checking Your
Finance Apps!
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Do
you own an iPhone? If so, you
already know
Apple pre-loads the phone with several apps that cannot be deleted.
One of the undeleteable apps, called
"Stocks", enables you to build a portfolio of
stocks, ETFs, mutual funds and market indexes, allowing you to view
performance, price, and news about the investment.
The app can be
helpful: I use it to check the status of the S&P 500, Dow, and
NASDAQ markets whenever I'm out of the office. Unfortunately, the
app and others like it may also cause investors to make poor
decisions about their investments.
A recent article
in The Wall
Street Journal
highlights something behavioral economists call myopic
loss aversion, which sounds like a degenerative disease of the eye
(it's not). The behavior is triggered by frequent feedback,
such as checking the price of a stock many times throughout the
day. In situations like that, investors are likely to see a loss
nearly 50% of the time and thus more likely to sell the
investment, often at the wrong time.
The takeaways:
- Stick
to your long-term investment plan.
- Avoid
checking financial apps or sites too often.
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Now You Can Invest in a Startup (But You Probably
Shouldn't).
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I'm often
asked if it's a good idea to buy gold (no) or invest in the latest
hot IPO (also no). Soon I expect to receive questions about another
type of investment: Startups.
The Securities
and Exchange Commission (SEC) recently voted to allow equity
crowdfunding (read
more about this in Wired). In
the past, only accredited investors (people with a lot of money)
could invest in startups. Now, pretty much anyone can invest in the
next Facebook or Twitter.
In general,
I believe this is good news. Equity crowdfunding will make it
easier for entrepreneurs to raise the money necessary to get their
businesses off the ground. The downside is that investing in
startups will be another avenue for people to commit fraud.
My advice on
investing in startups is the same as for other investments: Make
sure you understand the business as well as the risks
involved, review the financials, and don't invest more than you can
afford to lose. Or just stick to traditional investments.
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Having Problems With Your Financial Software? This
is Why.
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I
depend on several different software aggregation tools to manage my
business and personal finances. My clients often use the same
tools. For example, sites like Mint.com are
wonderful for aggregating financial account information and
creating budgets.
Unfortunately,
over the past few weeks I've experienced problems with accounts
updating properly or not at all. I know I'm not alone because many
clients have had the same problem.
Now there may be
an explanation for the problem: Big banks have started throttling
the flow of financial data. J.P. Morgan and Wells Fargo are named
in The Wall
Street Journal, but
I wouldn't be surprised if other banks are doing the same. Their
stated reasons for throttling data are overloaded servers and the
potential for theft or fraud.
Data theft is a legitimate
concern. Millions of people would be affected by a data breach at
Mint.com. However, I can't help but think banks have other reasons
for withholding data. Financial technology (FinTech) has
become a big business and there are many startups ready to take
customers away from traditional banks.
I'm positive
we'll be hearing more about this issue in the coming months. I'l be
sure to provide you with updates.
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