What is the VIX and What Does it Mean?

Often referred to as the “investor fear index,” the VIX is technically the ticker symbol for the Chicago Board Options Exchange Volatility Index, which shows the market’s expected volatility. First introduced in 1993, the VIX has evolved over the years and today it is a widely referenced measure of market risk – on a forward basis. That “forward basis” qualifier is important as it calculates future volatility and does not look backwards. A Calculated Index The VIX is calculated daily, similar to the S&P 500 Index. But whereas the S&P 500 Index is calculated based on the stock prices of 500 companies (technically there are 505 companies, but that’s another story altogether), the VIX uses the price of options on the S&P 500 and estimates how volatile those options will be between the current date and the option’s expiration date. Much like the individual stock prices of the 500 companies …

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401k Loans: Pros and Cons

You might be considering taking out a loan from your 401k. But before you do, you should know the rules and weigh the risks against the benefits. Because not knowing the rules and understanding the risks might hurt you and your retirement in the long-term. Consider this for a Second Most of us simply do not have enough in our 401k where we can afford to borrow. According to Fidelity Investments, the average 401k balance was approximately $91,000. And while that is a lot of money, it won’t cover the average retiree’s health-care costs. Fidelity projects that a 65-year-old couple retiring in 2014 will incur an average of $220,000 in retirement healthcare costs alone. Before you take out that 401k loan, know this: According to the IRS: the maximum amount that the plan can permit as a loan is (1) the greater of $10,000 or 50% of your vested account …

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Human Capital is More Valuable to Economies Than Physical Assets

Human capital is more than twice as valuable to the global economy as physical capital, but business leaders often overestimate the value of tangible forms of capital and underestimate the importance of employees to their company’s performance, a study commissioned by executive search firm Korn Ferry has concluded. The report, “The trillion-dollar difference,” outlines the findings of a survey of more than 800 global business leaders that was conducted in August and September 2016, as well as of a global economic analysis that was conducted by the Centre for Economics and Business Research. The report was released on December 15, 2016. To quantify the relative value of human and physical capital, researchers developed a lifetime income calculation for measuring human capital that encompasses the ability of people to perform labor and add productive value over time. Physical capital was measured by the value of tangible means of production (such as …

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The Huge Decline in U.S. Publicly Traded Companies

The Huge Decline in U.S. Publicly Traded Companies: Why investors should be worried Financial advisors spend a lot of time reassuring clients. Yes, interest rates are rising, but they are still at historical lows – the markets will be fine long-term. Yes, the technology sector is on a tear, but there are significant differences from the technology bubble from the late 90s – the markets will be fine long-term. Yes, the U.S. dollar declined last year for the first time in 5 years – the markets will be fine long-term. But there is one 20-year trend that has financial advisors worried about the markets long-term: the sharp decline in the number of publicly traded companies here in the U.S. The Worry In 1996, the US stock markets boasted over 8,000 publicly traded companies. Today, that number has dropped to less than 3,500. Let’s go back further and add the US …

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Annual Rebalancing Steps

Annual Rebalancing Steps: Perspectives from a Seasoned Financial Advisor As you begin to receive your year-end statements, it will be tempting to focus on how well the markets performed – because it really was a year for the record books. The year 2017 saw the DJIA set 71 all-time highs, surpassing the previous record of 69 set in 1995. We saw NASDAQ up 28%, the DJIA up 25% and the S&P 500 up 19%. And at almost nine years old, this bull market is now the second-oldest and second-strongest in history. Given last year’s market performance, it would be a safe bet that many investors need to consider rebalancing, because they might now be overweight or underweight certain asset classes – and therefore positioned in a way that is inconsistent with their risk tolerance and goals. Now is the Time to Think About Rebalancing The reality is that the market …

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