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The financial markets are pretty efficient. High-frequency traders have fiber-optic cables in close proximity to major US stock exchanges. Many trades are done using computer algorithms. These trades are executed near the speed of light. Whenever you hear or see new information, it is already incorporated in the stock price. All the news you hear on CNBC or Bloomberg is already reflected in stock prices within fractions of a second. The light travels about 124,188 miles per second through the fiber optic cables (Brodsky). So, if a trading firm has a server within a mile of major stock exchanges, it can execute trades within 0.000008052 seconds after the news hits the market. Most retail investors do not have the technology to execute trades before professional traders with computer power and fiber-optic cables in close proximity to exchanges.  

References:

Brodsky Paul. The Speed of Light Never Changes—Except When it Does. https://blog.telegeography.com/the-speed-of-light-never-changes-except-when-it-does

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You may remember a hype around GameStop and stories of investors turning $500 into $200,000. Stories like this can cause the investor to fall victim to the cognitive bias – bandwagon effect. Just because more and more people are buying GameStop, you may want to join the group and be included in making a lot of money fast. The cognitive bias makes it easy to jump in without doing your homework. You may ask yourself: What can go wrong if everybody is doing it? Investments that are based on hyped news and popularity, without fundamental reasoning, are very risky. At some point, the market price will have to match the true value of the company. The disaster will happen sooner than you think, when reality settles in. It is very difficult to time the market and be the first one out of the door. When suddenly the music stops and everybody runs for the exit, the price will fall dramatically.

There will be many more GameStop like companies in your life. You will hear many classical pump-and-dump stories of people trying to profit from trusting investors. Pump-and-dump scheme is illegal activity by perpetrators trying to boost the stock price through false, misleading or greatly exaggerated information (Investopedia). The perpetrators have already purchased the stock at a low price and want others to drive the price higher based on false information. The perpetrators will then sell shares at a higher price.   

Besides unpleasant learning experience, large speculative losses have come with a significant negative social impact on investors. Many investors in speculative securities will lose a lot of money. With large losses, these investors will also lose confidence in the financial system. They will be afraid to invest again and will miss on future opportunities to benefit from the financial system. These people will have a more difficult time bridging the inequality gap without the stock market’s help. That is a negative social effect of the stock market on new investors.

Do your homework before you invest, if there is no fundamental value behind the stock price, it becomes a speculative bet. You can invest some of your money that you can afford to lose. Your main portfolio should be well diversified with good quality companies or broad market ETFs.  

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At some point, you may want to seek the help of a financial advisor. A financial advisor can provide education, guidance, and personalized strategies to help you reach your financial goals. They can also conduct research, manage your investments, and monitor your portfolio, allowing you to focus on enjoying life.

But how should you select the right financial advisor?
To assist investors in making informed decisions, the CFA Institute developed the Statement of Investor Rights, which outlines fundamental ethical principles, a commitment to understanding client needs, clear communication, and full transparency. When interviewing a prospective financial advisor, consider bringing a copy of the Statement of Investor Rights with you to ensure your interests are protected. Ask whether the advisor adheres to these 10 principles.

Additionally, inquire whether the advisor holds the CFA designation. The CFA (Chartered Financial Analyst) charter is widely recognized as the gold standard among investment credentials. It is a globally respected designation, meaning you can find CFA charterholders around the world wherever you live.

The CFA designation is one of the most prestigious and challenging achievements in finance. Earning the charter requires passing three rigorous exams – each demanding an average of 300 hours of study, covering topics such as investment analysis, economics, accounting, portfolio management, statistics, and ethics. Candidates must also complete 4,000 hours of qualified professional work experience. The CFA charter is a strong mark of excellence, integrity, and commitment to putting clients’ interests first.

References:

CFA Institute Statement of Investor Rights: https://www.cfamontreal.org/static/uploaded/Files/PDF/statement_of_investor_rights_english.pdf

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Our Phone:

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This podcast is made with Jetpack Podcast. Full show notes and every episode at https://ecnfin.com/

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From the market close on April 17th to the close on April 25th, the best-performing asset classes and sectors were:

The lagging sectors during the same period were:

Year-to-Date (YTD) Performance Highlights:

On the downside (YTD):

Disclosures:
The analysis is based on historical data and future expectations that may not be correct. This paper was written as an opinion only. The data is not guaranteed to be accurate or complete. Please consult with your financial advisor before making an investment decision. Neither ECNFIN.COM nor its author is responsible for any damages or losses arising from any use of this information. Past performance doesn’t guarantee future results.

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Our Mailing Address:

ECNFIN
1288 Kapiolani Blvd Apt 4003, Honolulu, HI 96814

Our Phone:

+1 720-593-1135

Our Fax:

+1 720-790-7606

This podcast is made with Jetpack Podcast. Full show notes and every episode at https://ecnfin.com/

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Investing in individual company stocks may provide an attractive potential return, but it comes with both company-specific and market risk combined. Most investors like to brag about the high-performing stock picks they made during cocktail parties; it is very exciting to pick the winner and tell stories. Nobody is excited to talk about investing in a well-diversified Exchange Traded Fund (ETF). An ETF is a basket of securities designed to follow the performance of its benchmark. Sometimes, boring investing is more prudent for beginner investors.

Investing in individual company stocks may provide an attractive return but it comes with a significant risk. The investor takes on both market and individual company risk. When the overall market is down, the individual company stock is likely to be down as well. Also, by purchasing the company stock, you assume its individual risk. Individual risk consists of a company’s business performance, financial results, competitive environment, and management changes. It is time-consuming and requires both knowledge of financial statements and practical experience to learn about company-specific risks. A beginner investor may find it easier to pick ETFs and create a diversified portfolio without exposing themselves to company-specific risk.

Disclosures:
The analysis is based on historical data and future expectations that may not be correct. This paper was written as an opinion only. The data is not guaranteed to be accurate or complete. Please consult with your financial advisor before making an investment decision. Neither ECNFIN.COM nor its author is responsible for any damages or losses arising from any use of this information. Past performance doesn’t guarantee future results.

Subscribe wherever you enjoy podcasts:

Our Mailing Address:

ECNFIN
1288 Kapiolani Blvd Apt 4003, Honolulu, HI 96814

Our Phone:

+1 720-593-1135

Our Fax:

+1 720-790-7606

This podcast is made with Jetpack Podcast. Full show notes and every episode at https://ecnfin.com/

Enter your email address to follow ECNFIN.com and receive notifications of new articles by email for free. Be the first to read and do not miss future timely research publications.  

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A diversified portfolio can create a more comfortable environment for investors to weather the ups and downs of the stock market. A well-diversified portfolio typically carries lower risk while maintaining potential upside. Investors are more likely to stay the course and remain invested when their portfolio’s volatility stays within their comfort zone. Each person has his or her unique risk tolerance level. The goal is always to remain invested through all market cycles.

For example, a diversified portfolio that captures 50% of market declines and 60% of market gains may help ease the anxiety of a risk-averse investor. Lower portfolio volatility increases the likelihood that an investor will remain invested during both bull and bear markets. In the long run, slow but steady wins the race toward financial goals.

There are many ways to diversify. One simple approach involves two key steps:

Historically, U.S. long-term government bonds have provided valuable diversification due to their negative correlation with equities during economic recessions. However, from January 2020 to December 2024, U.S. government bonds had a negative Sharpe Ratio of -0.53. In my prior research, I’ve discussed the “Simple 50/50 Model,” which allocates 50% to iShares Core S&P 500 ETF (ticker: IVV) and 50% to iShares 20+ Year Treasury Bond ETF (ticker: TLT). This model was effective during the financial crisis and the COVID-19 pandemic. However, over the last four years, this model would have underperformed due to the poor risk-adjusted return of long-term bonds. We can’t always rely on historical correlations and performance, while historical data is there to analyze, the future is notoriously difficult to predict. It’s wise to be conservative and account for potential correlation breakdowns and unexpected events. Long-term US Government bonds may still provide future downside protection during the economic slowdown, whereas Gold is more of an inflationary hedge.

For instance, when analyzing the past four years of major asset classes, the clear winners have been:

Interestingly, Gold’s volatility (Standard Deviation = 15.49) was about 40% lower than that of NASDAQ-100 (Standard Deviation = 25.64).

The worst-performing sectors were in fixed income:

For the past four years, the optimal mix for building a portfolio with the highest risk-adjusted return has been 48% in NASDAQ-100 and 52% in Gold (IAU). This allocation produced a Sharpe Ratio of 0.73 and a Standard Deviation of 15.82: a high risk-adjusted return with lower volatility than either asset class alone (see Table 3).

If our goal is to minimize volatility, one solution based on Excel optimization to minimize variance might include the following asset allocation:

This portfolio results in a Standard Deviation of 13.45 and a still-attractive Sharpe Ratio of 0.55 (see Table 4). Of course, allocating 68% to Gold may not be practical in real-world investing, given future uncertainties. You may want to diversify further by adding US long-term government bonds, for example. If we have an economic recession, investors will demand safety and buy US Treasury Bonds, pushing the prices higher.

Let’s take diversification a step further, this time at the expense of the Sharpe Ratio. By adding long-term U.S. government bonds, we create a new, more diversified portfolio. The asset allocation of this portfolio is as follows: US Long-Term Treasuries (TLT) 36%, Total US Market (VTI) 23%, MSCI Europe (IEV) 5%, and Gold (IAU) 35%. The standard deviation drops to 11.32, but this comes at a significant cost of a lower risk-adjusted return. The new Sharpe Ratio is almost zero at 0.03 (see Table 5). This portfolio has the lowest standard deviation among the three models we’ve reviewed, but it is the least efficient and may not compensate for the risk taken. Portfolios one and two are much better choices.

Disclosures:
The analysis is based on historical data and future expectations that may not be correct. This paper was written as an opinion only. The data is not guaranteed to be accurate or complete. Please consult with your financial advisor before making an investment decision. Neither ECNFIN.COM nor its author is responsible for any damages or losses arising from any use of this information. Past performance doesn’t guarantee future results.

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Our Mailing Address:

ECNFIN
1288 Kapiolani Blvd Apt 4003, Honolulu, HI 96814

Our Phone:

+1 720-593-1135

Our Fax:

+1 720-790-7606

This podcast is made with Jetpack Podcast. Full show notes and every episode at https://ecnfin.com/

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The first step in building an investment portfolio is to understand your true risk tolerance before investing. How much risk can you tolerate both in theory and in practice? It is easy to fall a victim of being a risk taker on paper but realize risk aversion in reality. When the stock market enters a correction territory by falling more than 10%, the feeling of anxiety may cause you to fall victim to the loss aversion bias. Loss aversion expresses the intuition that a loss of $X is more aversive than a gain of $X is attractive (Daniel Kahneman and Amos Tversky, 1984). It will be the least favorable time to change your portfolio when the prices are down. If you are feeling difficulty to remain calm and rational during volatile times or simply are against taking too much risk with your savings, you should have a diversified portfolio with a comfortable risk profile.

A diversified portfolio should aim to achieve a positive risk-adjusted return, as measured by the Sharpe Ratio. The goal is to reduce overall portfolio volatility while maintaining attractive returns. Historically, combining U.S. equities with long-term U.S. Treasury bonds helped achieve this balance. However, as market conditions evolve, so does the risk-return profile of each asset class.

For example, from January 2020 to December 2024, the iShares 20+ Year Treasury Bond ETF (TLT) delivered a negative Sharpe Ratio of -0.53, indicating that it failed to compensate investors for the risk taken. In contrast, gold (IAU) produced a Sharpe Ratio of 0.62, offering better risk-adjusted performance during this time (see Table 1).

To explore this further, I ran a simplified optimal asset allocation analysis using only three asset classes: U.S. equities (IVV), long-term U.S. Treasuries (TLT), and gold (IAU). The optimal portfolio allocation for maximizing the Sharpe Ratio was 41% in IVV and 59% in IAU. This portfolio delivered a Sharpe Ratio of 0.60, with an annualized standard deviation of 13.61% and an expected return of 10.54% (see Table 2).

Importantly, the portfolio’s standard deviation (13.61%) was lower than that of either gold (15.48%) or U.S. equities (21.36%) individually. At the same time, the portfolio’s expected return of 10.54% was still quite competitive compared to 9.57% for gold and 11.96% for the S&P 500 Index. By combining IVV with IAU, we effectively reduced volatility without sacrificing returns much. This highlights how diversification, specifically, blending uncorrelated asset classes with positive Sharpe Ratios, can improve risk-adjusted performance. For risk-averse investors, this type of portfolio construction process offers a smoother ride and can help them stay invested through market fluctuations. You may consider adding additional asset classes to further diversify risk while aiming for an attractive expected return.

In addition to a diversified portfolio, a risk-averse investor should also use regular rebalancing. Periodic rebalancing is an additional risk management tool. Rebalancing is bringing out-of-balance securities in your portfolio in line with the original target allocation. In order to rebalance, you would sell overweight securities and buy underweight securities to bring the overall allocation in line with your original target. You should rebalance regularly, at least monthly. The advantages of rebalancing are that you will be selling high and buying low. This strategy will limit your risk by trimming gainers and not letting one security to become a large single risk factor in your portfolio. The downside of rebalancing is tax implications. If you have a taxable account, every time you sell the appreciated stock, you will owe tax to the IRS. However, if you have a tax-deferred or a tax-exempt account, such as an IRA, Roth IRA, 401k, Roth 401k, capital and income gains are tax-exempt. You will pay tax on future cash distributions.     

References:

Daniel Kahneman and Amos Tversky. Choices, Values, and Frames. 1983. https://www.columbia.edu/itc/hs/medinfo/g6080/misc/articles/kahneman.pdf

Disclosures:
The analysis is based on historical data and future expectations that may not be correct. This paper was written as an opinion only. The data is not guaranteed to be accurate or complete. Please consult with your financial advisor before making an investment decision. Neither ECNFIN.COM nor its author is responsible for any damages or losses arising from any use of this information. Past performance doesn’t guarantee future results.

Subscribe wherever you enjoy podcasts:

Our Mailing Address:

ECNFIN
1288 Kapiolani Blvd Apt 4003, Honolulu, HI 96814

Our Phone:

+1 720-593-1135

Our Fax:

+1 720-790-7606

This podcast is made with Jetpack Podcast. Full show notes and every episode at https://ecnfin.com/

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By now, you understand what it takes to build a sizable investment portfolio over time. John began investing $100 per month, with an assumed 12.5% annual return, he was able to accumulate $510,000 by the age of 50.

But what can you do with $510,000?

You could use this portfolio to supplement your salary or potentially live entirely off your investments. Let’s say John lives to age 100 and chooses to draw income from his portfolio. If he continues to earn a 12.5% annualized return, he could withdraw $5,314 per month for the next 50 years (see Chart 1).

These projections are based on a 12.5% annual return, which may or may not be realistic in the future. Still, it’s a powerful visual showing how small, consistent contributions can grow into a meaningful retirement portfolio. The ability to withdraw over $5,000 per month for 50 years demonstrates how investing early and regularly can partially or fully fund your cost of living later in life.

To keep the focus on the time value of money, I’ve kept the assumptions simple. In real life, you would likely want to account for inflation, changing expenses, and market volatility. The actual performance could be higher or lower depending on market conditions.

Nonetheless, this example highlights the incredible potential of disciplined investing and the long-term benefits of starting early.

Disclosures:
The analysis is based on historical data and future expectations that may not be correct. This paper was written as an opinion only. The data is not guaranteed to be accurate or complete. Please consult with your financial advisor before making an investment decision. Neither ECNFIN.COM nor its author is responsible for any damages or losses arising from any use of this information. Past performance doesn’t guarantee future results.

Subscribe wherever you enjoy podcasts:

Our Mailing Address:

ECNFIN
1288 Kapiolani Blvd Apt 4003, Honolulu, HI 96814

Our Phone:

+1 720-593-1135

Our Fax:

+1 720-790-7606

This podcast is made with Jetpack Podcast. Full show notes and every episode at https://ecnfin.com/

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During the week of April 14–17, 2025, U.S. equities lagged, while international stocks, oil, and gold outperformed.

The worst-performing categories were:

The top-performing categories included:

Fixed income held up well, with prices edging higher and yields dipping slightly. Interestingly, despite recent volatility, long-term U.S. government bonds are flat (0%) year-to-date (YTD), suggesting that investors are not viewing Treasuries as a go-to safe haven at the moment.

Instead, investors seem to favor gold, which is up 25% YTD, and international equities such as Europe and Latin America, both up 11% YTD.

A key driver behind this trend may be U.S. dollar weakness: the dollar is down –1% for the week and –8% YTD against developed market currencies.

Disclosures:
The analysis is based on historical data and future expectations that may not be correct. This paper was written as an opinion only. The data is not guaranteed to be accurate or complete. Please consult with your financial advisor before making an investment decision. Neither ECNFIN.COM nor its author is responsible for any damages or losses arising from any use of this information. Past performance doesn’t guarantee future results.

Subscribe wherever you enjoy podcasts:

Our Mailing Address:

ECNFIN
1288 Kapiolani Blvd Apt 4003, Honolulu, HI 96814

Our Phone:

+1 720-593-1135

Our Fax:

+1 720-790-7606

This podcast is made with Jetpack Podcast. Full show notes and every episode at https://ecnfin.com/

Enter your email address to follow ECNFIN.com and receive notifications of new articles by email for free. Be the first to read and do not miss future timely research publications.  

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You can open an investment account with as little as $100 today. Making regular contributions may significantly enhance your investment returns. Time is one of the most powerful tools in building wealth – early, consistent contributions can have the same impact as larger, delayed investments.

For example, John opens an investment account at age 18 with a $100 initial deposit. He contributes $100 each month for the next 32 years, until he turns 50. Let’s assume John invests in the S&P 500 Index, which represents large-cap U.S. companies. The annualized total return for the index over the past 10 years was approximately 12.5% (S&P Global). If John were to earn that same return over the 32 years, his portfolio could grow to approximately $510,000 by age 50 (see Table 1 and Chart 2).

Please note: This example uses historical performance and hypothetical assumptions. Actual future returns will vary and may be higher or lower depending on market conditions. The goal is to highlight the power of starting early—even small amounts can compound into substantial wealth over time. In real life, investors should also consider their personal risk and return objectives and maintain a diversified portfolio.

Now, let’s compare John to Bob, who decided to delay investing. Bob waits until age 30 to begin contributing. To reach the same $510,000 target by age 50, Bob must contribute $477 each month – nearly five times more than John (see Table 1 and Chart 2). Clearly, it’s much easier to invest $100 a month starting at age 18 than to try to catch up later with much larger contributions.

By starting early, you allow your money more time to grow and reduce the burden of needing to invest larger amounts later in life. Again, while actual market returns will differ, this example illustrates how early, consistent investing can make a meaningful difference.

References:

S&P Global. https://www.spglobal.com/spdji/en/indices/equity/sp-500/?utm_source=chatgpt.com#overview

Disclosures:
The analysis is based on historical data and future expectations that may not be correct. This paper was written as an opinion only. The data is not guaranteed to be accurate or complete. Please consult with your financial advisor before making an investment decision. Neither ECNFIN.COM nor its author is responsible for any damages or losses arising from any use of this information. Past performance doesn’t guarantee future results.

Subscribe wherever you enjoy podcasts:

Our Mailing Address:

ECNFIN
1288 Kapiolani Blvd Apt 4003, Honolulu, HI 96814

Our Phone:

+1 720-593-1135

Our Fax:

+1 720-790-7606

This podcast is made with Jetpack Podcast. Full show notes and every episode at https://ecnfin.com/