What’s That Stock Worth to You?
They say your home is your castle, but that doesn’t mean you should have to pay lavish prices to live there – at least no more than the going rate for a similar estate.
It’s the same for your investments. You expect to pay something for the holdings in your portfolio, but there’s no sense paying more than market rates. If you do, it counts directly against the returns you eventually hope to earn from them.
How do you know if you’re paying or receiving fair market value when you buy or sell fund shares? Dimensional Fund Advisors explains in “What You Pay, What You Get: Connecting Prices and Expected Returns.” In particular, they describe a potentially damaging detail for index fund investors: Indexes only check in on market prices every so often, on their pre-set “reconstitution dates.” So, if you’re trading fund shares between those dates, you might be trading on stale news and stale pricing.
In stock markets, where market rates turn on a daily dime, you could end up a dollar (or more) short if your investment approach doesn’t keep pace with the latest efficient pricing possibilities.
SAGE Serendipity: For those of you who thought BOGO (Buy One Get One) was a sneaker brand, this article in The New York Times will set you straight on F.O.B.O. (the Fear of Better Options) and its older “sibling” F.O.M.O. (the Fear of Missing Out.) The Smarter Living column published a Q&A with Patrick McGinnis, an investor, author and podcast host, who coined the terms. Keeping up with acronyms may be harder than with the Kardashians 🙂 .