Informed Investors Make Better Decisions At AMG Funds, we believe that informed investors make better decisions. Knowing more leads to a deeper understanding of how you can reach your financial goals. We have designed our Investment Essentials program to provide you with the basics of investing. Equipped with this knowledge, you can have better conversations with your financial advisor and, potentially, find better solutions to your investment needs. Be a more informed investor with the Investment Essentials Brochure.Download We organized many topics into broad categories that capture the essential concepts of investing. These categories include: The Psychology of Investing Practical Math for Investing Managing Your Portfolio Investing for Income Investing for Retirement Equity Strategies The Psychology of Investing According to conventional financial theory, the world and its participants are, for the most part, rational “wealth maximizers.” However, there are many instances where emotion and psychology influence our decisions, causing us to behave in unpredictable or irrational ways. Behavioral finance seeks to combine behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions. The Psychology of an Investor Behavioral finance seeks to explain our actions, whereas modern finance seeks to explain the actions of the “economic man” (Homo economicus). READ MORE Anchoring The concept of anchoring draws upon the tendency for us to attach or “anchor” our thoughts around a reference point despite the fact that it may not have any logical relevance to the decision at hand. READ MORE Confirmation and Hindsight Biases Seeing is not necessarily believing as we also have confirmation and hindsight biases. Confirmation bias refers to how people tend to be more attentive to new information that confirms their own preconceived opinions about a subject. The hindsight bias represents how people believe after the fact, the occurrence of an event was completely obvious. READ MORE Herd Behavior Herd behavior represents the preference for individuals to mimic the behaviors or actions of a larger sized group. READ MORE Mental Accounting Mental accounting refers to the tendency for people to separate their money into different accounts based on a variety of subjective criteria, like the source of the money and intent for each account. READ MORE Overreaction and the Availability Bias Overreaction occurs when one reacts to a piece of news in a way that is greater than the actual impact of the news. READ MORE Prospect Theory Prospect theory refers to an idea created by Drs. Kahneman and Tversky, which essentially determined that people do not associate equal levels of joy and pain with the same effect. The average individuals tend to be more loss sensitive (in the sense that they will feel more pain experiencing a loss compared to the amount of joy felt from receiving an equal amount of gain). READ MORE Overconfidence Overconfidence represents the tendency for an investor to overestimate his or her ability in performing some action/task. READ MORE Gambler’s Fallacy When it comes to probability, a lack of understanding can lead to incorrect assumptions and predictions about the onset of events. One of these incorrect assumptions is called the gambler’s fallacy. READ MORE Practical Math for Investing Legendary investor Warren Buffett has said, “My wealth has come from a combination of living in America, some lucky genes, and compound interest.” 1 We explain the common-sense math behind compounding as well as dollar-cost averaging, measuring portfolio risk, and bond yields. Quantifying Investment Risk Investing in financial markets can carry significant risks and long-term adverse effects. Modern portfolio theory (MPT), which includes the concepts of asset allocation, diversification, and rebalancing, assesses the maximum expected portfolio return for a given amount of portfolio risk. READ MORE Dollar-Cost Averaging or Lump Sum Investing? Dollar-cost averaging (DCA), is making regularly scheduled investments into an investment fund over a long period of time. For example, investing an equal amount on the 15th of every month. DCA has been an extremely controversial and hotly debated approach to investing. READ MORE The Effect of Compounding Compounding is the ability of an asset to generate earnings, which are then reinvested or remain invested with the goal of generating their own earnings. We review the details of this powerful financial tool that savvy investors can benefit from. READ MORE How Do I Use the Rule of 72 to Estimate Potential Investment Returns? Whether you invest $1 or $1 million, all investors want to know how long it will take for their investment to double. The rule of 72 is here to help. READ MORE 1 Source: Wikiquote Managing Your Portfolio How you choose and manage your investments is crucial. A well constructed, flexible portfolio balances the amount of risk you are willing to take with the return you would like to achieve—and is built to last. You will learn about the foundations of a solid portfolio: diversification, asset allocation, rebalancing, the merits of active and passive strategies, and positioning for the long term vs. the short term. You will also understand how taxes can shape your portfolio’s composition and results. Cryptocurrencies: The Latest Fad or The Next Frontier? Cryptocurrencies have generated a tsunami of public excitement—and minted a new group of multimillionaires—seemingly overnight. This article explains these complex investments, discusses blockchain, and reviews the risks associated with these new investment options. READ MORE Dollar-Cost Averaging or Lump Sum Investing? Dollar-cost averaging (DCA), is making regularly scheduled investments into an investment fund over a long period of time. For example, investing an equal amount on the 15th of every month. DCA has been an extremely controversial and hotly debated approach to investing. READ MORE Asset Allocation Essentials Allocating investments among different asset classes is a key strategy to help manage risk and potentially increase gains. Consider it the opposite of “putting all your eggs in one basket.” The first step to understanding optimal asset allocation is defining its meaning and purpose, and then taking a closer look at how allocation can be beneficial and determine the right asset mix to achieve it. READ MORE The Benefits of Rebalancing Your Portfolio At the end of an investment year you find that the weighting of each asset class in your investment portfolio has changed. Rebalancing is an important tool investors should use to combat this issue, reset their portfolio, and manage risk. READ MORE A Review of Modern Portfolio Theory Modern Portfolio Theory (MPT) is one of the most popular investment strategies. We look at the basic ideas behind MPT, the pros and cons, and how it affects how you should manage your portfolio. READ MORE The Personal Financial Advisor vs. Robo Alternatives Investors today can choose between human advisors and low-cost, automated alternatives. These newer “robo” options use technology to develop a portfolio based on a questionnaire the client completes online. While robo offerings are getting increasingly sophisticated, research shows that human advisors remain in high demand. Deciding which offering is right for you depends on a number of factors, including your stage of life and the complexity of your financial circumstances. READ MORE 3 Principles for Understanding Risk Investors often have a blind spot when it comes to risk. However, despite being an intimidating concept, the basics of risk are largely straightforward to understand. This article will explain risk and provide practical tools to help measure it. READ MORE The Basics of Asset Allocation In simple terms, asset allocation refers to the balance between growth-oriented and income-oriented investments in a portfolio. An optimal approach allows the investor to take advantage of the risk/reward tradeoff and potentially benefit from both equity and fixed income. READ MORE A Review of Passive vs. Active Management Should you be a passive index investor or an active stock picker? There are competing schools of thought. One is that a passive index fund is just as good as an actively managed fund, if not better. The other is that managers can have a positive effect and it is good to pay for that expertise. READ MORE Primer on Separately Managed Accounts The investment management world is generally divided into retail and institutional investors. Products designed for middle-income individual investors, such as the retail classes of mutual funds, often have modest initial investment requirements. READ MORE Investing for Income When people think about investing, they tend to focus on assets whose value can appreciate over time; but many investors—notably retirees and people seeking additional income—want assets that will generate a steady revenue stream. We identify and describe the usual suspects of income investing, which are bonds and dividend-paying common stocks, as well as some with features that require more explanation such as preferred stocks and master limited partnerships. Put Dividends to Work in Your Portfolio Dividend stocks are nothing new but they remain one of the best games in town for investors. In this article, we will explain what dividends are and how you can make them work for you. READ MORE Reinvest Dividends for Long-Term Success When a stock you own pays dividends, you have two options: pocket the cash and use it as you would any other income, or reinvest it by purchasing additional shares of stock. Although having a little extra cash on hand may be appealing, reinvesting your dividends may really pay off in the long run. READ MORE Investing in Bonds: Do You Know What You Don’t Know? This article provides a basic understanding of bond duration and knowledge of the core relationship among rates, prices, and yields creates an essential foundation for any investor navigating the modern bond market. READ MORE Primer on Preferred Stocks Within the vast spectrum of financial instruments, preferred stocks (or “preferreds”) occupy a unique place. Because of their characteristics, they straddle the line between stocks and bonds. Technically, they are equity securities, but they share many characteristics with debt instruments. Some even refer to preferred stocks as hybrid securities. READ MORE Investing for Retirement Whether you are starting your first job or you are well into your career, you need to invest for the retirement lifestyle you want. While the idea is straightforward, its execution is complicated—and there are many things you should know to make a plan that works for you. How Much Do You Need to Retire? Uncertainty over the future of Social Security, longer life expectancy, and inflation all factor into how much income you’ll need in retirement. Your annual retirement income requirement has the potential to be significantly higher than what you anticipate. READ MORE Equity Strategies There are several traditional, time-tested strategies for choosing stocks. The most familiar are “growth” and “value,” and there are blends of growth and value stocks known as “growth at a reasonable price.” Learn what they mean, how they work and whether they make sense for your investment portfolio. Introduction to Growth Investing People have many different styles and tastes when it comes to money, but making your money grow is typically considered one of the most fundamental of investment objectives. The best way to accomplish this goal will vary according to factors such as the investor’s risk tolerance and time horizon. But there are some principles and techniques that are applicable for many different types of investment objectives and growth strategies. READ MORE Introduction to Value Investing If you are a value investor, there is no perfect way to analyze a stock. Even so, many successful investors will tell you that focusing on certain fundamental metrics is the path to cashing in on potential gains. This article will help you keep an eye on the metrics that matter. READ MORE Fundamental vs. Technical Analysis Technical analysis and fundamental analysis are two main schools of thought when it comes to analyzing the financial markets. Technical analysis looks at the price movement of a security and uses this data to attempt to predict future price movements. Fundamental analysis instead looks at economic and financial factors that influence a business. Let us take a deeper dive into the details of how these two approaches differ, the criticism against technical analysis, and how technical and fundamental analyses can be used together. READ MORE