AAA rating

, 109

Acorn market linked deposit

, 130

Actively managed fund

, 35, 73–75, 136, 178, 181

vs. index fund

, 35, 181

Active management

, 72

Active return

, 126

Active share

, 76, 77

Actual returns

, 149

Adjustable rate mortgage

, 107

Advance-fee fraud

, 91

Advance-fee schemes

lottery scams

, 91–93

Advertisements

, 180

Advice gap

, 18

Advisor

, 8–10

Affect heuristic

, 185

Affinity fraud

, 93, 94

Affirmative screening

, 135

Algorithm

, 18

Alice’s Adventures in Wonderland

, 4

Alternative asset class

, 25

Alternative investment

, 37, 95, 110, 125, 134, 138–139

Alternative mutual funds

, 125–127

Anchoring and adjustment bias

, 49–50

Anchoring bias

, 49–50

Annuity

, 14

The Art of Contrary Thinking

, 22, 152

Asset allocation

, 18

Asset class

, 25, 27–29, 128

Assets under management (AUM)

, 12, 13, 69, 186

AUM. See Assets under management (AUM)

Availability bias

, 52

Availability heuristic

, 185

Average return

, 127, 149, 187

Avoidance screening

, 134

Back-end load

, 73

Bad advice

, 16–17

Bad brokers

, 69

Bandwagon effect

, 63

Basis point

, 137, 150

Bear market

, 22, 59, 161

Behavioral bias

, 2, 19, 43, 43–65

understanding and avoiding

, 43, 64

Behavior gap

, 44

Belief perseverance biases

, 45

confirmation

, 45–46

conservatism

, 47

hindsight

, 48

illusion of control

, 47–48

representative

, 46–47

Benchmark

, 36, 69, 73–77, 120, 142, 166, 179

BetterInvesting

, 138, 140

BetterInvesting.org

, 138

BetterInvestment 100 index (BIXX)

, 139

BFX tokens

, 172

Bias

, 2

blindspots

, 20

Bid-ask spread

, 168

Bitcoin exchanges

, 171

Bitcoin network

, 170

Bitfinex

, 172

BIXX. See BetterInvestment 100 index (BIXX)

BIXX 100 index

, 139

Blockchain

, 170

Blue chip

, 37

companies

, 153

Breakeven effect

, 162

Brokerage services

discount

, 70–71

full-service

, 70

online trading

, 71

Brokers

, 14, 16–17, 70, 70–71, 109, 124, 164

Building wealth

, 6

Built-in costs

, 125

Bull market

, 22

Buy-and-hold strategy

, 32

Call option

, 8

Capital advantage

, 163

Capital gain

, 51

Capital guaranteed

, 106

Capital loss

, 3, 106

Capital markets

, 136

Cash account

, 130

Caveats

, 164–165

Certified Public Accountant/Personal Planning Specialist (CPA/PFS)

, 9

CFA. See Chartered Financial Analyst (CFA)

CFP. See Chartered Financial Planner (CFP)

Charges fee

, 34–36

Chartered Financial Analyst (CFA)

, 9

Chartered Financial Consultant (ChFC)

, 9

Chartered Financial Planner (CFP)

, 9

ChFC. See Chartered Financial Consultant (ChFC)

Cliquet

, 130

Closet indexers

, 75

Closet index funds

, 78

Closet indexing

, 75–77

Cognitive bias

, 44

belief perseverance

, 45–48

information processing

, 49–54

Cognitive dissonance

, 45

Commission-based brokers

, 14

Commodity

, 101

pool

, 101

Commodity pool frauds

, 101

Common-Sense Investment Guide

, 8

Compensation structure

best model

, 13

commission-based brokers

, 14

fee-only and fee-based advisors

, 12–13

Complex Financial Instruments Unit

, 119

Confirmation bias

, 45–46

Conflict

, 16–17

Conservatism bias

, 47

Contrarian investing

, 63

Correlation

, 154

Costs of hedging

, 125

CPA/PFS. See Certified Public Accountant/Personal Planning Specialist (CPA/PFS)

Credit linked note

, 113

Credit risk

, 110

Cryptocurrency

, 169–170

market price risk

, 173–174

regulatory risks

, 171

security risks

, 171–172

tax risk

, 172

Currency market

, 161

features of

, 161

Currency speculation

, 161

Day trading

, 122

DCA. See Dollar-cost averaging (DCA)

Default risk

, 125, 129

Defined benefit pension plan

, 6

Defined contribution plan

, 6

Derivative

, 121, 127–128

Digital Currency Group

, 173

Digital wallet

, 170

Discount broker

, 70

Diseconomies of scale

, 187

Displaying behavioral biases

, 2

Diversification

, 25

Diworsification

, 26

DIY. See Do-it-yourself (DIY)

Do-it-yourself (DIY)

, 6

approach

, 7

investor

, 8

Dollar-cost averaging (DCA)

, 30

Downline

, 88

Downside risk

, 59, 101

Due diligence

, 17

e-brokerages

, 168

Education, financial

, 7

ELN. See Equity-Linked Note (ELN)

Emotional bias

, 55

inertia

, 58–59

Loss Aversion

, 55–56

regret aversion

, 56–57

self-control

, 57–58

self-deception

, 59–61

Emotions

, 7, 29–30

Endowment effect

, 59

Environmental, social, and governance (ESG)

, 134

Equities returns

, 149–150

Equity-Linked Note (ELN)

, 128

ESG. See Environmental, social, and governance (ESG)

Establish quantitative investment criteria

, 64

ETF. See Exchange-traded funds (ETFs); Exchange-traded funds (ETFs)

E*TRADE

, 71, 167

Excessive online trading

lower costs of

, 167–169

overconfidence

, 166–167

Excessive optimism

, 61

Exchangeable security

, 122

Exchange-traded fund (ETF)

, 25, 70, 119, 120–122, 134, 179

Exercise

, 95

Expected return

, 148

Expense ratio

, 73

Expenses

loads and performance

, 73

Facebook

, 173

Familiarity bias

, 54

FCA. See Financial Conduct Authority (FCA)

Fee-based advisors

, 12–13

Feeder hedge fund

, 125

Fee-only advisors

, 12–13

Fiduciary

, 16

Financial advisor

, 5, 9, 10–12, 69–70

Financial Conduct Authority (FCA)

, 130

Financial decision-making

, 19

Financial education

, 7

Financial goals

, 5, 7

Financial Industry Regulatory Authority (FINRA)

, 124

Financial leverage

, 162

Financial literacy

, 3

Financial planner

, 8

Financial planning

, 5, 6, 10, 11, 15

Financial services firms

vs. independent financial advisors

, 14–16

Finnish Internet-based pyramid scheme

, 89

FINRA. See Financial Industry Regulatory Authority (FINRA)

FOF. See Fund of funds (FOFs)

Foreign currency trading frauds

, 101–102

Foreign exchange

Caveats

, 164–165

market

, 161

Zero-sum Game

, 162–164

Forex

, 161

discussion forums

, 165

Fortune magazine

, 108

401(k) plan

, 16

Framing bias

, 51–52

Fraud recovery fraud

, 92

Fraud victims

, 80

Front-end load

, 73

FTSE

, 100, 130

FTSE 100 index

, 131

Full-service broker

, 70

Fundamental investing principles

, 64

Fundamental value

, 174

Fund flows

, 183–184

Fund incubation

, 183–184

Fund mergers

, 182–183

Fund of funds (FOFs)

, 76, 77

Futures

, 101

FX

, 161

FxTrader signals system

, 89

Gambler’s ruin problem

, 163

Gambling

, 159

characterized by

, 160

and investing

, 160–161

GDP. See Gross domestic product (GDP)

Glamour stock

, 152

Goldilocks and the Three Bears

, 26

Google Finance

, 76

Gross domestic product (GDP)

, 154

Growth company

, 152

Growth investing

, 37

Growth stock

, 37, 152

Growth trap phenomenon

, 153

Hedge fund

, 125, 164

Hedging

, 125

Herd behavior

, 62–63, 137–138

Herding

, 62

behavior

, 62

Herd mentality

, 137

Heuristics

, 185

High frequency trading (HFT)

, 32

High risk investment

, 106

High-yield bond

, 124

High-yield investment programs (HYIPs)

, 94–95

Hindsight bias

, 48

Holding limits

, 71

Home bias

, 54

Hot stock

, 152, 152–153

Hulbert Financial Digest

, 143

Hybrid fund

, 13

HYIP. See High-yield investment programs (HYIPs)

HYIP scam

, 94

Illusion of control

, 168

bias

, 47–48

Illusion of inclusion

, 82

Illusion of knowledge

, 83, 168

Improper diversification

, 25–27

Incubated/limited distribution fund

, 183

Independent financial advisors

vs. Financial services firms

, 14–16

Index fund

, 35, 36–37, 73–75, 74, 181

Indexing

, 35, 75

Index-linked bond

, 129

Index risk

, 74

Inertia biases

, 58–59

Inflation risk

, 125

Information advantage

, 163

Information processing bias

, 49

anchoring

, 49–50

availability

, 52

familiarity

, 54

framing

, 51–52

limited attention

, 54

mental accounting

, 50–51

outcome

, 52–53

recency

, 53

Informed investor

, 8, 141

Initial public offering (IPO)

, 39–40, 98

Initial value

, 49

Insider trading

, 38

Insurance

, 70

Intelligent investor

, 8

Interest rate risk

, 107

International Monetary Fund

, 100

International Organization of Securities Commissions

, 119

Internet frauds

, 95

Intrinsic value

, 46, 46–47

Inverse ETF

, 120

Investing mistakes

buying initial public offerings

, 39–40

chasing investment

, 31–32

engaging in market timing

, 33–34

failing to review

, 27–29

failing to start investing

, 22–23

failing to understand product

, 38–39

ignoring indexing

, 36–37

improper diversification

, 25–27

influenced by emotions

, 29–30

little or too much risk

, 23–24

paying charges and taxes

, 34–36

rebalance investments

, 27–29

relying on unfounded tips

, 37–38

too short a time horizon

, 23

trading too much

, 32–33

Investing process

, 7

Investment advice

, 11, 16, 142

Investment club

, 137–141

Investment fraud

, 79

avoid

, 83–85

people falling for

, 80–83

red flags for

, 85–87

types of

, 87–90

Investment newsletters

, 141–144

Investment plan development

, 64

Investment policy statement (IPS)

, 30

Investment returns

, 31–32

Investment risks

, 6

Investment strategy

, 77, 117

Investment trap

, 2, 3

Investment trends

, 31–32

Investment turnover

, 36

Investopedia

, 165

Investors

, 1

challenges

, 2

IPO. See Initial public offering (IPO); Initial public offerings (IPOs)

Junk bonds

, 109

Knew-it-all-along effect

, 48

Knock-in level

, 123

Know-nothing investor

, 72

Large-cap blend funds

, 74

Leverage

, 24, 162

Leveraged ETF

, 120, 120–121

Leverage ratio

, 121

Limited attention bias

, 54

Liquidity

, 112, 129

Liquidity risk

, 128

Local bias

, 54

Long-only strategy

, 126

Long-short equity fund

, 125, 126

Loss aversion bias

, 55–56

Lottery scams

, 91–93

Lower costs of online trading

, 167–169

Lower fund turnover

, 36

Low-risk investment

, 106

Low volatility

, 106

Madoff’s scheme

, 90

Making mistakes

, 2

Margin

, 187

Market capitalization

, 152

Market maker

, 168

Market price risk

, 173–174

Market risk

, 128

Market timing

, 33–34

MBS investors

, 109

Mental accounting

, 50–51

Merrill Lynch Wealth Management

, 70

Microcap frauds

, 96–98

Microcap stocks

, 96

Microsoft lottery

, 92

Million

, 130, 133

Miners

, 170

Minibonds

, 112–114

Misrepresentation

, 101

Mitigating behavioral biases

, 63–64

MLM programs

, 88

Money

, 50, 185

Money magazine

, 185

Money market fund (MMF)

, 106

Monitoring

, 10, 27

Morgan Stanley Wealth Management

, 70

Mortgage

, 107–108

crisis

, 149

underwriting

, 98

Mortgage-back security (MBS)

, 107–110

Motley Fool Stock Advisor

, 142

Multi-level marketing (MLM)

, 88

Mutual fund

, 71–72, 117, 125–127, 135–137, 177–178, 177–188

actively managed vs. index funds

, 73–75

availability heuristic

, 185

expenses and performance

, 73

investing in

, 178

prospectus

, 181

Mutual fund traps

buying past winners

, 178–180

fund incubation

, 183–184

fund mergers

, 182–183

incurring high fees and expenses

, 180–181

performance advertisement

, 184–187

relying on a fund’s name

, 181–182

NAIC. See National Association of Investors Corporation (NAIC)

NASDAQ

, 139

NASDAQ Stock Market

, 97

National Association of Investment Clubs

, 140

National Association of Investors Corporation (NAIC)

, 138

NAV. See Net asset values (NAVs)

Negative or avoidance screening

, 134

Negative screening

, 134

Nest Egg Slashers

, 124

Net asset value (NAV)

, 186

Net exposure

, 186

Network marketing

, 88

New York Stock Exchange

, 97

Nigerian scheme

, 91

Nominal return

, 152

Online trading

, 166

Optimism bias

, 82

Option

, 31–32, 40

Outcome bias

, 52–53

Overconfidence

, 166–167

bias

, 60

trading

, 166–167

Over-the-counter (OTC) market

, 96–98

Passively managed index funds

, 73

Passive management

, 35

PayPal

, 173

PB ratio. See Price-to-book (PB) ratio

Penny stocks

, 106

PE ratio. See Price-to-earnings (PE) ratio

Performance of SRI mutual funds

, 136–137

Phishing

, 92

Ponzi scheme

, 80, 87–90, 89–90, 105

POP Finance

, 139

POP Finance: Investment Clubs and the New Investor Populism

, 139

Portfolio drift

, 27

Positive/affirmative screening

, 135

Positive screening

, 135

Precious metals frauds

, 102

Preference shares, in Spain

, 110–112

Preferred stock

, 110

Pre-IPO investment scams

, 98–99

Prepayment risk

, 109

Price

, 122, 123, 126, 157, 173

Price-to-book (PB) ratio

, 151

Price-to-earnings (PE) ratio

, 151

Prime

, 94

Prime bank investment schemes

, 99–100

Prime bank programs

, 99

The Prince

, 148

Private equity

, 77

Promissory note

, 100

Promoting emerging markets

, 154–156

Proper diversification

, 25

Prospectus

, 125, 182

Psychological bias

, 2, 4, 83

Pump-and-dump scheme

, 94, 96

Purchasing power risk

, 149

Pyramid scheme

, 88–89

R2 R-squared

, 76

Ranks/ratings

, 180

Rational behavior

, 28

Real return

, 149–151

Rebalance investments

, 27–29

Rebalancing

, 18, 27, 27–29

Recency bias

, 53

Regret aversion bias

, 56–57

Regulatory risks

, 171

Representative bias

, 46–47

Representativeness heuristic

, 46

Retail investors

, 125, 134

Retail traders

, 163

Return

, 126, 148

Reverse convertible

, 122–125

Revertible note

, 122

Risk

, 23–24, 148, 149

credit

, 110

default

, 125, 129

downside

, 59, 101

index

, 74

inflation

, 125

interest rate

, 107

investment

, 6

liquidity

, 128

market

, 128

market price

, 173–174

prepayment

, 109

regulatory

, 171

security

, 171–172

unsystematic

, 160

Risk-averse

, 130

Risk-free rate

, 127

Risk-return trade-off

, 149

Risk tolerance

, 18

Robo-advisor

, 5, 17–19

R-squared

, 76

Sales load

, 14

Scam

, 80

Scottrade

, 71

Screening processes

, 134–135

SEC. See Securities and Exchange Commission (SEC)

Secondary market

, 119

Securities and Exchange Commission (SEC)

, 90, 98, 119, 133, 179

Security risks

, 171–172

Self-attribution bias

, 60

Self-control bias

, 57–58

Self-deception bias

, 59

Self-enhancing bias

, 60

Self-protecting bias

, 60

Sharpe ratio

, 127

Short selling

, 126

Sin stock

, 136

Small value stocks

, 152

Social bias

, 62

herding behavior

, 62–63

Socially responsible funds

performance of SRI mutual funds

, 136–137

screening processes

, 134–135

SRI and conventional mutual funds

, 135–136

Socially responsible investing (SRI)

, 134

and conventional mutual funds

, 135–136

performance of SRI mutual funds

, 136–137

screening processes

, 134–135

Social media

, 165

frauds

, 95

S&P 500 Index

, 139

Special purpose entity (SPE)

, 113

SRI. See Socially responsible investing (SRI)

Stable returns

, 106

Standard deviation

, 149

Status quo bias

, 58–59

Stock index

, 26, 129

Stock market index

, 112

Stocks for the Long Run

, 153

Strategic asset allocation

, 18

Structured note

, 127–129

in the United Kingdom

, 130–131

Structured product

, 117

Subprime

, 108

Survivorship bias

, 182

Tax

, 34–36

risk

, 172

shelters

, 36

TD Ameritrade

, 71

Technological Risk

, 8

Total return

, 148

Tracking error

, 76

Trade

, 32–33

market timing

, 33–34

TradeKing

, 71

Trading profits

, 51

Trap

, 3

Underwriting

, 98

Unsystematic risk

, 160

USA Today

, 99, 99–100

Value investing

, 152

Value stock

, 151

vs. growth stocks

, 151–154

Vanguard Groups

, 72

Volatility

, 126–127, 149

Wall Street Journal

, 99, 179, 180

WaMu. See Washington Mutual, Inc. (WaMu)

Warren Buffett

, 72

Washington Mutual, Inc. (WaMu)

, 109

Wealth

, 5

building

, 5

WinCapita

, 89

World Bank

, 100

Yahoo Finance

, 76

Youbit

, 172

Zero-sum game

, 101, 162–164