A recent article by Motley Fool took dead aim at the cost of working with a financial advisor. The title says it all: “The Invisible and Brutal Cost of Using a Financial Advisor.” The premise of the article can be summarized as follows: 1. A hypothetical advisory fee of 1 percent of assets per year significantly reduces…
Few can forget the iconic phrase in the movie “Jerry Maguire,” when Tom Cruise says, “Show me the money!” Here’s a similar mantra that will change the way you invest: “Show me the evidence!” A cursory review of what passes for “financial advice” demonstrates the importance of following this mantra. Here’s a sampling: Pimco’s advice. Virginie…
An overwhelming body of evidence demonstrates that the majority of investors would be better off if they adopted indexed investment strategies. And while a total-stock-market index is fine for many investors, indexed investors who desire certain types of exposure face a number of problems. These problems can be addressed with what I call “structured portfolios.”…
Today concludes our discussion on international stocks and whether investors should consider them in their portfolios. Negative tracking error has resulted in my receiving an increasing amount of calls questioning the wisdom of investing in international stocks. To help you avoid making the mistake of recency, here are two questions to ask yourself: First: While…
Today begins a two-part series on investing in international stocks. Over the past four years, international investments have done poorly relative to domestic investments. For example, from 2010 through 2013, while the S&P 500 Index returned 15.9 percent per year, the MSCI EAFE Index returned just 8.6 percent per year, and the MSCI Emerging Markets…
As I’ve previously discussed, the Federal Reserve’s zero-interest-rate policy has “pushed” many investors—especially those who use a cash-flow approach as opposed to a total-return approach—to look to stocks and equity funds that have a high dividend yield; that is, that have a low price-to-dividend ratio. Adding to their attraction is that a high-dividend strategy has…
The goal of actively managed funds is to generate alpha – returns above the appropriate risk-adjusted benchmark. We might add here that the alpha should also be sufficient to compensate for the increased idiosyncratic risks active managers take by failing to fully diversify, and that the only way to generate alpha is to hold a…
Professors of finance Brad Barber and Terrance Odean have done extensive research on the performance and habits of individual investors. Among their findings is that, on average, individual investors lose money from trading – and not all of the losses can be explained by trading costs. They’ve found that individual investors can have perverse security…
The term private equity – PE – is used to describe various types of privately placed (non-publicly traded) investments. It has grown tremendously over the past 30 years – thanks largely to America’s pension funds as they search for alternatives to public equity markets that might help them meet their return objectives. Frank Jian Fan,…
Tying up our two-part series on premiums, today we’ll explore the equity premium. Claude Erb has done a series of papers in which he examines the various premiums – size, value, momentum, and beta – and found that there’s a demonstrable trend in each case of the premiums shrinking in terms of realized returns. His April…
One of the more persistent investment myths is that it is a winning strategy to sell stocks in May and then wait to buy back into the market around November. The oft-repeated catch phrase is, “Sell in May and go away.” Well, this year if you sold your stocks in May, you would probably have…
“Smart Beta” is a term that is cropping up more lately in professional investment management circles. It is essentially a way that professional investors tweak index funds in hopes of achieving higher returns than funds that simply mimic an index. In April, none other than Goldman Sachs Asset Management acquired a firm that specializes in…
Larry Swedroe Most investors are well aware of the SEC’s warning that past performance isn’t an indicator of future performance. That warning often leads to questions like: “If past performance isn’t predictive, why do you believe that the past outperformance of value stocks over growth stocks and small stocks over large stocks is predictive?” The…
By Thomas J. Emmerling and Jared Kizer Much has been written about the risks that rising interest rates pose to fixed income portfolios. However, much of this analysis has been simplistic or focused on historical periods, which are of little relevance in today’s environment of ultra-low nominal rates. On the simplistic side, market commentary has…
It can be very difficult to separate the good advice from the questionable and the questionable from the downright irresponsible. Unfortunately, good advice doesn’t always walk around wearing a sign, but there are some red flags to help you avoid the so-called advice that’s actually irresponsible. Case in point: What do you think when you…
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