What Makes Sequence of Returns Risk So Dangerous

From: thinkadvisor.com

Ron Surz uses a thought experiment to clarify sequence of returns risk and its perilous implications for target-date investors

We recently advised readers of an obvious but overlooked retirement risk — what retirement planner Dirk Cotton calls sequence of consumption risk.

Now Ron Surz, target-date fund expert and alert ThinkAdvisor reader (and contributor), warns of another obvious but overlooked risk related to sequence of…

‘Passive’ Doesn’t Always Mean ‘Index’
DFA, strategic beta funds prove that traditional indexing isn’t the only passive method.

From: news.morningstar.com

Question: Index funds are sometimes referred to as passive funds. Are they one and the same?

Answer: The terms “passive fund” and “index fund” are often used interchangeably, but they’re not quite synonymous. In a nutshell, all index funds are passive, but not all passive funds are index funds, at least not in the…

Better Way to Check Portfolio Risk

From: financial-planning.com

There’s a perception that strong portfolio performance naturally comes at the price of higher volatility. But what if achieving strong performance with lower volatility is possible?

The Sharpe Ratio was developed years ago to evaluate risk-adjusted performance, highlighting the importance of considering returns in the context of volatility. The ratio compares the return of an asset above the risk-free rate — that is, its “excess…

Rogoff: This Time Is Not Different (That’s a Good Thing)
Author of the classic book on financial crises argues against the chorus of pessimists who envision a new era of long-term stagnation

From: thinkadvisor.com

The case has been made again and again that Americans better get used to a secular shift to low growth and low demand, and that today’s low interest rates are a fundamental reflection of that “new normal” reality.

Enter Harvard…

Bad Behavior Cost Mutual Fund Investors 8 Percentage Points in 2014: Dalbar
Lou Harvey laments the scarcity and necessity of advisors’ client hand-holding

From: thinkadvisor.com

Calling all conscientious advisors: Dalbar’s latest investor behavior study shows — for the 21st time actually — that investors are their own worst enemies and that good advisors who step up and manage investor behavior can be their best friends.

The Boston-based consulting firm just released its famous…

A Holistic Approach to Risk Assesment

Although US stock indexes hit record highs in 2014, many investors opened their year-end statements and found much more modest results. Why did so many investors seemingly ‘underperform’ and, ultimately, fail to meet their expectations? While US stocks performed exceptionally well, most investors do not hold US stocks exclusively. Bonds, foreign investments, and commodities did not kept pace, and yet they are common components of diversified portfolios. The only…

Wall Street Banks’ Mutual Funds Can Lag on Returns

From: nytimes.com

Facing challenges on all fronts, Wall Street banks are pinning some of their hopes on a relatively simple business opportunity: creating mutual funds for ordinary savers.

Over the last few years, an expanding line of mutual funds created by the likes of Goldman Sachs and JPMorgan Chase has been drawing billions of dollars from investors looking to earn a good return on…

Evidence-Based Investing
A Scientific Framework for the Art of Investing

Science has produced many tremendous advances, from lifesaving medical treatments to instantaneous communication. Historically, though, science has had little influence on investing. Instead of keeping pace with advancements in modern portfolio theory and historical and statistical evidence, investors and money managers often rely on conventional wisdom and flawed assumptions. How can investors…

Dimensional vs Vanguard

From: ifa.com

We are sometimes asked what the difference is between Vanguard, ETFs and DFA Index Funds. The short answer is: they use different indexes. DFA has custom designed their indexes to capture the risk factors that explain 96% of stock market returns, going back to 1928. Those factors include company size (market capitalization) and value (based on the company’s Book Value divided by its Market Capitalization, or Book to…

Diversification Means Always Having To Say You’re Sorry

From: brianportnoy.tumblr.com

As much as any topic in finance, cargo ships of ink have been spilled on the topic of diversification. It is unquestionably the anchor to designing an effective portfolio of investments. Though first formally articulated in Harry Markowitz’s seminal 1952 paper on Modern Portfolio Theory (MPT), the idea is commonsense to all of us: Don’t put all of your eggs in one basket.

Because…