April is financial literacy month. I believe that lack of financial knowledge is one of the most critical problems that our country faces. Continue reading
The intent of target date strategies is to provide investors with fully-diversified portfolios that evolve appropriately as investors age. Target date funds have enjoyed enormous growth over recent years, not least because the Pension Protection Act of 2006 allows employers to direct retirement plan participants into these funds as the default investment option. Consultancy Casey Quirk projects that target date funds will hold almost half of all assets in 401(k) plans by 2020.
Target Date Folios are an alternative to traditional target date funds, launched on the Folio Investing platform in December of 2007. These portfolios now have more than five years of performance history. Prior to the design of the Folios, a detailed analysis of target date funds suggested that they could be considerably improved. The Folios were designed to provide investors with an enhanced target date solution. In this article, I will discuss the design and performance of the Folios and target date mutual funds over this tumultuous period. The risk and return characteristics of these funds and Folios provides insight into the effectiveness of different approaches to portfolio design and diversification. Continue reading
Folio Investing’s Successful ETF-Based Alternative to Legacy Target-Date Funds Offers Superior Diversification, Risk Targeting and Flexibility; Firm Seeks Distribution Partner to Broaden Availability
Folio Investing announced today that, over the five years since they were brought to market in December 2007, its Target Date Folios have significantly outperformed traditional target-date funds. The Folios have provided both higher returns and lower volatility than the competing funds during this tumultuous period. Continue reading
Vanguard has just reduced the expense ratios of 24 of its ETFs. The reductions are fairly substantial. What I noticed, in particular, is that the reductions include sector-specific ETFs.
The Vanguard Energy ETF (VDE), the Vanguard Information Technology ETF (VGT), the Vanguard Telecom ETF (VOX), and the Vanguard Utility ETF (VPU) each now have 0.14% expense ratios vs. 0.19% previously. While the expense ratios of these funds were already low, the new expenses are 26% lower than before. Continue reading
There is currently $5 Trillion invested in Individual Retirement Accounts (IRAs), $4.7 Trillion invested in self-directed retirement plans provided by employers (401(k), 457, and 403(b) plans), and $2.3 Trillion invested in traditional pension plans offered by private companies. These numbers are stunning for a number of reasons. First, self-directed retirement plans (IRAs, 401(k)’s, etc.) dramatically dwarf the amounts invested in traditional pensions. This is part of a long-term trend, as employers move away from traditional pensions, but the magnitude of the shift is striking. With the assets in IRA’s surpassing the $5 Trillion mark earlier this year, the amount of money in individual accounts is moving ahead of employer-sponsored plans. What’s more, it is anticipated that IRA’s will continue to grow relative to employer-sponsored plans as people retire and roll their savings from their ex-employer’s plan into an IRA. This matters because investors in IRA’s have even less help in creating and maintaining their portfolios than investors in employer-sponsored plans. Continue reading
In a recent post, I presented a list of the ‘core asset classes’ that investors need in order to build portfolios that fully exploit available diversification opportunities. That article focused on portfolios designed for total return potential, the combined return from price appreciation and income generated by the assets in the portfolio. For investors focusing on building income-generating portfolios, the core asset classes are somewhat different. In this article, I present a proposed set of core asset classes for income-focused investors, along with examples of representative funds. Continue reading
One of the most important questions for investors and advisors is identifying a set of asset classes that will be considered for inclusion in a portfolio. Some people will decide that all they need or want is one broad stock market index fund and one bond fund. Others will choose to include Real Estate Investment Trusts (REITs) and commodities. There are well-thought-out arguments that inflation-protected government bonds (TIPS) are a major core asset class. It is also quite common for investors or advisors to break stocks out into value vs. growth and small cap vs. large cap. Continue reading
The question of how to safely generate income from a retirement portfolio is one of the most challenging in financial planning. In the days when people had traditional pensions, their employers simply promised them a constant inflation-adjusted income for the duration of their retirements. As we have moved away from traditional pensions and into self-directed savings plans such as 401(k)’s and IRA’s, investors and advisors must create their own customized income plans. New research from Morningstar highlights what appears to be a better approach to creating a stable income stream from an investment portfolio. Continue reading
Guest post by Contributing Editor, Matthew Amster-Burton, Mint.com.
Do we live in the golden age of investing?
Moronic question, right? Of course we don’t. The S&P 500 sits at about the same level it did five years ago. Bond interest rates have never been lower, and the Fed says it’s planning to keep them that way through mid-2015.
Turn on any financial channel and you’ll find as many gloomy predictions as you care to sit through: debt-fueled implosion in Europe, the next flash crash, the shrinking dollar, a stagnant labor market, Great Depression 2.0 (or is it 3.0 by now?). Continue reading
Today, the yields on ten-year Treasury bonds are at a fifty-year low, and no period prior to the last few years reflects yields that even come close. From 1962 to 2005, the lowest the 10-year Treasury bond yield ever got to was just below 4%, more than twice the current yield.
The chart below shows how unusual our current environment is. The vertical axis is the yield from 10-year Treasury Bonds and the horizontal axis is time and we are looking at a period from 1962 to present. From 1980 to today, we have seen the yield of 10-year Treasury bonds go from about 12% per year to below 2%. The 10-year Treasury yield is considered a benchmark measure of bond yield and interest rates. The Fed funds rate and the 10-year bond yield are very closely tied to one another. For another illustration of how interest rates, the Fed funds rate and 10-year bond yield are related, see here. Continue reading