As the market rally persists, many investors will no doubt be kicking themselves and wishing that they had bought in earlier. Some will convince themselves that they better get on board or risk missing out on this bull market. There are many good reasons to invest money, but choosing to get in because of the potential gains that you could have made is not one of them. In the same way that people capitulate and sell out near market bottoms, there is also a big behavioral driver that seems to make people capitulate and join the herd towards the end of big bull markets. I am not saying that we are poised for decline (I am not a good market timer), but simply noting that buy or sell decisions made on the basis of what you wished you had done last month or last year is often truly dangerous. 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
About four and a half years ago, Folio Investing launched an equity (e.g. stock) portfolio that focused on reducing the impact of market volatility. So-called defensive stocks are those which tend to be fairly insensitive to the mood of the market as a whole. Conventional wisdom suggests that demand for band-aids, electricity and paper does not go up when the market is exuberant, but neither does it collapse when the market swoons. The conventional wisdom also suggests that these stocks will tend to under-perform the broader market during rallies and, over the long-term, that a portfolio of these stocks will deliver modest returns. Our research suggested, however, that it was possible to create a portfolio of defensive stocks that would provide returns to keep up with rallies in the broader market, while still substantially reducing the impact of market volatility. Folio Investing launched the Defensive Strategy Folio that incorporated this research on February 28, 2008. Continue reading
Utility companies are expected to provide fairly stable performance, without too much downside risk. Utilities are also typically expected to provide lower average returns than the broader market. In the last decade, however, utilities have out-performed the broader stock market as investors have become increasingly risk-averse and worried about the prospects for sectors that depend largely on robust economic growth in order to meet their earnings targets. Continue reading
Summer is winding down. And believe it or not, 2012 is more than half way over, which means it’s a good time for investors to start thinking about the year-end tax implications of their portfolios.
We invited Steve Thorpe, Founder of Pragmatic Portfolios, LLC to share some insights on Tax Loss Harvesting. Enjoy.
Tax Loss Harvesting: Why Should You Care?
Would you invest a few hours to reduce this year’s taxes by $1,000 or more?
For investors with taxable investment accounts, this is often possible by taking advantage of tax loss harvesting (TLH). This perfectly legal strategy makes lemonade from lemons, allowing Uncle Sam to share part of the pain of the losses inevitably experienced by investors at some points during their investing career.
Between now and Continue reading
Guest post by Contributing Editor, Janet Al-Saad, Mint.com.
When it comes to financial wisdom, few people merit as much attention as Warren Buffett. The man renowned as the “Sage of Omaha” built a billion-dollar empire from scratch, all the while maintaining modest spending habits that are the envy of every frugal person everywhere. Liz Claman of the Fox Business Network spoke with Buffett recently, and shares some of his wisdom with Mint Life: Continue reading
Financial theory suggests that risk and return go hand-in-hand:
Small company stocks tend to be riskier and outperform large company stocks. Long-term bonds tend to be riskier and outperform short-term bonds. Corporate bonds tend to be riskier than Treasury bonds (with comparable terms) and outperform Treasuries over time.
However, there is one group of stocks that has consistently defied this risk/return relationship: Low-beta stocks. A low-beta strategy involves selecting stocks that have a lower-than-average beta value. (Beta is a measure of the stocks’ volatility and adding low-beta stocks to your portfolio can help investors build a diversified portfolio.) The good news for investors here is that Continue reading
Morningstar’s recently published article called “Our Favorite Dividend ETFs for 2012” makes the case for investing in stocks on the basis of dividend yield. I also recently published an article in Advisor Perspectives on dividend-oriented funds called “Finding the Best Dividend Fund” that discusses why dividend-oriented investing makes sense. Both articles explore what makes an attractive dividend-focused stock fund and provide lists of dividend-oriented funds and their characteristics.
The Morningstar article states that high-dividend stocks have outperformed non-dividend stocks by an average of 3% per year from 1927 to the present. The source data for this analysis comes from Kenneth French, a well-known professor of Finance at the Tuck School of Business at Dartmouth. French is an Continue reading
There is a story getting considerable coverage this week about a study that finds that an average family may end up having 30% less in total lifetime accumulated wealth in their 401(k) plans due to high fees and expenses. The study inspiring all of this attention is titled “The Retirement Savings Drain” and published by policy research firm Demos.
The Demos study estimates that the all-in costs of a 401(k) plan, (including fund expense ratio, trading costs and administrative fees) average 1.56% of assets per year. This figure is based on asset-weighted average expense ratios for mutual funds and assuming trading costs that are pretty reasonable. The all-in cost estimates are fairly consistent with other estimates that I have read. Participants in large low-cost plans may pay less and participants in small company plans tend to pay Continue reading
Proper financial planning that provides for our financial needs in retirement is perhaps the prototypical example of willful blindness. We all know that most people have not saved enough to provide for a sustainable long-term income in retirement. The core issue here is that we (as a society and as individuals) are making consistently bad financial decisions that affect our futures, beginning with how we pay for Continue reading