Tag Archives: Beta

Managing Your Portfolio’s Exposure to Interest Rates

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

Risk, Return and Low Beta Stocks

My article in last week’s Advisor Perspectives titled, “The Greatest Anomaly in Finance: Understanding and Exploiting the Outperformance of Low-Beta Stocks,” explores what the findings of a 2011 paper published in the Financial Analysts Journal called “the greatest anomaly in finance.”  The issue at hand is one that I have written about in a number of articles including “Why Low Beta Strategies are Worth Another Look,” and one that I’d like to explore further in today’s blog post.

Financial theory suggests that risk and return go hand-in-hand. While higher-return assets do tend to be riskier than lower-return assets, there is a notable exception. Continue reading

How to Measure Your Investment Portfolio — Part Two

There are a large number of statistical measures available for looking at a mutual fund, ETF, stock or a combination of these in the total portfolio.

So what are the important measures and what do they mean?

I dove into this topic yesterday with a discussion of two important measures: Volatility and Beta. Today I’ll add six more to watch.

Continue reading

How To Measure Your Investment Portfolio — Part One: Volatility & Beta

There are a large number of statistical measures available for looking at a mutual fund, ETF, stock or a combination of these in the total portfolio.

For an individual investor, what are the important measures and what do they mean? Over the next two days I will highlight the measures I think are critical to understanding and managing your investing portfolio.

Today, I’ll start with the best measurement of risk in any investment – its volatility. Continue reading

Understanding Leverage

The concept of leverage is crucially important throughout finance, but many investors may not have a real grasp on the meaning of this term.  Leverage refers to the practice of borrowing money to increase your exposure to a specific investment.  A home mortgage is a form of leverage.  If you put down 20% when you buy a home and the house value appreciates by 20%, your actual return on your investment is 100%.  Such is the power of leverage.  On the other hand, if the price of your house drops by 20%, you have lost 100% of your investment. Continue reading