Tag Archives: Vanguard

Falling ETF Fees and What They Mean

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

The 50-50 Portfolio Solution?

The New York Times had a piece this weekend that proposes a simple portfolio solution for worried investors. 

Are you ready for this? 

The portfolio is a 50% allocation to stocks and 50% to bonds.  The conclusion that the 50/50 portfolio makes sense is based on a study by Vanguard published in October 2011 that finds that this allocation seems to generate consistent returns, regardless of whether the economy is in recession or expansion.  The study is based on portfolio performance from 1926 through June 2009. 

The 50/50 portfolio generated an average annual return of 7.75% per year during recessions and 9.9% per year during expansions.  Continue reading

Are Americans Saving Enough for Retirement?

Have retirement accounts balances rebounded from the financial crisis?

Reports from both Vanguard and Fidelity put the average balance for U.S. 401(k) plans at a record $75,000 (as of March 31, 2011). The first report, released from Fidelity in May, showed that the average 401(k) balance rose to $74,900—up 12% over the last year. This marked an all-time high since Fidelity began tracking account balances back in 1998. Fidelity is the largest single administrator of 401(k) plans, with 11 million accounts, so these numbers are of considerable interest to me.

Vanguard also announced that the average balance of its 401(k) accounts rose to about $75,000 in its annual How America Saves 2011 report.

At first glance, the numbers are compelling and encouraging. Both Vanguard and Fidelity report the largest increase in contributions since both firms started tracking this data (in 1999 and in 1998, respectively). However we need to take a closer look to see Continue reading

Getting Real About Retirement Costs

The Employee Benefit Research Institute (EBRI) does an annual study called the Retirement Confidence Survey (RCS). The RCS typically shows that Americans are not saving enough for retirement and that many people simply have no idea how much they need to save.  The 2011 study is no exception. Among other things, the RCS asks participants how they are estimating how much they need to save and where their current estimates fall.

The 2011 survey finds:

  1. Only 42% of workers have even tried to calculate how much they need to accumulate in order to retire
  2. 31% of workers think that they can retire with total savings of $250,000 or less
  3. 19% of workers think that they can retire with total savings of $250,000 to $500,000

These numbers are pretty close to the RCS findings in the past, and the longer these numbers hold, the more it is clear that the self-directed retirement planning process is not succeeding. Continue reading

Obama’s Tax Deal in Progress, Boglehead Taylor Larimore Offers Year-End Tax Tips

Taxes are the single biggest drag on investor returns, says Taylor Larimore, the well-known moderator of the Bogleheads’ investing board. Now with Washington having come to some agreement on taxes, and moving toward extending the current tax status quo for two years, there’s no excuse for not putting some attention on your taxes. As a former IRS Revenue Officer, Larimore has a special interest in tax planning as it relates to mutual fund investing. He recently published his 2010 year-end tax tips for investors, and tells Portfolioist in an email interview (below) that sticking to smart tax planning, can make a big difference. Continue reading

Are fund ratings biased against index funds?

I just read a very important study by Vanguard called Mutual Fund Ratings and Future Performance. The title would seems to suggest that this study is going to look at whether mutual fund ratings such as Morningstar’s star ratings are a reasonable prediction of future performance.  The study does tackle this issue, but it also addresses an issue that is, I believe, even more important and that most investors are totally unaware of:

empirical evidence has supported the notion that a low-cost index fund is difficult to beat consistently over time. Yet, despite both the theory and the evidence, most mutual fund performance ratings have given index funds an “average” rating.

Continue reading

Investing for Income or Total Return?

I recently wrote an article for Advisor Perspectives that examines the tradeoffs between investing for total return vs. income investing, in which one emphasizes assets that generate dividends and interest payments.  In theory, if the markets are reasonably efficient, investors should not care whether they live on income generated by their portfolios or they sell assets to provide their income.

My article starts by looking at a study by Vanguard that compares income investing to total return investing.  The Vanguard study concludes that a total return approach makes more sense.  I find that the study’s results unfairly penalize income investing strategies and ignore certain important ‘real world’ effects.

I do not find that income investing is necessarily superior, but I do conclude that there is not reason for investors who are inclined towards an income-focused approach should be discouraged.

Your thoughts?

Jack Bogle’s Growth Outlook for Stocks and Bonds

Vanguard founder and investing icon John Bogle doesn’t believe we’re in a bond bubble, but he does think bonds will produce only modest returns for quite some time. Still he says investors generally belong in the conventional stock and bond markets — not reaching into more exotic categories for yield.

In this interview (video below) with Morningstar at the recently concluded Bogleheads reunion outside Philadelphia, he runs through a common sense approach to estimating what kind of yields investors can expect over the next five to ten years from those conventional categories. Continue reading

Struggling to Rebalance

Individual investors don’t like to rebalance. According to Congressional testimony given by Dallas Salisbury, CEO of the Employee Benefits Research Institute and one of the nation’s leading experts on retirement and savings, more than 3/4 of all 401 (k) holders never make a change to their asset allocation or rebalance. Not once.

Work goes into setting your asset allocation and designing a portfolio that fits your risk tolerance. If that erodes as winners grow and the slow-pokes shrink, it’s certain that your final portfolio won’t look much like your design over time. Continue reading

John Bogle on Morningstar and Costly Funds

John C. Bogle is without a doubt one of the most listened-to experts on mutual funds in the world. And he should be.  Having created the massive Vanguard fund complex and written eight books on the topic, the depth of his knowledge is unmatched.

Bogle was maybe the first, and has consistently remained for decades, a staunch advocate for low cost mutual fund investing.  Friday in the Wall Street Journal, he weighed in on Morningstar’s recent findings that low cost is the best predictor of a mutual fund’s outperformance, better than its own star system. Continue reading