Earlier this week, we took a look at some of the historical evidence on the persistence of the Fama-French momentum factor. Today we’ll examine the momentum premium’s out-of-sample record, as well as its uses in portfolio diversification. The authors of the 2013 study, “212 Years of Price Momentum,” concluded that the most recent decade-long underperformance…
There is no shortage of receptacles clamoring for your money each day. No matter how much money you have or make, it could never keep up with all the seemingly urgent invitations to part with it. Separating true financial priorities from flash impulses is an increasing challenge, even when you’re trying to do the right…
Years ago, a friend with an incredibly successful career as a sales representative shared a story about what she and her brother called their W-2 Derby. It’s exactly what it sounds like. At the end of each year, they’d pull out their W-2s and compare who had the higher income. There were even rules for…
Q: What are the differences between a brokered CD and a bank CD? A: A certificate of deposit is a type of bond that has a stated maturity and coupon payment. Most CDs offer a fixed interest rate, and maturities can range from one month to 30 years. CDs have insurance from the Federal Deposit…
Over time, we’ve come to accept the concept that knowledge is power. In theory, when we have more knowledge, we can make better decisions. But for many of us, there can be a disconnect between knowing something and acting wisely on that knowledge. As you probably know from experience, it happens often with money. Last…
You might think that the most important work a financial advisor can do is related to allocating a client’s investment portfolio, or perhaps helping secure a timely insurance policy or drafting the optimal estate plan. In fact, their most important work is done when clients are in the midst of navigating life’s major transitions. I…
My column from July 14 on the persistence of the small-value premium resulted in some interesting discussions on the subject. I thought it would be informative to share one of them. One reader pointed out that in the past 20 years, midcap value stocks had outperformed small-value stocks. For the period from July 1994 to June 2014,…
The evidence is overwhelming that most actively managed funds underperform their appropriate benchmarks, especially after taxes. However, not all actively managed funds underperform, just a large majority of them. Those who believe in active management as the winning strategy believe they can identify the small minority of actively managed funds that will outperform. The only-somewhat logical way…
The first half of this year again brought hedge funds little relief from their historically poor performance. Hedge funds began 2014 coming off their fifth-straight year of trailing U.S. stocks by some significant margins. And based on data through June 30, it doesn’t look like this year is shaping up to be much better. The latest data…
The metric most commonly used to categorize value stocks and to construct portfolios is the one employed by the Fama-French three-factor model—book-to-market (BtM) ratio. Russell Indexes only uses BtM to determine value as well. However, other metrics also show a value premium. Today we’ll take a look at the historical evidence on the premiums provided…
As if equity investors didn’t already have enough to worry about, one of the new concerns getting a lot of attention recently is that the baby boomer cohort — now starting to retire — will fund their retirement by selling equities. The “conventional wisdom” is that this supposed sell-off will result in a stock market…
Q: How can you effectively harvest tax losses in bonds? A: The prospect of higher interest rates scares a lot of investors as that can mean lower bond prices and the potential for losses. You can, however, take advantage of these losses to help improve the overall portfolio return. The simplest, most effective way to take…
For more than a decade, my family and I have gone to Jackson Lake in Wyoming for what’s become our favorite summer vacation. Because the trip includes a boat, we make arrangements to rent a mooring for the boat so we don’t have to take it in and out of the water each day. Last…
I’ve heard it estimated that out of all the financial and estate planning recommendations that advisers make, their clients ignore more than 80% of them. If there’s even a shred of truth in this stat, it represents a monumental failure of the financial advice industry. Unfortunately, I think there’s a lot of truth to this…
Historically, retirement planning has been likened to a three-legged stool — consisting of a corporate pension, Social Security and personal savings. Baby boomers saw the pension fade from existence, leaving them to balance on retirement planning stilts. For younger generations, however, the retirement situation can seem even worse. Sometimes, it feels like it’s all on us. We’re left with…