Several years ago, my wife and I sat across from an experienced married couple squirming in their seats as though they feared we were about to deliver some terrible news. But the source of their discomfort was what they were about to drop on us. You see, we were not yet married, but engaged, and…
Unless you work for a city or state government, you probably don’t have a traditional pension — also known as a “defined benefit plan.” The number of employers offering these plans has decreased sharply, and now, by some estimates, only 29 percent of workers in the United States have access to them. In contrast, 83 percent…
The 401(k) landscape is definitely improving. But with this improvement comes a new danger: Your plan may be giving giving you a false sense of security. According to a report on 2013 defined contribution plan data, “How America Saves 2014,” recently published by Vanguard, more than 88 million Americans participate in defined contribution plans. The…
Two of the most studied capital market phenomena are the value effect, where value stocks outperform growth stocks; and the momentum effect, where recent relative performance predicts near-term returns. Clifford Asness, Tobias Moskowitz and Lasse Pedersen add to the body of literature on this topic with their paper, “Value and Momentum Everywhere.” The study, which…
I recently read “The Hour Between Dog and Wolf” by John Coates, and it’s one of the best books on human behavior and finance I’ve ever come across. It could literally help investors get protection from their greatest enemies: themselves. By way of background, Coates is a senior research fellow in neuroscience and finance at the…
Earlier this week, we looked at whether adding credit risk in the form of lower investment-grade municipal bonds was an efficient approach to improving returns. The evidence is clear that this isn’t the case. In fact, taking more credit risk resulted in worse relative performance. Today, we’ll apply the same approach to determine whether adding…
Stocks are about to plunge! Before you panic, this isn’t my forecast and it wasn’t made today. That was the warning from Wells Fargo strategist Gina Martin Adams on September 20, 2013. The S&P 500 index had closed the prior day at 1,726, and Adams was predicting a significant downturn in the market. Specifically, she forecast that the…
by Brian Zdrowak Have you ever tried to see how long you could hold your breath underwater? When I was a kid, whether on family vacations in Picton, Ontario or at a friend’s pool, I would challenge others to see who could last the longest. For the first few seconds, it feels as if you…
Expectations are funny things. When we start to expect something, we also start to count on it. Once we start counting on something to happen, we start to make plans. Then, if we aren’t careful, we even start to act as if it’s already a reality. In our minds it becomes something that’s guaranteed to…
I have nothing but great respect and admiration for our neighbors up north. If you spend any time in Canada, you will be struck by the kindness, civility and charm of its people. Canadians enjoy long life expectancy, high average incomes and extensive social ties. The country ranks very highly on lists of the world’s happiest citizens,…
Sometimes it’s necessary to piece together seemingly unrelated news items to come up with an intelligent, evidence-based plan for investing. This was definitely one of those weeks. Here are three such news items. By connecting the dots, you may be able to improve your returns: Dot No. 1: The odds against picking “winners.” Recently, an investor explained…
The Wall Street Journal reported that, as of June 10, speculators (emphasis mine) held a near-record bet worth $35.7 billion that oil prices would rise on the New York Mercantile Exchange. In the debate about whether investors should consider including a portfolio allocation to commodities, one of the main arguments against doing so has been the huge amount of…
The Federal Reserve’s zero-interest rate policy is now well into its fifth year, probably far longer than most – if not all – investors were expecting. This persistence of low interest rates has pushed many investors to stretch for greater yield from their bond investments. One way to achieve higher yield is to take on…
The financial crisis of 2008 underscored the role that credit risk plays in many investments. And while counterparty risk has been in the spotlight with such derivatives as credit default swaps, comparatively little attention is paid to its impact on exchange-traded notes (ETNs), a type of tracking product. ETNs are relatively new — but rapidly…
We now turn our attention to another way in which structured portfolios can add value over index funds; namely, by creating “core funds.” Core portfolios combine multiple asset classes into one fund. The following provides a good example of why a core approach is superior to a component approach, and is the most efficient way…