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What really causes changes in Gasoline prices?
Published on 2012-03-20 12:49:35
95% of economists polled believe that changes in U.S. gasoline prices over the past 10 years have predominantly been due to market factors rather than U.S. federal economic or energy policies. Poll Results > read more
Inside look at Wall Street
Published on 2012-03-15 11:46:56
Amazing article in the NY Times yesterday from Goldman insider. > read more
There is more to passive investing than index funds
Published on 2012-03-13 11:47:38
From CBS Market Watch “Investors who think passive investing is the most prudent, financially rewarding strategy tend to fall into two camps. One group believes in market-cap weighting their portfolio. The other group consists of those who believe that a “one-size-fits-all” approach isn’t ideal for all investors. Depending on your financial circumstances, for example, you may prefer small or value stocks.” DH - Why would you want more small or value stocks. The reason is simple. Wh [..] > read more
How important are gas prices?
Published on 2012-02-28 11:32:42
While gas purchases represent a significant amount of our spending dollars, they are nowhere near as important as they were 30 years ago. In fact, they are half as important. See graph attached. > read more
Real Price of Retail Gas
Published on 2012-02-27 14:35:47
Gas prices are in the news again. It seems like every news outlet has something eye catching on the subject. While gas prices are important to the overall economy, it’s also important to keep things in perspective. The chart above clearly illustrates the price of gas in real terms. While high, they are still in the range they have been in for the better part of 90+ years. > read more
Of course my returns beat the market!
Published on 2012-02-16 08:55:29
Market Watch Article “...business professors Markus Glaser and Martin Weber of Germany’s University of Mannheim, analyzed the performance of individual investors’ online brokerage accounts. One objective was to determine whether investors were accurate in assessing their actual returns. The researchers compared investors’ real results to how they thought they fared. Here, in brief, is what they found: Bad guessing. Investors were unable to correctly estimate their own past portfolio p [..] > read more
Why hedge funds don’t live up to their name
Published on 2012-02-10 11:22:19
From Reuters “Most hedgies guessed wrong last year or stayed their own doomed course. Like most actively managed investments, hedge funds fell victim to the myth that you can predict—and avoid—market gyrations on a regular basis. Except for fixed-income funds, every other category of hedge funds lost money in 2011, and all told, the sector lost about 5 percent. In a new book entitled “The Hedge Fund Mirage,” author Simon Lack said real investor profits were a negative $308 billion fr [..] > read more
Yale’s Swensen: Index Funds Best Plan for Most
Published on 2012-02-07 12:34:42
Bloomberg Article “Unless an investor has access to “incredibly high- qualified professionals,” they “should be 100 percent passive—that includes almost all individual investors and most institutional investors,” he said. Most active mutual funds are more interested in collecting fees than in boosting returns for investors, Swensen said… hedge funds’ traditional fees of 2 percent of assets and 20 percent of profits “are a huge issue,” Swensen said, and unmerited except for e [..] > read more
Treasury Announces New 401k Rules
Published on 2012-02-02 19:56:05
Details are sketchy, but better fee disclosure was among the items mentioned today by the Treasury Department. Also mentioned was the possibility of purchasing annuities through a 401k. Conceptually this is a good thing, but generally the high fees associated with annuities far outweigh the benefits. Better fee disclosure may bring down the costs, but that could take a while to develop. Also, the final rules won’t go into affect until the end of the year at the earliest. This is later than [..] > read more
Corporate Pensions Are in Trouble Too
Published on 2012-01-26 12:22:25
After a difficult few years in the market, 401k plans have taking a lot of criticism for the poor state of retirement savings. Given the rise in their popularity, it’s not surprising they have taken blame. Many of those who don’t like the idea of 401k plans often point to pension plans as a better alternative. Unfortunately, pensions haven’t faired any better. According to a report by Credit Suisse analyst David Zion, corporate pension plans for the largest companies in the US are 74% [..] > read more
Changes is store for 401k plans in 2012
Published on 2012-01-23 12:31:49
There are significant changes in store for 401k plans in 2012. The biggest is the implementation of new rules to require greater disclosure of fees on the part of plan providers. As a result of increased fee disclosure, fees in general have been falling across the board. This trend should continue in the coming year. Additionally, there will a focus on low fee investment options. This is important because, according to many studies, fees are a primary driver of returns in investor portfolio [..] > read more
Should We Go Back to a Gold Standard? No Way!
Published on 2012-01-19 05:02:25
At least that is what 100% of economists said when polled on this question. That’s right… 100%. Why not? Responses included: high volatility, low correlation to inflation, it’s own supply and demand dynamics… just to name a few. Poll Details. > read more
“The Entire Investment Profession Is Built On An Illusion Of Skill” - Forbes
Published on 2012-01-11 12:45:45
Great article in Forbes that talks about the lack of “skill” in the market for picking stocks. “Money managers across the globe had better take a contract out on Daniel Kahneman, a Princeton Professor of Psychology, who won the Nobel Prize in Economic Sciences for pioneering work with the late Amos Tversky on decision making. One revolutionary thrust of Kahneman ‘s new bestseller, “Thinking, Fast and Slow”– is that all the predictions by analysts, economists, corporate CEOs an [..] > read more
The old abnormal: How even PIMCO’s Bill Gross can err
Published on 2012-01-06 12:13:03
Article in Reuters about the benefits of passive investing and how even the smartest investors get it wrong sometimes. “No matter what theme you adopt in a market forecast, predictability has always been a bugaboo. Just ask Bill Gross, the legendary manager of the PIMCO Total Return bond fund. Passive investing usually makes more sense since you avoid the high costs and frequent missteps of active managers. As of the last Lipper research report, Gross’s PIMCO Total Return fund finished in [..] > read more
Mortgage Rates Continue Lower
Published on 2011-12-22 14:16:38
Unfortunately, low rates are not doing enough to spur housing demand. HT - Mark Perry at Carpe Diem for the graph. > read more
Capital Rules Tighten for Big Banks
Published on 2011-06-28 08:33:53
Wall Street Journal “International regulators agreed to require the world’s largest banks to hold an extra layer of financial padding, putting the finishing touches on a rewritten global rule book intended to make the banking system less suscept > read more
Not all index funds are created equal.
Published on 2011-06-27 15:31:53
Not all index funds are created equal. While management fees have been steadily dropping, there are still many funds that have relatively high fees. As an example, Vanguard’s ubiquitous S&P500 Index fund has an expense ratio of 0.1 > read more
The Futile Quest for Alpha
Published on 2011-06-23 13:40:02
This is the message I give to my clients and associates every day. > read more
Most & Least Tax Friendly States for Retirees.
Published on 2011-06-20 12:24:43
From Kiplinger.com Most Friendly - Wyoming, Oklahoma, Louisiana, Mississippi, Alabama, Georgia, North Carolina, Kentucky, Pennsylvania, Delaware. Least Friendly - Oregon, California, Nebraska, Iowa, Minnesota, Wisconsin, New Jersey, Connecticut, V > read more
Guidance imminent on 401(k) income products
Published on 2011-06-16 13:16:05
Treasury to issue direction on annuities, other income stream strategies Investment News “Aiming to curb the number of individuals who are likely to outlive their retirement savings, the Treasury Department soon will offer guidance on lifetime in > read more
What are TIPS?
Published on 2011-06-14 10:09:30
Issued by the US government, TIPS are fixed income securities whose principal is adjusted to reflect changes in the Consumer Price Index (CPI). When the CPI rises, the principal increases, which results in higher interest payments. At maturity, an in > read more
92.6% of Stocks Rated Overweight or Buy?
Published on 2011-06-10 09:34:51
Wow! Can anyone say Lake Wobegon? Should we believe them? > read more
Jamie Dimon vs Ben Bernanke
Published on 2011-06-09 07:33:49
Interesting exchange between Jamie Dimon (CEO of JP Morgan) and Ben Bernanke (FED Chief) regarding the new financial regulatory reforms. Not surprisingly, Dimon has some problems with them and Bernanke is trying to defend them. > read more
Beating the market is easy. Just understate its performance.
Published on 2011-06-08 12:29:04
WSJ - “Various investment promoters are touting their stock-picking prowess by comparing their returns, including dividends, to the Standard & Poor’s 500-stock index without dividends.” “When mutual funds compare their return to that of > read more
Is Gold a good hedge against inflation?
Published on 2011-06-07 14:30:20
As I’ve previously posted, investors should not be looking at Gold to hedge against Inflation. According to a study done by Ibbotson Associates for the Wall Street Journal, the correlation between Gold and Inflation is virtually zero (0.08).& > read more
Great charts comparing recent recessions and recoveries.
Published on 2011-06-06 07:48:05
Despite the constant drum beat of negative news from the media, the current recovery is moving along much like the last two. Probably why the stock market has been moving higher over the past year+. You can add more recoveries to the ch > read more
Home Bias
Published on 2011-05-31 17:43:04
DFA - “Investors tend to overweight their equity portfolios with stocks from their home country market. Ken French says that, while home bias is still the norm, investors have significantly increased their allocation to foreign markets over the las > read more
I’m glad I don’t drink coffee!
Published on 2011-05-25 06:49:33
ht to Mike Perry > read more
The American tax machine
Published on 2011-05-24 10:13:22
CNN Money - The American tax machine “The Internal Revenue Service keeps 35 agents stationed full time at Exxon Mobil’s Houston headquarters, conducting a full-time audit of its books in office space provided by the company. Why? Because the cor > read more
Charles Schwab to Offer Index-Only 401(k) Plans
Published on 2011-05-20 12:48:48
DH - more on index funds in 401(k)s Charles Schwab to Offer Index-Only 401(k) Plans “Ron Lieber’s Your Money column last weekend urged investors to ask their employers for more index-fund choices in their 401(k) retirement plans. Many plans ar > read more
SEC to Propose New Rules for Ratings Agencies
Published on 2011-05-19 07:22:54
Fox Business - SEC to Propose New Rules for Ratings Agencies “Credit-rating agencies will have to disclose more details about their ratings process and better manage conflicts of interest under rules unveiled on Wednesday that are expected to ligh > read more
Why 401(k)’s Should Offer Index Funds
Published on 2011-05-18 14:49:41
“The people who help you with your investments ought to act in your best interest. This shouldn’t be a controversial statement. Yet it passes for one in Washington, where regulators and legislators are still mired in a never-ending debate over w > read more
Homemade Dividends
Published on 2011-05-17 11:48:33
Should retirees limit their spending to the interest and dividends they receive? Ken French says investors should be indifferent to how they raise cash, whether through dividends and interest, or through the sale of shares—a method Merton Miller ca > read more
Taxing the Oil Companies
Published on 2011-05-04 14:13:48
Are we barking up the wrong tree by looking to increase taxes on oil companies? When you look at profit margins, it seems we are. Of the 200 or so industry groups in this county, Oil & Gas Exploration companies rank 46th in profits.&n > read more
How Can Retirees Determine a Sustainable Withdrawal Rate?
Published on 2011-05-03 08:08:33
Ken French (professor of finance at Darmouth College) says the simplest answer is found in the rate offered on a long-term Treasury Inflation Protected Security (TIPS). You can go beyond the TIPS rate if you don’t plan to live forever. Retirees wit > read more
“Decline of Manufacturing” is Global Phenomenon:
Published on 2011-05-02 18:20:35
The decline in manufacturing jobs is a product of massive productivity gains. This is evident around the world and is not the result of outsourcing. thx to Mark Perry at Carpe Diem for the graph. > read more
State pension crisis balloons
Published on 2011-04-27 12:34:21
Yahoo Finance “States are $1.26 trillion in the hole when it comes to their pension and retiree health obligations, according to a report released Tuesday. States are largely responsible for this predicament. As tax revenues plummeted, many skipp > read more
401(k) assets hit record level
Published on 2011-04-21 08:49:53
“Assets in 401(k) plans reached a record $3.075 trillion in 2010, according to the latest Marketplace Update report from the Society of Professional Asset-Managers and Record Keepers (SPARK) and The SPARK Institute.” “Assets in 401(k) plans in > read more
Diversification by Omission
Published on 2011-04-19 13:33:07
Can investors build a better portfolio by combining asset classes that have low correlations? It is possible, explains Ken French, but not in the way that most investors attempt it. Some think they can enhance diversification by eliminating mid caps > read more
More evidence about the need for tax reform
Published on 2011-04-18 07:24:24
From Yahoo Finance “There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.” “The vast majority of those who escape federal > read more
Can Taxing the Rich Erase the Deficit?
Published on 2011-04-14 11:33:45
Interesting Wall Street Journal article. Regardless of your political view of taxing the rich - there isn’t enough money there to solve the debt problems we have. WSJ - “...IRS data to figure out how much money the government woul > read more
Deutsche Maneuvers Around “Dodd-Frank”
Published on 2011-04-13 06:29:20
WSJ - “Hoping to sidestep new financial regulations that could have forced it to raise billions in new capital, Deutsche Bank AG is planning to restructure its U.S. operations, which would allow it to operate with a thinner capital cushion than t > read more
The Stock Market vs. Unemployment
Published on 2011-04-12 18:00:16
If you’re curious as to why the stock market is continuing to go up despite a persistently high unemployment rate… the graphs below paint a clear picture. Worker productivity is at a virtual all time high and corporate profits are rising wi > read more
Inflation-Adjusted Gold Price is NOT at an all time high
Published on 2011-04-07 14:33:43
Although it’s on its way. HT - Mike Perry at Carpe Diem > read more
Annuities in 401(k) Plans Offer Income, but High Fees
Published on 2011-04-05 08:10:11
CNBC DH - With fees over 2% and as high as 5%, Annuities are not for everyone. Especially in a long term savings vehicle like a 401(k). To be sure, there are situations that warrant investment in an annuity, but with their lack of liquidity an > read more
Can You Pull a GE on Taxes?
Published on 2011-04-04 07:18:17
Smart Money - “There’s been a political firestorm this week over the news that General Electric will pay no tax—at least, no federal corporate income tax—on last year’s profits. But if you’re like a lot of people, your first reactio > read more
Day Trading is a Waste of Money, Tax Court Says
Published on 2011-04-01 09:56:47
Reuters - “Still day trading? You might as well roll your dollars into a fat cigar and smoke them. That’s not a comment on your investment prowess, it’s the official position of the U.S. Tax Court.” > read more
Municipal Bond Fund Fees Compared to their Returns
Published on 2011-03-29 07:31:12
With all the focus on municipal bonds recently, I found this data interesting. The table compares gross and net returns of municipal bond funds divided into performance quartiles. There are no surprises in the data… the higher the fees, the > read more
Time for Corporate Tax Reform?
Published on 2011-03-25 07:11:55
NY Times “The company (GE) reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States. Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.” DH - Wi > read more
Problems run deep with Public Pension Plans.
Published on 2011-03-24 18:03:55
Wall Street Journal “Some public pension funds are finding themselves caught in a squeeze between actuaries worried about future benefit costs and local governments worried about immediate budgets strains.” “The tension was on display last w > read more
Benefits of Staying Invested Through Good Times and Bad.
Published on 2011-03-23 08:33:31
Great video from the CEO of Dimensional Funds talking about the benefits of staying invested through good times and bad. > read more
More unintended consequences
Published on 2011-03-22 08:13:46
Bloomberg - JPMorgan Will Cease Debit-Card Rewards Program Because of Proposed Fee Cap “JPMorgan Chase & Co. (JPM) will stop offering debit-card rewards for almost all of its customers in July to reduce losses from a proposed cap on interchang > read more
Are reverse stock splits a good thing for investors?
Published on 2011-03-21 14:39:15
CNN MONEY - Citi Reverse stock split “According to a 2008 study by professors at NYU’s Stern Business School and Emory’s Goizueta Business School in Atlanta, more than 1,600 companies that conducted reverse splits underperformed the broader ma > read more
Economic theories are everywhere!
Published on 2011-03-16 08:05:12
From Freakonomics - Somali Pirates Practice Inventory Management “Somali pirates are apparently getting more sophisticated in their business practices: “A group of Somali pirates announced Sunday that they’re cutting their asking prices for hos > read more
Is Your Adviser Running Scared?
Published on 2011-03-11 15:23:09
From Smart Money - “Nearly one-third of advisers moved clients out of the stock market and into conservative investments in 2009 and the early part of 2010, according to research from GDC Research and Practical Perspectives.” “Whether the advi > read more
Why is Volatility Important?
Published on 2011-03-10 07:33:56
From Dimensional Funds - “Volatility plays a significant role in determining a portfolio’s compound return, which ultimately affects value. Investors should design portfolios to experience less fluctuation in returns. Lower volatility can > read more
Vanguard Topping Fidelity Highlights Power Shift to Independent Advisers
Published on 2011-03-08 08:21:44
RIA’s on the rise. Full disclosure… Voyager Wealth Management is a RIA. From Bloomberg: “Assets overseen by registered investment advisers ... more than tripled in the decade ended Dec. 31, 2009, to $1.7 trillion, according to r > read more
Fidelity Says Average 401(K) Account Balance Reached 10-Year High in 2010
Published on 2011-03-07 07:26:21
From Bloomberg - “Average balances of 401(k) retirement plans reached a 10-year high at the end of last year as workers continued to save and the market rebounded, according to Fidelity Investments.” “About two-thirds of the increase in accoun > read more
Should You Take Social Security Early?
Published on 2011-03-04 07:55:55
From Smart Money - “The number of Americans opting to take Social Security at 62 – currently the youngest age allowed – is on the rise. In 2009, 42% of 62-year-olds claimed benefits, up from 38% in 2007, according to economists at the Brookings > read more
Pension Funds Strained, States Look at 401(k) Plans
Published on 2011-03-01 07:50:24
CNBC has an article about how more states are moving away from traditional pension plans in favor of self-managed 401k plans. This is a logical transition, as many states struggle to balance their budgets. To be sure, 401k plans are gre > read more
College Savers Easing Back Into the Market
Published on 2011-02-28 18:39:11
Cash is no longer king, but caution still rules. “Nearly two years after college savings were decimated in 2008’s market crash, 529 account holders are increasingly exposing their education nest eggs to market forces. Fund flow data from Mo > read more
Are 401k plans as bad as everyone says?
Published on 2011-02-22 10:48:00
Here is a link to another negative article about 401k plans. As usual, the criticism surrounds the fact that individuals are not saving enough. This is a great point, but not a fault of 401k plans. Given the other options, the self- > read more
Unintended consequences of the Dodd-Frank bill
Published on 2011-02-18 12:32:57
A great example of the unintended consequences of the Dodd-Frank bill. I’m sure this is troubling to the US banks. “Barclays Plc, the U.K.’s third- largest bank, deregistered Barclays Group U.S. as a bank-holding company, partly t > read more
Advisors recommending a zero allocation to bonds?
Published on 2011-02-16 12:17:49
“Recently, several advisers and big banks have dialed clients’ bond holdings back – way back. In its “moderate risk” portfolios, Barclays cut its bond exposure from 20.5% to 13% and put the difference in equities. BNY Mellon Wealth Manageme > read more
Are we in a “new normal”... or the same normal?
Published on 2011-02-09 09:41:54
We are often reminded that “history repeats itself” as markets go through volatile times. But, history also repeats itself when markets and the economy recover. If you look at the graph below, talk of a “new normal” in the world o > read more
Are food prices really that high?
Published on 2011-02-04 08:09:26
While food prices are a big problem in many parts of the world, it is not the case in the United States. According to the USDA, food prices represent about 10% of disposable income. As you can see from the graph, that is less than half of > read more
How big a drag are taxes on mutual fund performance?
Published on 2011-02-02 09:03:31
According to Lipper Analytics .... pretty big. For investors in the top tax bracket, 40% of the gross return of the average U.S. taxable bond fund was taken away by taxes. They focused on bond funds because large cap equity funds had a ne > read more
Is being friendly to business the same as being pro-economic growth?
Published on 2011-01-28 08:32:41
As the markets have cheered the perceived “move to the center” by President Obama, here is an interest take on the new “pro-business” mood in Washington. From Don Boudreaux at the Christian Science Monitor. HT to Mike Perry @ Carpe Di > read more
Fiduciary Standard for Brokers?
Published on 2011-01-24 12:01:32
Not Yet. From the Wall Street Journal… “A Securities and Exchange Commission study released Saturday recommends creating a common fiduciary standard of care for brokers and investment advisers, but the commission’s two Republicans said the s > read more
Is US manufacturing really dead, as many suggest?
Published on 2011-01-21 09:01:30
From Mark Perry at the “Carpe Diem” blog. “There are frequent claims that “nothing is made in America anymore,” because all of the manufacturing jobs and production have been outsourced to places like China, Mexico, and Korea. Such claims > read more
Why is Diversification Important?
Published on 2011-01-20 10:35:20
The chart below clearly illustrates the benefits. And by diversification, I don’t mean owning the S&P500 index. This index is often used by the media as a proxy for a diversified portfolio. In reality, the S&P500 is a larg > read more
Investing New Year’s Resolutions
Published on 2011-01-14 07:33:23
For those of you who partake in the “year end resolution” game, here are a few “investing resolutions” for you to ponder… courtesy of Brad Steiman at DFA 1. I will not confuse entertainment with advice. I will acknowledge that the financial > read more
2010 in Review
Published on 2011-01-12 12:43:05
Chart below highlights the “major headlines” during the year. Despite the negative tone throughout the year, the market finished higher by 12.67%. > read more
Does Monetary Expansion Stoke Inflation?
Published on 2011-01-06 08:05:55
The short answer? Not always. Since the financial crisis hit in late 2008, the US monetary base has more than doubled, from about $800 billion in mid-2008 to about $2 trillion in November 2010.1 When the Federal Reserve announced a second roun > read more
Principal-Guaranteed Products: Paying Others to Bear Risk ... Is it Worth the Cost?
Published on 2010-12-29 12:28:30
Can principal-guaranteed products help an investor better manage portfolio risk? Ken French (Professor of Finance at Dartmouth) explains that principal protection would certainly be attractive if it were free. Unfortunately for investors, it is not. > read more
Do deficits and debt impact investor returns?
Published on 2010-12-15 09:24:56
Dimensional Fund Advisors “Some economists claim that developed market countries are moving into an era of high government deficits and lower market returns. While higher deficits and debt may impact a nation’s interest rates and economic growth > read more