A Reignited Debate About Protecting Investors

Posted on February 26, 2015 | Investor Update

Investor-Update
Two events in Washington, D.C., this week reignited the debate about the responsibilities of those giving investment advice or operating retirement plans. The outcomes could influence what standards are used to determine if investors’ interests are being placed first.

On Monday, President Obama proposed tougher standards on brokers handling retirement funds. He called for requiring “retirement advisers to put their client’s best interest first, by expanding the types of retirement investment advice subject to ERISA.” ERISA is the Employee Retirement Income Security Act and expanding it would be mean stricter standards for brokers. Among the stricter standards that are part of Obama’s proposal is making advisers “abide by a ‘fiduciary’ standard.”

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Winning the Game of Finance

Posted on February 19, 2015 | Investor Update

Investor-Update
Financial management is, in part, a game. It comes not only with certain rules, both also with incentives and penalties. There are rewards for making astute choices, though doing so can require both spending time with the “rulebook” and thinking thorough the various options.

My wife and I going through this right now with a vacation we’re planning. I have miles on American Airlines and she has a large number of points on a credit card. In trying to figure out the best way to use both, one thing has become clear: We need to reevaluate our choices of credit cards. If you truly understand your spending patterns (meaning the types of businesses you mostly spend money at), it is possible to more efficiently make use of credit card rewards and thereby boost your savings rate. What I haven’t done yet—and doing so will require some legwork—is to figure out whether it’s better to get airline miles or cash back. I do think the answer partially depends on how much one travels. Of course, the big key is to never carry a balance from one billing cycle to the next. (For those who do carry credit card debt, balance transfer offers can lessen, but not eliminate, the penalty of doing so.)

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The Mutual Fund Traits That Matter

Posted on February 12, 2015 | Investor Update

Investor-Update
The great thing about our annual mutual fund guide is the large number of funds it covers and the significant amount of information it provides about each fund. As useful as this data is, it can admittedly be overwhelming to a person without a plan for identifying a new fund (or funds) to invest in. Fortunately, this does not have to be the case. I’m going to walk you through the basic steps you need to follow when selecting a new mutual fund. This advice is, in large part, also applicable to exchange-traded funds (ETFs) and closed-end funds (CEFs).

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Euro Weakness Has Been a Drag

Posted on February 5, 2015 | Investor Update

Investor-Update
Two recurrent words in fourth-quarter earnings releases have been “currency translation.” Currency translation is the conversion of revenues, expenses and earnings realized in a foreign currency into U.S. dollars for reporting purposes. Depending on exchange rates, currency translations can be either a positive or a negative.

Last quarter, the euro was a notable negative. The euro fell from than $1.263 per dollar to about $1.216 per dollar. As the quarter progressed, each dollar of sales realized in Europe was worth less and less when converted to the greenback.

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Indicators for Assessing the Market’s Risks and Rewards

Posted on January 29, 2015 | Investor Update

Investor-Update
Though I don’t put much weight on forecasts and I invest for the long term, I do keep an eye on how attractive or risky the market appears to be. Partially, I do this because I work in the investment industry and am periodically asked what I think about the market. But I also do this because I think an awareness of the current market conditions can help with portfolio decisions.

None of this is about market timing. Market timing involves buying and selling securities based on what you think will happen. While I have spoken to some investors who say they avoided the last bear market, far more have told me that they have missed out on part or most of the current bull market out of fear about what they thought might happen. I don’t think investors, individual or institutional, should use market timing strategies, and the reason is simple: The future typically unfolds in ways we do not expect it to.

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Oil Shows the Folly of Forecasts

Posted on January 22, 2015 | Investor Update

Investor-Update
Whenever Mr. Market wants to change something, he can turn the dials pretty swiftly and cause prices to move significantly. The speed and the magnitude of the changes are often greater than many investors realize while the price adjustments are occurring.

Oil provides a good example. At the end of last June, oil traded at $105.37 per barrel. Over the next three months, the price declined to $91.16. Then, in the fourth quarter, oil plunged by more than 41% to $53.27 on December 31, 2014. Oil has continued to fall this month, trading at $46.50 per barrel today. Put another way, oil has fallen by 56% since the end of June and 49% during the 16-week span starting at the end of September.

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The Tools I Use for Managing My Finances

Posted on January 15, 2015 | Investor Update

Investor-Update
A change in TurboTax regarding Schedule D: Capital Gains and Losses gave me the inspiration for this week’s commentary. Since I’m switching tax software programs, you might appreciate me expanding the conversation from merely TurboTax to discussing the tools I use to manage my finances. None of what I am going to say should be construed as either being the best way or the only way to do it, but rather as just a method that works for me and food for thought about how you approach your personal process.

But, first a few words about TurboTax, since many of you likely use it. I’ve used TurboTax for possibly close to 20 years, and Quicken even longer. For as long as I can recall, Schedule D was included in the Deluxe version of TurboTax’s desktop software. Not anymore. Now taxpayers have to buy the more expensive Premium version. “This will be a surprise” is how a spokesman for Intuit described the change to Matt Krantz at USA Today.

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A Fourth Good Year for Stocks?

Posted on January 8, 2015 | Investor Update

Investor-Update
It’s been a very good three-year stretch for large-cap stocks. The annual total returns for the S&P 500 index during the 2012-2014 period have been 16.8%, 32.4% and 13.7%. In contrast, the Ibbotson SBBI Classic Yearbook lists the long-term annualized total return for large-cap stocks as being 10.1%.

Not everyone saw those good returns last year. Domestic small-cap stocks lagged and international markets had their own problems. Preliminary data suggests many active managers struggled to keep up. But the headlines focus on large-cap stocks, and last year was the third consecutive good year for the Dow Jones industrial average and the S&P 500.

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14 Investing Resolutions for the New Year

Posted on January 1, 2015 | Investor Update

Investor-Update
Do yourself a favor. Find one of the articles discussing how many record highs the S&P 500 set in 2014 (53 as I write this on December 29) and save it. Whenever the next bear market strikes—and it will at some unknown point in time—reread the article to reminder yourself of the upside momentum the market can experience. The record highs are Mr. Market’s way of rewarding those who put up with his temper tantrums.

Last year (2014) was a good year to be in large-cap stocks, with the exception of oil stocks. (We’re just now one slightly better-than-average year away from Dow 20,000!) It was a tough year for small-cap strategies. Early indications suggest that active managers struggled as well.

It was also a good year for those who stuck with higher-quality intermediate and long-term bonds. Yields on the benchmark 10-year Treasury note are ending 2014 approximately 80 basis points below where they started.

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The Implications of Real Estate Becoming a Sector

Posted on December 11, 2014 | Investor Update

Investor-Update
There is a change coming in industry classifications: S&P Dow Jones Indices and MSCI are moving real estate out of the financial sector and into its own sector. The change could have a wide-reaching effect. Among those potentially affected by the reclassification are many funds, portfolio allocation models and sector-rotation strategies.

A bit of background will explain why this change is noteworthy. S&P Dow Jones Indices and MSCI oversee the Global Industry Classification Standard, which is more commonly referred to as the GICS (pronounced “gicks”). It currently comprises 10 sectors, 24 industry groups, 67 industries and 156 sub-industries (excluding the forthcoming creation of the new real estate sector as well as the creation of a copper sub-industry). The GICS determines what sector or industry a particular publicly traded company is considered a part of. It underlies various funds, portfolio allocation models and likely sector-rotation strategies. It also used in various screening tools and trading systems.

It’s not the only industry classification system out there. FTSE (the “ICB”), Morningstar and Thomson Reuters, for instance, have their own proprietary classification systems. (We use Thomson Reuters’ classifications in our Stock Investor Pro database and screening program.) There are other organizations with their own classification systems. Though there is some overlap, there are enough differences between them to make apples-to-apples comparisons of results based on the various classification systems difficult.

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