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index funds

Index Mutual Fund or ETF?

Over the last few years exchange-traded funds (ETFs) have greatly increased in popularity. As of 2016, there was approximately $2.9 trillion held in ETFs globally. Because of their growing popularity with financial advisers and individual investors alike, understanding the nuances of ETFs is critical in order for advisers to be better equipped to meet the ever-changing needs of their customers. ETFs are comprised of a portfolio securities designed to replicate a particular index. Common examples of indices that ETFs replicate are the Dow Jones Industrial Average, the Standard & Poor’s 500 index, the Wilshire 5000 Total Market Index, and Barclays Capital US Aggregate Bond Index. Like many stocks, bonds, and mutual funds, ETFs can also be tracked daily in many financial publications and online. Due to the lack of trading in the portfolio there are very little capital gains distributions in which investors must pay taxes. Because of this low […]

How to Invest

Occasionally, someone will ask me a question in the following different ways: “Did you see what the market did today?” or “How did the market do today?” To be honest, I’d love to use the line that Charley Ellis has used from the movie Gone with the Wind; “Frankly my dear, I don’t give a damn.” Professionally, my response is more in line with “I couldn’t tell you.” or “I don’t follow the market really.” The response is not meant to be rude or abrupt, but more to simply say that for most investors (myself included); they shouldn’t be worried about what the market is doing on a day to day basis. This is especially true for the Dow Jones Industrial Average. A price weighted index of 30 stocks is hardly representative of the market, yet it’s what most people think and refer to as “the market” when they ask […]

Asset Allocation Vs Diversification

Asset allocation and diversification are not the same. Perhaps some readers may benefit from a brief explanation of the two and how it may impact your investments. An investor may have excellent diversification but poor asset allocation and vice versa. Let’s start with asset allocation. When we speak of asset allocation we’re talking about how we’re going to invest in a particular category of investments called asset classes. That is, we are choosing which assets are going to be in our portfolio. Generally, assets classes that investors may choose from are stocks (equities), bonds (fixed income), cash, commodities, and real estate.

Stay Away From This Asset Class in 2015

Admittedly, this is a pretty deceiving headline. We see headlines like these every day in the newspapers, TV and from colleagues at work. The truth of the matter is that there are certainly going to be assets classes that will behave horribly while other asset classes do extremely well. The point is, neither you nor I (or anyone else) will accurately be able to predict which ones will do better than others. For every person that says stocks will have a meteoric rise in 2015 there will be just as many that will say to avoid them. You’ll have others saying that bonds are doomed while others will sing their praises. Buy gold, sell gold; buy real estate, sell real estate. The point is no one knows which asset classes will do well and which ones will fall.

Should You Worry About the Dow?

The last few weeks have shown that the market is certainly volatile. Once at a peak of over 17,000 the market has pulled back to just over 16,000. While this certainly makes for news (notice how I didn’t say interesting news) I wanted to give our readers a little perspective on why I (nor they) shouldn’t care.

Yoda Would Suggest a Low-Cost Index

Recently a colleague told me that he’d “give that a try”. I responded (tongue in cheek of course) “Try not. Do or do not. There is no try.”  In case you don’t recognize it, that’s a line that Yoda gives to Luke Skywalker in the Star Wars “Empire Strikes Back” movie. Yoda was pointing out to Luke that if he simply “tries” to undertake the action, he will not succeed. I think it shows that Yoda would also suggest a low-cost index mutual fund for investing. If you think back to the excellent article that Sterling wrote a few weeks ago, “Not All Index Funds are Created Equal”, Sterling used a particular load mutual fund as an example. The objective of the fund (paraphrasing here): Seeks to match the performance of the benchmark… Let’s analyze that objective. The “benchmark” in question is an index, in particular the S&P 500 index. […]

Not All Index Funds are Created Equal

As readers of this blog know we believe that markets are generally efficient and any time they’re not we accept that we won’t be the ones to exploit such inefficiencies. Readers further know that our choice of investment vehicles for both our clients’ and our money is index funds. But that doesn’t mean that just any old fund will do. Even index funds can be different and by that we mean the expenses they charge. Generally, an index fund at least in theory should charge significantly less than its active fund counterpart. The reason being is that index fund manager really isn’t actively managing anything. They’re simply replicating whatever index they are supposed to be replicating according to the fund’s parameters. So a person may logically think that all index funds should charge roughly the same expenses. But that isn’t the case. Take for example the well-known Vanguard S&P 500 […]

Apple Pie and Ice Cream…Vanilla Ice Cream

From time to time we get asked by our clients and prospective clients why we manage our clients’ money the way that we do. Some even gravitate to our firm because of the way that we invest and our philosophy. Others shy away because they are looking for management that will beat the market and always make money and never lose money. Note: This is impossible. But hey, some folks still chase that illusion. As many of our readers know our investment philosophy is pretty plain – like apple pie and ice cream. To make this summer analogy more apropos, when you go to the store to buy ice cream vanilla is generally cheaper and in more supply. As you peruse further into the freezer you start to come across more exotic flavors, combinations and brand names that not only look (and may taste) more appealing, but are also more […]

Book Review: Winning the Loser’s Game

Timeless Strategies for Successful Investing Charles D. Ellis, the author of this book (in it’s Sixth Edition), has definitely hit the nail on the head with his subtitle.  The strategies outlined in this book are good for any investor in any economic/investing climate. Time and again throughout the book, Mr. Ellis points out that the real key to investment success has nothing to do with finding the right stock, bond, mutual fund or ETF – and everything to do with developing a sound strategy for investing and sticking to it. The strategy requires you to develop an understanding of your own personal tolerance for risk and your need for returns.  This can be a difficult undertaking, as it requires the investor to answer difficult questions about what kinds of losses he can stomach with his investments, as well as what sort of return you require for your investments over the […]

Book Review: A Random Walk Down Wall Street

Right from the start this book will be an excellent read for both financial advisors as well as their clients. Dr. Malkiel provides academic insight on the reasons why passive management works and some great commentary on the use of index funds as part of someone’s overall portfolio. This was the second time I read this book and certainly not the last. It’s great reinforcement on why we invest our clients’ money the way we do and provides solid academic evidence that doing anything to the contrary is counterproductive, more expensive and simply playing a loser’s game. Some of the bigger takeaways from the book are Dr. Malkiel’s thoughts and research on the different part of the Efficient Market Hypothesis or EMH. The EMH consists of three parts – the strong form, the semi-strong form and the weak form. The EMH essential admits that markets are efficient – meaning that current […]

What a Mutual Fund Manager Won’t Tell You

Most people reading this article will have some experience with mutual funds. Whether part of your IRA, 401(k), or other savings vehicle mutual funds play a key role in helping people achieve their savings goals with access to a wide variety of companies and diversification along with professional management. By professional management we mean an individual or team of managers that run the day-to-day activities of the fund such as buying and selling of stocks and bonds as well as running financial analyses of the different companies whose stock they are looking at adding to or selling from the fund. Mutual funds and their managers vary and from the macro level you essentially have two types of managers – active and passive. Active management means that the managers of the fund actively trade securities in hopes of achieving higher than market returns or outperforming their respective benchmark, such as the […]

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