In my role as director of research for The BAM Alliance, a community of more than 140 registered investment advisor firms, I’m frequently asked both by clients and other advisors to address the issues raised by market “gurus” who make forecasts in the financial media. These forecasts often create anxiety, so investors naturally ask whether …Read More.
Slightly more than a decade ago, several studies were published raising the possibility that an allocation to commodities (in the shape of fully collateralized futures) could improve the efficiency of a portfolio due to the diversification benefit (the low to negative correlation of commodities to both stocks and nominal bonds) provided through including this asset …Read More.
When it comes to the market’s peaks and troughs, investors often don’t react as rationally as they might think. In fact, in times of extreme volatility or poor performance, emotions threaten to commandeer our common sense and warp our memory. It’s called recency bias. Recency bias is basically the tendency to think that trends and …Read More.
The success of the carry trade strategy has led to its widespread proliferation, despite the fact that it contradicts economic theory. In short, this strategy involves borrowing (going short) a currency with a relatively low interest rate and using the proceeds to purchase (going long) a currency yielding a higher interest rate, capturing the interest …Read More.
A few years ago, I came across a blog post by a writer named Emma Johnson who declared, in no uncertain terms, that “You. Cannot. Afford. To. Be. A. Full-time. Stay-at-home mom. You just can’t.” I like strong opinions because they make me think and help me clarify my own feelings, and this statement certainly …Read More.
Pay attention! We hear this command a lot, often from parents and teachers. People want to remind us to focus on what we’re doing. But I’ve been thinking about a more literal meaning: paying with our attention. Attention is a currency. We choose how to spend it, just like we spend our time, energy and …Read More.
The assault on the fiduciary rule proposed by the U.S. Department of Labor (DOL) has intensified. Republicans from the House Committee on Education and the Workforce recently asked Labor Secretary Thomas Perez to “immediately withdraw” the rule. Why? Because they believe it will “reduce investment options and increase costs for retirement savers.” The Financial Industry …Read More.
Research into the determinants of fixed-income returns have found that a number of stock and bond market risk factors can be shown to demonstrate explanatory power beyond the standard term-structure variables. Ivelina Pavlova, Ann Marie Hibbert, Joel Barber and Krishnan Dandapani—authors of the paper “Credit Spreads and Regime Shifts,” which appears in the Summer 2015 …Read More.
It has been my long-held view that most 401(k) plans are a national disgrace. Most 401(k) plans are flawed Part of the problem is that the underlying concept behind how many 401(k) plans are administered is fatally flawed. They assume that employee plan participants are capable of managing their retirement assets, or even willing to …Read More.
In their groundbreaking paper, “Digesting Anomalies: An Investment Approach,” Kewei Hou, Chen Xue and Lu Zhang proposed a new four-factor asset pricing model that goes a long way toward explaining many of the anomalies neither the Fama-French three-factor nor subsequent four-factor models could explain. The study, which was published in the March 2015 issue of …Read More.
Richard Thaler, a professor of behavioral science and economics at the University of Chicago Booth School of Business, is widely considered one of behavioral finance’s founding fathers (along with Daniel Kahneman and Amos Tversky). His excellent new book, “Misbehaving,” is partly a history of how the field of behavioral finance originated and developed, despite hurdles …Read More.
Over the last five years, I’ve spent a lot of time traveling the world to talk to people about money. At least one common theme comes up again and again: anxiety. People are worried about the future and want to know what they can do to prepare themselves for a stable financial life. As we …Read More.
There’s a powerful agenda behind the opposition to the rule proposed by the U.S. Department of Labor (DOL) requiring that advisors to retirement plans be fiduciaries: The securities industry wants to preserve its ability to give conflicted advice. There’s a lot at stake. Background Information Fiduciaries are required to put the interests of their clients …Read More.
The most compelling findings regarding financial decision-making are found not in spreadsheets, but in science. A blend of psychology, biology and economics, much of the research on this topic has been around for years. Its application in mainstream personal finance, however, is barely evident. Perhaps a simple analogy will help you begin employing this wisdom …Read More.
I have a crazy idea I want to run by you. Imagine that a cultural anthropologist finds one of your credit card statements in 100 years. What would your spending suggest you value the most? Based on your spending, what assumptions might someone make about how you live your life? Our credit card statements (really, …Read More.