Diversification is often referred to as the only “free lunch” in investing because, when done properly, it allows investors to improve risk-adjusted returns. This principle applies not just to diversification across U.S. stocks, but to investing globally. The choice to purchase securities internationally helps mitigate the economic and political risks of investing in only a …Read More.
A reader asked me to comment on a recent Forbes article titled “Active Versus Passive Management: Which Is Better?” The author, contributor Peter Andersen, asks this question while observing that, in 2014, the vast majority of active fund managers underperformed the S&P 500 Index. However, he also notes that there have been periods “where active …Read More.
rom 1926 through 2014, the default premium (the annual return on long-term, investment-grade corporate bonds minus the annual return on long-term Treasurys) has been just 0.22 percent. Such a small premium has led many observers, including me, to conclude that investors willing to accept higher levels of portfolio risk in exchange for higher expected returns …Read More.
“I can’t believe you see it that way!” Just last week, I said this to my wife in the middle of a discussion (O.K., a fight) about money. We were experiencing something many of you have probably also faced. We needed to make a very important financial decision about how much of an emergency fund …Read More.
With the MSCI Emerging Markets Index up nearly 10% year-to-date through May 1, I think many people are wondering whether this area is the most attractive for investors seeking international exposure. Alas, history has taught us time and again that simply chasing the financial version of a “shiny new object” (recent performance, for example) is …Read More.
Value is the phenomenon in which securities that sell at low prices relative to fundamental metrics (such as earnings, book value, cash flow, dividends and sales) on average outperform securities that sell at high relative prices. Specifically, the value premium is the annual average return realized by going long cheap assets and short expensive ones. …Read More.
Earlier this week, we began discussing some of the more pervasive and enduring facts and fictions surrounding the value premium. But it’s important to understand that the value premium—a phenomenon in which securities that sell at low prices relative to fundamental metrics outperform on average securities that sell at high relative prices—is an empirical fact. …Read More.
“I can’t believe you see it that way!” Just last week, I said this to my wife in the middle of a discussion (O.K., a fight) about money. We were experiencing something many of you have probably also faced. We needed to make a very important financial decision about how much of an emergency fund …Read More.
Permitting fiduciaries to accept payments from vendors will likely make the proposed rule ineffective. Washington bureaucrats seem to have a way of making everything complicated. Have you perused the tax code lately? According to The Washington Times, it has 4 million words, making it seven times the length of the novel “War and Peace.” On …Read More.
Most predictions are utter nonsense. They’re made by self-styled “gurus” who are really emperors with no clothes. If they are right, it’s due to luck and not skill (although they are quick to claim credit). Warren Buffett’s view of those who pretend to have the ability to predict the future is spot-on. He famously stated: …Read More.
During my first 15 years as a professional investor, I fully believed it was possible to identify individual securities through fundamental research that would outperform the market. That commitment to seeking alpha is the one investment decision I would most like to redo. As the result of my choice to employ an active approach, the …Read More.
That value stocks (in particular, small value stocks) have provided higher returns for investors over time is both well-documented and well-known. So it’s no great surprise that—as director of research for The BAM Alliance, a community of more than 140 independent RIA firms—I’ve been getting a lot of questions about the recent disappearance of the …Read More.
“I have learned that success is to be measured not so much by the position that one has reached in life, as by the obstacles which he has overcome while trying to succeed.” – Booker T. Washington Occasionally, I will read a biography worth passing along to my kids. And, knowing how hesitant they are …Read More.
I love rock climbing. Looking from the ground up, it seems almost impossible for climbers to balance themselves and find handholds where none seem to exist. And sure enough, even the most talented climbers can end up getting stuck on climbs well below their skill level. I’ve done it, and I’ve seen it happen to …Read More.
By Carl Richards I’ve been surprised by a lot of things as a financial adviser. One of the biggest surprises has ended up playing a critical role in my development: the process of self-examination. It has mattered both professionally and personally, and it should to you too. Yet hardly anyone openly talks about the need …Read More.