Quizmaster, Doug Hutchinson, has come up with another great quiz. This time he discusses creating a meaningful and balanced diversification strategy. Good luck! Consider this scenario: Your friend Ben has been saving money and he has $10,000 that he would like to invest. Ben owns 47 different mutual funds and he is considering investing his $10,000 in a 48th mutual fund. "My goal is to be diversified," Ben tells you. "You can never have too much of a good thing so adding the 48th mutual fund to my portfolio will get me evenmore diversified. The more holdings I have, the greater the diversification benefit that I'll receive." Is it reasonable to expect that Ben will get a meaningful diversification benefit by adding a 48th mutual fund to his portfolio? [+] Read More

The market endured a bumpy start to the year, but it also displayed strong resilience over the last few weeks to rally back into positive territory. Investors should use this experience to remember an important lesson: even when market volatility seems pronounced and temptations run high to shift away from stocks, the market can also overcome the short-term headwinds and recover quickly. The first three months of the year offer us a case and point: Figure 1. S&P 500 Year-to-Date (the lapses in the graph are trading holidays) [+] Read More

Quizmaster, Doug Hutchinson, has come up with another great quiz. This time he tests our knowledge of how currency risk can impact an investment. Good luck! Consider this scenario: Your friend Katrina bought $10,000 of an Exchange Traded Fund (ETF) that tracks the performance of an index of Japanese equities. [+] Read More

Passive investing – which is also categorized as index investing or simply ‘investing in Exchange Traded Funds (ETFs)’ – has gained popularity in recent years within the investment community. In 2015 alone, roughly $150 billion moved out of mutual funds while $150 billion moved into ETFs (according the Thomson Reuters). It is probably a coincidence that the money moving in and out was nearly the same, but that’s not the point anyway. What is clear is that ETFs are gaining popularity while enthusiasm for mutual funds is fading, and this is a trend that has been going on for years.1 Performance and fees are probably two key drivers of the sea change. Over the last 20+ years, the percentage of active managers (mutual funds and otherwise) that outperform passive indexes can range anywhere from 10% to 80%, but from year to year the actual number fluctuates widely.2 If an investor has a manager or managers that have a couple of years underperforming their benchmark (usually an index), the investor might grow tired of paying management fees and decide to take a passive approach instead. The theory behind taking a passive approach is fairly simple – it offers the investor less in management fees with index-like returns. But does it? There are two little-discussed flaws with the passive approach that can be influential (and detrimental) to performance. [+] Read More

Quizmaster, Doug Hutchinson, has come up with another great quiz for us regarding the factors that may cause the performance of an ETF to differ from the performance of an index. [+] Read More

Volatility has persisted throughout the start of 2016, to the point where it almost feels relentless. Coping with volatility is rarely easy for investors, and the fact that we’ve experienced the worst 10-day start to a calendar year1 has many wondering if it makes sense to shift away from equities for now. No one can say with certainty whether the stock market will recover quickly and finish the year positive. But what we can control is how a portfolio is allocated in a volatile environment. For investors, we think it is less about: “should I go to cash and/or be more defensive?” and more about: “is my portfolio diversified sufficiently (to help reduce volatility), and should I consider including a tactical strategy in place designed to take defensive action in a prolonged downturn?” In other words, we think it is more important to have confidence in your asset allocation versus trying to forecast what's ahead for the markets. [+] Read More

The stock market has gotten off to one its worst starts ever for a year—on last Friday alone, the S&P 500 and the Dow Jones were both down over 2%,1 and for the year the Dow has already declined over 1,400 points. Both indices are down some 8% for the year,2 and it’s still just January! Fears over China’s slowdown, cratering oil prices, and iffy corporate profits have many investors worried about what lies ahead. In fact, a recent survey conducted by the American College showed that over 60% of retirement income specialist’s clients were concerned about the recent market volatility and their retirement security.2 Does January’s market volatility have you concerned too? [+] Read More

When you think about it, investing is a lot like life: some years are great, some less so, but at the end of the day it’s of utmost importance to keep looking forward. In both endeavors we learn from our triumphs and mistakes, and we use that knowledge to keep getting better as we go. 2015 was a lot like 2011: a year when the stock market was rather volatile and did not offer much by way of positive returns.1 The U.S. and global economy grew but earnings felt some downward pressure from the Energy sector;2 the Federal Reserve raised interest rates for the first time in nearly 10 years;3 the Chinese economy started to show signs of slowing; Europe is showing signs of recovery, but remains fragile. Nothing seems alarming or wrong with the global economy – it just has that “middle of the road” feeling. But it could get better from here. Below, we’ll use charts to take a look at where the markets stand now and how economic growth is shaping up around the world, and we’ll offer some insights as to what might be ahead for investors in 2016. The message overall: stay positive. [+] Read More

Previously, we discussed ways to reduce your taxable income by maximizing your contributions to tax-deferred accounts like 401(k)s and SEP IRAs. This is a great tax strategy, but it’s not the only strategy for you to consider. We’d like to continue that discussion with another strategy for reducing your taxable income: switching from mutual funds to separately managed accounts (SMAs). After all, in the end, it’s not how much you earn that matters most. What matters is how much you manage to keep. Before we get into the tax advantages of Separately Managed Accounts, let’s define them and learn about how they’re different from Mutual Funds. [+] Read More