The Three-Step Investor’s Guide to Navigating the Financial Advisory Fiduciary Ruling

by Tim Maurer, Director of Personal Finance, 3/7/2017 As an educator in the arena of personal finance, I generally avoid matters of public policy or politics because they tend to devolve into dogma and division, all too often leaving wisdom and understanding behind. But occasionally, an issue arises of such importance that I feel an obligation to advocate on behalf of those who don’t have a voice. The issue of the day revolves around a single word: “fiduciary.” The Department of Labor ruling effective June 9th, requires any financial advisor, stock broker or insurance agent directing a client’s retirement account to act…

The Broccoli and Pizza Portfolio

For some of us, it’s hard to give up on the idea that investing should be exciting. Picking stocks can be fun, after all, and there’s nothing like getting your timing right and bragging about it later with friends. For all the accumulated wisdom about asset allocation, risk, diversification, and discipline, some people seem bound to see investing as an end in itself rather than a means to an end. For these folks, picking stocks is a hobby. They follow the gurus and soak up the financial media. Despite evidence to the contrary, they’re convinced they can build a consistently…

Building an Evidence-Based Investment Plan

“Control what you can control.” —David Butler, co-CEO, Dimensional Fund Advisors By following the above five words from Butler, investors can help simplify their complex financial lives. Out of thousands of pages of scientific research, a cornerstone of evidence-based investing emerges: Control what you can control. Control the fees you pay and your trading costs. Control your tax efficiency and your asset allocation. Control how closely your emotions are tied to an up-and-down market. Bigger picture, you can take better control of your entire financial experience. This article looks at foundational tenets of evidence-based investing to give you confidence when you think…

The Importance of Global Diversification

An investor’s ability to achieve their investment goals often relies on maintaining discipline in their portfolio over the long term. Diversification across securities, sectors, and countries can help investors maintain their focus, potentially allowing them to avoid extreme outcomes that may result from a more concentrated approach. However, short-term performance of individual markets may cause some investors to question the merits of diversifying across countries and consider reallocating to markets that have recently done well. In these times, it’s important to be reminded of the benefits of maintaining a globally diversified portfolio.    

Invest Now or Temporarily Hold Your Cash?

At some point in their lives, investors may receive a large sum of cash, such as a pension payout or inheritance. Finance theory and historical evidence suggest that the best way to invest this sum is all at once according to an investor’s asset allocation. Many investors nevertheless choose to put the money to work over time, a systematic implementation plan that is commonly referred to as dollar-cost averaging. We explore the benefits of both strategies, quantify the costs, and reach three conclusions that can guide decision-making. History and theory support immediate investment. On average, an immediate lump-sum investment has…

When Emerging Markets Outperform

Earlier this week, we looked at emerging markets and why many investors stick to domestic stocks due to two biases: home country and recency, despite a compelling case for emerging market investing. To more fully understand the case for global diversification, I’ll resume the discussion with an exploration of two studies related to emerging markets. The Importance Of The Book-To-Market Ratio Michael Keppler and Peter Encinosa, authors of “How Attractive Are Emerging Markets Equities? The Importance of Price/Book-Value Ratios for Future Returns,” which appears in the Spring 2017 issue of the Journal of Investing, provide us with some further insights as to…

There’s Still Time to Contribute to an IRA for 2016

There’s still time to make a regular IRA contribution for 2016! You have until your tax return due date (not including extensions) to contribute up to $5,500 for 2016 ($6,500 if you were age 50 by December 31, 2016). For most taxpayers, the contribution deadline for 2016 is April 18, 2017. You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income). You may also be able to contribute to an IRA for your spouse for 2016, even if your…

Fiduciary Now, Fiduciary Always

WE ARE ALWAYS COMMITTED TO DOING WHAT’S RIGHT FOR YOU You may have noticed the word fiduciary bouncing around the news lately. The Department of Labor announced last April that financial advisors who provide retirement investment advice would be held to a new fiduciary rule — that is, they would be required to put investors’ interests ahead of their own. What followed was applause in some corners, angst in others, and spirited dialogue and debate all around the room. Now, the fiduciary rule hangs in midair as the new administration has asked the DOL to review the wide-ranging implications if…

Indexing vs. Evidence-Based Investing

Many investors realize that an evidence-based investment approach offers many benefits when compared with an active investment approach. Evidence-based investing involves buying and holding market components, whereas an active investor or fund manager tries to pick the next winning stock or time where the market is headed next. An evidence-based approach offers these major benefits: By holding entire market components, the investor maximizes the benefits of diversification. By “tilting” the portfolio to riskier or less risky components, the investor can expect to capture the highest market return given his or her risk tolerance. The investor maintains control over his or…

2016 Market Review

In 2016, the US market reached new highs and stocks in a majority of developed and emerging market countries delivered positive returns. The year began with anxiety over China’s stock market and economy, falling oil prices, a potential US recession, and negative interest rates in Japan. US equity markets were in steep decline and had the worst start of any year on record. The markets began improving in mid-February through midyear. Investors also faced uncertainty from the Brexit vote in June and the US election in November. Many investors may not have expected global stocks and bonds to deliver positive…