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Re: Rebalancing with dividends

You're correct that it's better to re-invest dividends when you receive them - as long as their isn't a cost to do it. You'll read about people accumulating divineds and buying a lump sum if there's a commission involved.

Rick Ferri
by Rick Ferri
Sat Oct 18, 2014 9:59 pm
 
Forum: Investing - Help with Personal Investments
Topic: Rebalancing with dividends
Replies: 8
Views: 952

Dealing with Volatility

Here is some good Boglehead advice:

Dealing with Volatility

If you think you shouldn't be nervous about market downturns, don't kid yourself. Everyone becomes concerned (except short-sellers). The question is what you do about it - or don't do.

Rick Ferri
by Rick Ferri
Thu Oct 16, 2014 9:46 am
 
Forum: Investing - Theory, News & General
Topic: Dealing with Volatility
Replies: 14
Views: 1113

Re: ETF's instead of index funds?

Index tracking ETFs are index funds. The difference is the way they are packaged and distributed. What's important is the way the underlying portfolio is managed, not how the basket is delivered. I suggest not getting hung-up on index funds versus ETFs. Use one or the other or both. Whatever is best...
by Rick Ferri
Mon Oct 13, 2014 11:28 am
 
Forum: Investing - Theory, News & General
Topic: ETF's instead of index funds?
Replies: 24
Views: 1336

Re: Current market volatility

Panic is good for my portfolio because I can buy more stock index funds at lower prices (with fresh cash and by rebalancing out of bonds). So, pass the word for everyone to start panic selling. :shock: THANK YOU!

Rick Ferri
by Rick Ferri
Fri Oct 10, 2014 11:27 pm
 
Forum: Investing - Theory, News & General
Topic: Current market volatility
Replies: 21
Views: 1631

A simple division between activie and passive

Here is a simple way to discuss active and passive investing:

Are you a performance taker or seeker?

Rick Ferri
by Rick Ferri
Wed Oct 08, 2014 1:33 pm
 
Forum: Investing - Theory, News & General
Topic: A simple division between activie and passive
Replies: 0
Views: 289

Re: Three fund allocation per Vanguard Flagship CFP?

I don’t disagree with the Flagship CFP recommendation, but it just seems too simple to have only 3 funds in portfolio? It's not the number of funds that matter; it's the number of securities in the funds that give your mom diversification. There are over 15,000 individual securities within the thre...
by Rick Ferri
Thu Oct 02, 2014 6:38 pm
 
Forum: Investing - Help with Personal Investments
Topic: Three fund allocation per Vanguard Flagship CFP?
Replies: 45
Views: 4659

Re: lump sum [How to invest?]

You're advisors are salivating over a potential $25,000+ commission. That's all they see when they look at your situation. Don't go there. Listen to the good advice you'll get here.

Rick Ferri
by Rick Ferri
Wed Oct 01, 2014 10:39 pm
 
Forum: Investing - Help with Personal Investments
Topic: lump sum [How to invest?]
Replies: 5
Views: 641

US REITs: An Expanding Market

Here is a helpful report by S&P on the expanding US REITs market.

REITs: Making Property Accessible

Rick Ferri
by Rick Ferri
Tue Sep 30, 2014 10:40 am
 
Forum: Investing - Theory, News & General
Topic: US REITs: An Expanding Market
Replies: 29
Views: 3976

Re: Aspiring Personal Finance Advisor

Good advice by Grt2bOutdoors. Also check with your state investment adviser regulator. You're about to enter one of the most over-regulated businesses in America and you'll want to know all the rules first.

Rick Ferri
by Rick Ferri
Mon Sep 29, 2014 5:41 pm
 
Forum: Personal Finance (Not Investing)
Topic: Aspiring Personal Finance Advisor
Replies: 8
Views: 1399

Re: TIPS & Rick Ferri

Rick & Larry, Do either of you recommend owning individual TIPS over TIPS funds? I own a fund because I don't want to bother managing a TIPS portfolio and dealing with interest payments. But that doesn't mean one is better than the other. The strategy you use should suit your needs and willingn...
by Rick Ferri
Mon Sep 29, 2014 10:11 am
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4913

Re: TIPS & Rick Ferri

At the maturity of a TIPS, you receive the adjusted principal or the original principal, whichever is greater. Original principal is it's price ratio to par value at issuance (quoted as a price; 102.3, 100.8, etc). This provision protects you against deflation if you buy a bond at issuance. TIPS inc...
by Rick Ferri
Sun Sep 28, 2014 9:14 pm
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4913

Re: TIPS & Rick Ferri

fwiw The BIGGEST advantage of TIPS IMO is that they allow you to earn the term premium without taking inflation risk Larry Good point. On the flip-side,TIPS add deflation risk. Prices fall causing the par value of TIPS to fall, although they will never mature below their original issue price. Rick ...
by Rick Ferri
Sun Sep 28, 2014 2:45 pm
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4913

Re: TIPS & Rick Ferri

Hi, Tom.

Thanks for asking. I haven't made changes to the portfolio for long-term investors. There are uses for the short-term TIPS fund, though. Here are a couple of recent articles I wrote about TIPS:

The Purpose Of TIPS In A Portfolio

Tips on TIPS

Rick
by Rick Ferri
Sun Sep 28, 2014 12:10 pm
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4913

Re: My 30-day trial experience with Betterment

I speculate most people who frequent this board benefit from tax-loss harvesting. It's an unusual circumstance where a person who has a sizable investment account wouldn't have any ordinary income that could be offset by $3,000 per year in tax losses.

Rick Ferri
by Rick Ferri
Fri Sep 26, 2014 11:38 am
 
Forum: Investing - Theory, News & General
Topic: My 30-day trial experience with Betterment
Replies: 73
Views: 8560

Re: Bond Index Conundrum

Not for investment grade bond funds, including the Total Bond Market Index fund, unless you think the US government is a bad credit risk.

Rick Ferri
by Rick Ferri
Thu Sep 18, 2014 9:15 am
 
Forum: Investing - Theory, News & General
Topic: Bond Index Conundrum
Replies: 16
Views: 1973

Re: Betterment Explanation on Investment Returns

Factoring in all deposits and withdrawal in a time-weighted return means the performance measurement begins with an initial investment, stops and begins fresh when a deposit or withdrawal takes place, stops and begins fresh again when another deposit or withdrawal takes place, and repeats all the wa...
by Rick Ferri
Wed Sep 17, 2014 11:07 am
 
Forum: Investing - Theory, News & General
Topic: Betterment Explanation on Investment Returns
Replies: 11
Views: 753

Re: Betterment Explanation on Investment Returns

Assume a mutual fund increased by 20% from January to June and then decreased by 10% from July to December. The time-weighted return for the entire year is 8.0%. This is the "funds" return, also called the "managers" return. An investor's return (what they call money weighted) wo...
by Rick Ferri
Wed Sep 17, 2014 10:40 am
 
Forum: Investing - Theory, News & General
Topic: Betterment Explanation on Investment Returns
Replies: 11
Views: 753

Re: A History of the Equity Risk Premium and its Estimation

Most bond CEF that are yielding higher than market interest are leveraged. In 1994, these leveraged CE bond funds got absolutely slaughtered.

There's no such thing as a free lunch on Wall Street.

Rick Ferri
by Rick Ferri
Tue Sep 16, 2014 1:58 pm
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 19
Views: 1767

Re: A History of the Equity Risk Premium and its Estimation

The biggest problem with MCS are the correlations. Asse class correlations pairs are dynamic, not static and not cyclical. If they were static, then there's a problem because there's no unique risk between the two asset class. If they were cyclical, then future correlation would be predictable, whic...
by Rick Ferri
Tue Sep 16, 2014 9:27 am
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 19
Views: 1767

Re: Premiums: Size, Value, Beta, Momentum

The difference between the return on a portfolio of small-cap stocks and the return on a portfolio of large-cap stocks (rME). The size factor earns an average return of 0.31 percent per month and is statistically significant at the 5 percent level. It should be noted that the 0.31 percent historica...
by Rick Ferri
Tue Sep 16, 2014 9:03 am
 
Forum: Investing - Theory, News & General
Topic: Premiums: Size, Value, Beta, Momentum
Replies: 40
Views: 2934

Re: CalPERS Eliminates Hedge Fund Program

In the press release, CalPERs states they are targeting a 7.5% annual return. That's going to be though given an expected return from stocks around the 6% range and an expected return from bonds at perhaps 3%.

Rick Ferri
by Rick Ferri
Mon Sep 15, 2014 6:17 pm
 
Forum: Investing - Theory, News & General
Topic: CalPERS Eliminates Hedge Fund Program
Replies: 44
Views: 2952

Re: A History of the Equity Risk Premium and its Estimation

I'm not a fan of MC. So, my answer is B.

Rick
by Rick Ferri
Mon Sep 15, 2014 5:24 pm
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 19
Views: 1767

Re: A History of the Equity Risk Premium and its Estimation

Our difference is negligible. I'm expecting 6% for equity net of fees. 2% for fixed income net of fees. Also, I don't assume there will be premiums for factor risks or a portfolio benefit from rebalancing. I'm not saying there won't be premiums or a rebalancing benefit, I just never count on them wh...
by Rick Ferri
Mon Sep 15, 2014 2:18 pm
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 19
Views: 1767

Re: A History of the Equity Risk Premium and its Estimation

Thanks, Larry. The important point is that the expected annualized return for US stocks is not 8%', which is the number people tend to use for planning purposes because it's approximately the historic nominal norm. I'm using 6% for stocks, 2% for investment grade bonds. Anything higher is an unexpec...
by Rick Ferri
Mon Sep 15, 2014 1:45 pm
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 19
Views: 1767

Avoid Being An Out-Of-Style Investor

A persistent “performance gap” exists between investor returns and the returns of the funds they invest in. DALBAR’s 2014 annual Quantitative Analysis of Investor Behavior (QAIB) measured the performance gap for US equity fund investors at 4.2% annualized over a 20-year period ending in 2013. DALBAR...
by Rick Ferri
Mon Sep 15, 2014 10:19 am
 
Forum: Investing - Theory, News & General
Topic: Avoid Being An Out-Of-Style Investor
Replies: 0
Views: 393

Re: Due diligence on RAFI Pure Small Value

SnowSkier,

The issue with this approach is that you're paying a lot of money for beta exposure.

FNDB has an expense ratio of 0.32%. You could engineer a lower cost portfolio with the same factor exposures by investing in VTI and adding a small cap value fund.

Rick Ferri
by Rick Ferri
Sun Sep 14, 2014 12:05 pm
 
Forum: Investing - Theory, News & General
Topic: Due diligence on RAFI Pure Small Value
Replies: 187
Views: 16408

A History of the Equity Risk Premium and its Estimation

Here is an interesting paper on the history of the equity risk premium (ERP), which includes a recent estimate of where it is today. In summary, the author concludes that ERP is in the range of 3-4 percent for both geometric and arithmetic means. Assuming a 3.5% ERP, plus a 10-year T-note yield of 2...
by Rick Ferri
Sun Sep 14, 2014 11:54 am
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 19
Views: 1767

Re: 100% Small and Value Tilting

We've just had one of best periods for small value stocks in the history of the stock market and now you want to take the plunge? I think you should reconsider.

Rick Ferri
by Rick Ferri
Thu Sep 11, 2014 10:45 pm
 
Forum: Investing - Theory, News & General
Topic: 100% Small and Value Tilting
Replies: 72
Views: 4643

Re: 100% Small and Value Tilting

It's easy to be brave in a bull market.

Rick Ferri
by Rick Ferri
Thu Sep 11, 2014 10:23 pm
 
Forum: Investing - Theory, News & General
Topic: 100% Small and Value Tilting
Replies: 72
Views: 4643

I've never been a fan of commodity funds

Here's a topic that I haven't seen discussed in a while. Wonder why?

Commodity ETFs at Multi-Year Lows on Supply Glut

Rick Ferri

PS. Not that I'm bragging or anything, but...least we forget The Great Commodities Debate (part 1) from early 2008.
by Rick Ferri
Thu Sep 11, 2014 8:04 pm
 
Forum: Investing - Theory, News & General
Topic: I've never been a fan of commodity funds
Replies: 28
Views: 2338

Re: Approximating Total Stock Mkt or CoffeeHouse Portfolio?

The "better" option is the portfolio you thoroughly understand and are willing to stick with through all market conditions. It appears you're not quite sure what factor tilts are, so I would recommend sticking with the first option at this time.

Rick Ferri
by Rick Ferri
Thu Sep 11, 2014 11:44 am
 
Forum: Investing - Theory, News & General
Topic: Approximating Total Stock Mkt or CoffeeHouse Portfolio?
Replies: 3
Views: 525

Re: Why is Total Intl's turnover rate much lower than its pa

Rick, I simply chose not to buy such a small share of Vanguard's small cap international fund. Right decision? That's not for me to decide. The right decision is the one you're happy with because odds are better you'll stick with it for the long-term, and that's what really counts. :wink: Rick Ferri
by Rick Ferri
Fri Sep 05, 2014 2:19 pm
 
Forum: Investing - Theory, News & General
Topic: Why is Total Intl's turnover rate much lower than its parts?
Replies: 12
Views: 850

Re: Why is Total Intl's turnover rate much lower than its pa

Total international includes small- and mid-cap stocks. Europe and Pacific funds are only large cap. This means more turnover within the regional funds. Also, you'll need a small-cap international fund to round the portfolio into a "total" international equity exposure. I use a small-cap v...
by Rick Ferri
Fri Sep 05, 2014 1:03 pm
 
Forum: Investing - Theory, News & General
Topic: Why is Total Intl's turnover rate much lower than its parts?
Replies: 12
Views: 850

Re: Let me get this straight about SCV & factor diversificat

Factor investing is becoming quite popular. I haven't seen actual data, but my gut tells me that "smart beta" and "fundamental indexing" concepts are certainly being applied in more portfolios and in smaller accounts. Given these return premiums must come from somewhere, someone ...
by Rick Ferri
Fri Sep 05, 2014 10:50 am
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9269

Peter Lynch was wrong

Legionary Fidelity Magellan fund manager Peter Lynch wrote “buy what you know” in his classic book, One Up on Wall Street: How to use what you already know to make money in the market. The basic principle is simple: you’re more likely to be successful in the market if you buy what you’re familiar wi...
by Rick Ferri
Fri Sep 05, 2014 10:28 am
 
Forum: Investing - Theory, News & General
Topic: Peter Lynch was wrong
Replies: 64
Views: 6210

Re: Let me get this straight about SCV & factor diversificat

There's more to factor investing than meets the eye. 1) it is always more expensive than a simple TSM (beta) portfolio. 2) it adds unfamiliar risks to a portfolio that creates tracking error. 3) when the tracking error is large and negative, there is the added risk of capitulation. Here is how I rec...
by Rick Ferri
Thu Sep 04, 2014 8:38 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9269

Re: William Sharpe advises against rebalancing

Sharpe's view on "adaptive asset allocation" doesn't make sense to me. His philosophy of passive investing is correct (low-cost, low turnover, broad diversification), but his idea that every investor should have the same global balanced strategy is not accurate. Investors should hold an as...
by Rick Ferri
Thu Sep 04, 2014 10:33 am
 
Forum: Investing - Theory, News & General
Topic: William Sharpe advises against rebalancing
Replies: 32
Views: 2696

Re: Philosophy Differs From Strategy

Do you still see a benefit to the brain damage of eleven funds versus four? I've read lots of what you have written here and on your blog over the interim years and can't tell if you have changed your position significantly on this topic. 3 is fine, 4 is fine, 10 is fine; 20 is too much. Rick Ferri
by Rick Ferri
Mon Sep 01, 2014 8:06 pm
 
Forum: Investing - Theory, News & General
Topic: Philosophy Differs From Strategy
Replies: 33
Views: 3345

Re: No advantage of Slice and Dice vs 3Fund?

The best portfolio allocation is the one you'll stick with for the long-term and through all market conditions. Slice and dice has delivered higher returns historically because it has more risk than a market-only portfolio, but this didn't help investors who had difficulty sticking with the strategy...
by Rick Ferri
Sun Aug 31, 2014 6:19 pm
 
Forum: Investing - Theory, News & General
Topic: No advantage of Slice and Dice vs 3Fund?
Replies: 45
Views: 3615

Re: I'd buy an S&P 500 index fund in a pinch

L, All Bogleheads have the same philosophy (low-cost, broad diversification, don't market time), but you'd be hard pressed to find two of us who have an identical investment strategy. Philosophy is universal; strategy is personal. What works for you is good for you; don't let anyone tell you otherwi...
by Rick Ferri
Sun Aug 31, 2014 6:03 pm
 
Forum: Investing - Theory, News & General
Topic: I'd buy an S&P 500 index fund in a pinch
Replies: 45
Views: 5851

Re: I'd buy an S&P 500 index fund in a pinch

Rick, What then about your previous recommendation that Real Estate is underrepresented in the total market, so you'd add a tilt to REITs? Doesn't that apply to the S&P as well as the total market? L. Yes, but that' a different concept. See my thoughts here: The Total Economy Portfolio. Rick Fe...
by Rick Ferri
Sun Aug 31, 2014 1:58 pm
 
Forum: Investing - Theory, News & General
Topic: I'd buy an S&P 500 index fund in a pinch
Replies: 45
Views: 5851

I'd buy an S&P 500 index fund in a pinch

I’m an index fund investor, but I don’t invest in S&P 500 index funds. It’s not the type of index I want in my portfolio, unless I’m in a pinch. Here’s why:

S&P 500: A Great 2nd Place Index Fund

Rick Feri
by Rick Ferri
Thu Aug 28, 2014 8:53 pm
 
Forum: Investing - Theory, News & General
Topic: I'd buy an S&P 500 index fund in a pinch
Replies: 45
Views: 5851

Re: CFA Results

Excellent! Congrats!

Rick Ferri
by Rick Ferri
Tue Aug 19, 2014 7:49 am
 
Forum: Personal Finance (Not Investing)
Topic: CFA Results
Replies: 30
Views: 3391

Re: High Yield Bonds - Uncorrelated to Stocks and Bonds?

According to my calculations, High Yield Bonds have a .72 correlation with the total stock market index fund over the last 30 years. I'm sure that's correct. However, I'd be willing to bet that no single year was 0.72, or even any 3-year period. One of the tests for unique risk in an asset class is...
by Rick Ferri
Thu Aug 07, 2014 12:30 pm
 
Forum: Investing - Theory, News & General
Topic: High Yield Bonds - Uncorrelated to Stocks and Bonds?
Replies: 73
Views: 5180

Re: High Yield Bonds - Uncorrelated to Stocks and Bonds?

Credit risk is a cousin of equity risk, but it's not the same. Consequently, credit risk has varying correlation with equities, and that makes a small allocation to HY a decent diversifier. Sometime it is high and sometimes it is not. HY began selling off before equities prior to the financial crisi...
by Rick Ferri
Thu Aug 07, 2014 12:11 pm
 
Forum: Investing - Theory, News & General
Topic: High Yield Bonds - Uncorrelated to Stocks and Bonds?
Replies: 73
Views: 5180

Re: The Core Four

There isn't a four-4 taxable w/REITs for investors in a high tax bracket. In a taxable account, you would substitute a tax-expmpt fund for the taxable one and leave out REITS, and you might split bonds to include TIPS, which would give you a core-4 again.

Rick Ferri
by Rick Ferri
Thu Aug 07, 2014 11:15 am
 
Forum: Investing - Theory, News & General
Topic: The Core Four
Replies: 279
Views: 139820

Re: Volatility: Oh how I love thee.

Rick, could you maybe elaborate a bit more on what you actually do to take advantage of volatility? Volatility is a form of risk that lead to a risk premiumIn. It always occurs in down markets and is always temporary. Rebalancing into an asset class during periods of high volatility spells opportun...
by Rick Ferri
Thu Aug 07, 2014 10:52 am
 
Forum: Investing - Theory, News & General
Topic: Volatility: Oh how I love thee.
Replies: 44
Views: 3303
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