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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: 3
Views: 440

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: 4
Views: 574

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: 14
Views: 2333

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: 14
Views: 2333

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: 14
Views: 2333

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: 14
Views: 2333

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: 49
Views: 4940

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: 9
Views: 709

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: 712

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: 712

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: 1737

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: 1737

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: 2832

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: 2887

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: 1737

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: 1737

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: 1737

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: 385

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: 182
Views: 15382

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: 1737

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: 4568

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: 4568

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: 2308

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: 518

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: 824

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: 824

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: 9172

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: 6092

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: 9172

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: 2628

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: 3303

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: 3482

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: 5703

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: 5703

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: 5703

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: 3373

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: 4991

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: 4991

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: 139020

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: 3154

Re: Volatility: Oh how I love thee.

Yeah, that was sort-of a confusing use of words. Better to say that I'll be rebalancing in a lower prices. :wink:

Rick
by Rick Ferri
Thu Aug 07, 2014 9:51 am
 
Forum: Investing - Theory, News & General
Topic: Volatility: Oh how I love thee.
Replies: 44
Views: 3154

Volatility: Oh how I love thee.

There’s nothing like good market volatility. It makes me sleep well at night. Plunging prices, several days of bad news, it makes me all smiles. No, I’m not a masochist. I just know that weak-minded investors become nervous and sell in a roller-coaster market, and that gives me more opportunities to...
by Rick Ferri
Thu Aug 07, 2014 9:39 am
 
Forum: Investing - Theory, News & General
Topic: Volatility: Oh how I love thee.
Replies: 44
Views: 3154

Re: U.S. stocks in freefall

Volatility is your friend; embrace it!

Rick Ferri
by Rick Ferri
Wed Aug 06, 2014 7:16 am
 
Forum: Investing - Theory, News & General
Topic: U.S. stocks in freefall
Replies: 802
Views: 136831

Re: Risk and Return of Tilted and Market Balanced Funds

Taylor, I have always said that "alpha" from tilting goes to the manager, and in the case of DFA funds, to the adviser. In other words, in a managed portfolio where an adviser is paid, any benefit that is derived from tilting ends up in the pocket of the adviser - not the client. I am not ...
by Rick Ferri
Wed Aug 06, 2014 7:13 am
 
Forum: Investing - Theory, News & General
Topic: Risk and Return of Tilted and Market Balanced Funds
Replies: 19
Views: 2549

Confessions of an Index Fund Investor

I’m a diehard index fund fan. I’ve written books on index funds, lectured on index funds, co-authored an award-winning paper on portfolios of index funds, and Forbes even named me “The Indexer” when I began writing for them several years ago. The problem with being “The Indexer” is that I don’t inve...
by Rick Ferri
Thu Jul 31, 2014 4:17 pm
 
Forum: Investing - Theory, News & General
Topic: Confessions of an Index Fund Investor
Replies: 8
Views: 3042

Re: To Tilt or Not to Tilt - Rick Ferri's Latest

Expecting "tilt" to offset the cost of the advisor did not seem feasible. 1210 Using Rick's Portfolio Solutions projections, a 60/40 portfolio would have an expected return of 5.76% (60% x 7.6%)+(40% x 3.0%). If an adviser charges 1% per annum, how much "tilt" would be required ...
by Rick Ferri
Sat Jul 19, 2014 4:44 pm
 
Forum: Investing - Theory, News & General
Topic: To Tilt or Not to Tilt - Rick Ferri's Latest
Replies: 77
Views: 7995

93 Ways to Underperform the Market

A fortune awaits anyone who can analyze a price chart and accurately determine if there is a pot of gold hidden at the end. It sounds like a worthy endeavor. Unfortunately, successful technical analysis is easier believed than achieved. Jiali Fang, Yafeng Qin and Ben Jacobsen, all from Massey Univer...
by Rick Ferri
Fri Jul 11, 2014 7:20 am
 
Forum: Investing - Theory, News & General
Topic: 93 Ways to Underperform the Market
Replies: 2
Views: 1273
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