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Beware of Investing Based on Rising Rates

Many investors have been incorrectly predicting the rise in short-term interest rates for several years and have kept their fixed-income investments short term. They feared a rise in rates would harm the value of their portfolios if they held intermediate- and long-term bonds or bond funds. However,...
by Rick Ferri
Thu Jan 08, 2015 11:15 am
 
Forum: Investing - Theory, News & General
Topic: Beware of Investing Based on Rising Rates
Replies: 22
Views: 2102

Re: New Vanguard AMT-free National Municipal Bond Fund

Vanguard wanted a tax-exempt bond ETF and now they have it. That's the best I can say about this fund.
by Rick Ferri
Wed Jan 07, 2015 10:56 pm
 
Forum: Investing - Theory, News & General
Topic: New Vanguard AMT-free National Municipal Bond Fund
Replies: 58
Views: 5020

Re: DFA vs DIY

Hire an adviser because you want one or need one. Don't hire an adviser just to gain access to products that sound appealing.

Rick Ferri
by Rick Ferri
Mon Jan 05, 2015 10:07 am
 
Forum: Investing - Help with Personal Investments
Topic: DFA vs DIY
Replies: 10
Views: 1733

Re: Rick Ferri looking to internationalize his portfolio

Browser wrote:What about a little gold in case the other shoe drops? That ought to shake things up and be a tonic for the yellow dog.


No, i sqwashed that bug a long time ago.

The Fight of the Century: Bond Buyers Versus Gold Bugs

Gold Bugs Swatted Agian

Rick Ferri
by Rick Ferri
Sun Jan 04, 2015 9:07 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Rick Ferri looking to internationalize his portfolio

Of course, seems he has not yet gone neutral. There is still time for Mr. Market to teach him a lesson. Are you suggesting that I should go neutral now? Is that the "lesson" Mr. Market is going to teach me? No, I think I'll wait as I explained in the article. There is time before the othe...
by Rick Ferri
Sun Jan 04, 2015 8:03 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Rick Ferri looking to internationalize his portfolio

Question for Rick or any other VSPs: At what point does in make sense to hedge your currency exposure? Vanguard equity funds are unhedged. Both international bond funds are hedged although using different means. That works for me. [OT response to OT economic policy comment deleted by admin alex] Ri...
by Rick Ferri
Sun Jan 04, 2015 7:05 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Rick Ferri looking to internationalize his portfolio

To believe that indexes don't adjust to global market changes mischaracterizes what indexing is and how the strategy is executed.There is not such thing as passive index or a passive index fund. Someone is always making decisions on methodology, reconstitution techniques, rebalancing, etc. Passive i...
by Rick Ferri
Sun Jan 04, 2015 2:58 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Rick Ferri looking to internationalize his portfolio

A few observations. Rick Ferri is a Very Smart Person. The finance and economics industries employ a large number of VSPs, many of whom try to predict the directions of economies or financial markets. Perhaps several hundred thousand such people around the world. In spite of their unquestioned inte...
by Rick Ferri
Sun Jan 04, 2015 2:29 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Rick Ferri looking to internationalize his portfolio

I remember a post about a Dr. Bernstein article about future expected returns of different asset classes and Dr. Bernstein suggested that foreign equities would have higher future expected returns than US equities. For the most part, as I recall, people just oohed and aahed over Dr. Bernstein's bri...
by Rick Ferri
Sat Jan 03, 2015 9:39 am
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Rick Ferri looking to internationalize his portfolio

Rick wrote: That's the way the world is going, and that's where my allocation is going. I don't know what this means. What way is the world going? I meant the US stock market is 50% of the global equity market while my portfolio has been 70% in US stocks for many years. I gradually want to move it ...
by Rick Ferri
Sat Jan 03, 2015 8:44 am
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Rick Ferri looking to internationalize his portfolio

if you think I'm market timing with this slight reallocation to international stocks, what do you think of this popular thead I started more than five years ago?

Tips on answering the question - What should I do?

Posted to this forum on October 24, 2008

Rick Ferri
by Rick Ferri
Fri Jan 02, 2015 10:36 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Rick Ferri looking to internationalize his portfolio

walletless wrote:
Rick Ferri wrote:This minor tweak toward more international is a very long-term shift toward global exposure.

Just curious, Rick.. how long-term is this move? Are you looking at a 5-10 year horizon?


I've been 70% US for 15 years. This will be at least 10 years. Maybe 20.

Rick Ferri
by Rick Ferri
Fri Jan 02, 2015 8:42 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Rick Ferri looking to internationalize his portfolio

When you read my blog, you'll see that I have made changes in my portfolios over the years. I've added asset classes and taken some away. This minor tweak toward more international is a very long-term shift toward greater global exposure. That's the way the world is going, and that's where my alloca...
by Rick Ferri
Fri Jan 02, 2015 8:03 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Rick Ferri looking to internationalize his portfolio

International bond funds have been around for years. Vanguard added international bond funds a couple of years back. Many Bogleheads who never owned international bonds added this asset class to their portfolio at the time. Was that market timing? The Vanguard TIPS fund was launched in 2003 after TI...
by Rick Ferri
Fri Jan 02, 2015 3:42 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Rick Ferri looking to internationalize his portfolio

How do you keep Vanguard a place where judgment has at least a fighting chance to triumph over process? There is judgement in passive strategies. Markets change and passive portfolios follow. This yet to be initiated shift helps align my portfolio closer to a global passive strategy. The questions ...
by Rick Ferri
Fri Jan 02, 2015 12:36 pm
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 226
Views: 25389

Re: Equal Weighted Funds - Better?

There is more risk in equal weight, therefore a higher expected return:

No Free Lunch From Equal Weight S&P 500

Rick Ferri
by Rick Ferri
Mon Dec 29, 2014 9:32 am
 
Forum: Investing - Theory, News & General
Topic: Equal Weighted Funds - Better?
Replies: 31
Views: 2579

Re: An ETF on a futures contract? Can someone explain this t

ETFs are subject to the Investment Company Act of 1940. All ETFs (exchange- traded funds) are ETPs (exchange-traded products), but not all ETPs are ETFs. USO is not an ETF, thus not subject to the 40s act. LPs, LLCs, ETNs and grantor trusts are called ETFs by the media, but they are not exchange-tra...
by Rick Ferri
Sat Dec 27, 2014 12:37 pm
 
Forum: Investing - Theory, News & General
Topic: An ETF on a futures contract? Can someone explain this to me
Replies: 41
Views: 2075

Re: Tips on answering the question - What Should I Do?

I'm not suggesting that all 20 and 30 year old investors be 100% in equity because most will not be able to handle it. Technically it would be the best option: emotionally it's probably the worst option. The best asset allocation is the one that meets your financial goals and you can stick with thro...
by Rick Ferri
Tue Dec 23, 2014 10:14 am
 
Forum: Investing - Theory, News & General
Topic: Tips on answering the question - What Should I Do?
Replies: 151
Views: 177783

Re: Theory of return vs. correlation in 2-asset portfolios

The best two asset classes that can be theoretically added to a portfolio have: 1) High return in both asset classes 2) High volatility of return in both asset classes 3) Negative (or low) correlation between asset classes 4) Full liquidity in both asset classes 5) Low fees of funds in both 1, 2, 4 ...
by Rick Ferri
Tue Dec 23, 2014 9:08 am
 
Forum: Investing - Theory, News & General
Topic: Theory of return vs. correlation in 2-asset portfolios
Replies: 6
Views: 998

Re: Poll: How important is rebalancing?

The point of rebalancing is to maintain your chosen risk level, give that you hold 100% equities, rebalancing would probably not be as important for you as for someone who holds a portfolio of both equities and fixed income. Actually, studies show that portfolios with low equity (<20%) have no bene...
by Rick Ferri
Mon Dec 22, 2014 12:29 pm
 
Forum: Investing - Theory, News & General
Topic: Poll: How important is rebalancing?
Replies: 51
Views: 5632

Re: Poll: How important is rebalancing?

Rebalancing is important if one's asset allocation has drifted far enough away from target that the investor no longer has a portfolio which suits his objectives. Otherwise it is not that important. I agree. Rebalancing is often touted as being a very important component of portfolio management and...
by Rick Ferri
Mon Dec 22, 2014 10:14 am
 
Forum: Investing - Theory, News & General
Topic: Poll: How important is rebalancing?
Replies: 51
Views: 5632

Re: RBD in Emerging Markets Brewing

When 100 people flip a coin, about 50 are going to be right.

Rick Ferri
by Rick Ferri
Mon Dec 15, 2014 11:15 am
 
Forum: Investing - Theory, News & General
Topic: RBD in Emerging Markets Brewing
Replies: 37
Views: 3607

Re: The Core Four

About 45% of busiiness in the US is conducted by publically traded companies. REITs represent only 4% of the commercial real estate market in the US and only 3% of the stock market. So, you can see that real estate based on REITS capitalization is significantly under represented in the TSM. This alo...
by Rick Ferri
Thu Dec 04, 2014 11:09 am
 
Forum: Investing - Theory, News & General
Topic: The Core Four
Replies: 284
Views: 146045

Re: Diversification, Rebalancing Theory

People are brave in a bull market.

The question to ask yourself is if you would have asked this question in November 2008?

Rick Ferri
by Rick Ferri
Tue Dec 02, 2014 8:43 pm
 
Forum: Investing - Theory, News & General
Topic: Diversification, Rebalancing Theory
Replies: 7
Views: 503

Re: RAFI vs. DFA

Want evidence? Start with 2,000 advisers pumping $350 billion into DFA funds, add RAFI tracking ETFs with assets around the same, add hundreds of billions more going into other so-called "smart beta" products. The market isn't very big. Factor crowding doesn't take much.

Rick Ferri
by Rick Ferri
Mon Dec 01, 2014 8:34 pm
 
Forum: Investing - Theory, News & General
Topic: RAFI vs. DFA
Replies: 131
Views: 25669

Re: MLP ETFs

MLPs today remind me of internet stocks in 2000.

Rick Ferri
by Rick Ferri
Mon Dec 01, 2014 5:34 pm
 
Forum: Investing - Help with Personal Investments
Topic: MLP ETFs
Replies: 14
Views: 1379

Re: RAFI vs. DFA

I can't say for certain whether there's evidence in favor of any factor based strategy in the future. Factor investing has become more risky and lower yielding as more people do it. It doesn't matter what factors we're talking about, they are all at risk of being exploited beyond their ability to de...
by Rick Ferri
Mon Dec 01, 2014 5:29 pm
 
Forum: Investing - Theory, News & General
Topic: RAFI vs. DFA
Replies: 131
Views: 25669

Re: Holding S&P 500 Index vs Total Stock Market?

Any low cost S&P 500 fund is a great second-place index fund.

Rick Ferri
by Rick Ferri
Mon Dec 01, 2014 3:51 pm
 
Forum: Investing - Theory, News & General
Topic: Holding S&P 500 Index vs Total Stock Market?
Replies: 18
Views: 1886

Re: RAFI vs. DFA

You can't draw a conclusion from the DFA versus RAFI data because they have different value weights and track different value factors. One year DFA's value factor might outperform RAFI and the next year RAFI's multi-factor value strategy may outperform DFA. No one can tell which value factor will ou...
by Rick Ferri
Mon Dec 01, 2014 2:56 pm
 
Forum: Investing - Theory, News & General
Topic: RAFI vs. DFA
Replies: 131
Views: 25669

Re: Financial Planner

If your looking for unbiased advice that's not tied to a money management contract, try the Garrett Planning Network . I live near San Antonio, Texas, and I am having a difficult time finding a "real" financial planner to help my friends and neighbors. By real financial planner, I mean the...
by Rick Ferri
Sun Nov 30, 2014 4:40 pm
 
Forum: Personal Finance (Not Investing)
Topic: Financial Planner
Replies: 15
Views: 1422

Re: I'm getting Slaughtered in stocks

Pain is good. Extreme pain is extremely good. Because some day you'll get tired of the pain, put all your money in index funds and forgetaboutit. And that's the right thing to do. The worst thing that could have happened is for your three stocks to be up 45%. You might start thinking you're smart n...
by Rick Ferri
Sat Nov 29, 2014 1:20 pm
 
Forum: Investing - Theory, News & General
Topic: I'm getting Slaughtered in stocks
Replies: 43
Views: 6005

Re: There's a difference between asset classes and indexes

Some of the larger firms offering portfolio management services have "investment committees" who decide on say 4 model portfolios (e.g. a conservative, moderate, growth, and aggressive portfolio, and the committee picks the components and weightings). Then the "financial planners&quo...
by Rick Ferri
Sat Nov 29, 2014 11:01 am
 
Forum: Investing - Theory, News & General
Topic: There's a difference between asset classes and indexes
Replies: 3
Views: 875

Re: I'm getting Slaughtered in stocks

Pain is good. Extreme pain is extremely good. Because some day you'll get tired of the pain, put all your money in index funds and forgetaboutit. And that's the right thing to do. The worst thing that could have happened is for your three stocks to be up 45%. You might start thinking you're smart or...
by Rick Ferri
Sat Nov 29, 2014 9:04 am
 
Forum: Investing - Theory, News & General
Topic: I'm getting Slaughtered in stocks
Replies: 43
Views: 6005

There's a difference between asset classes and indexes

Asset class and indexing are two different concepts. An asset class is a category of tangible or intangible assets whose scope may or may not be fully quantifiable. The quantifiable part is the raw material from which an index is created. US equity is an asset class that’s fairly easy to define and ...
by Rick Ferri
Sat Nov 29, 2014 8:36 am
 
Forum: Investing - Theory, News & General
Topic: There's a difference between asset classes and indexes
Replies: 3
Views: 875

Re: Shiller CAPE 10 — Why So High These Days?

I'm not a fan of valuing today's stock market based on earnings from 10 years ago. Using today's earnings, the S&P 500 PE is 19. That's the important number. It's not low, but it's not high either given the current economic expansion and low interest rates. Keep it in perspective.

Rick Ferri
by Rick Ferri
Wed Nov 26, 2014 8:23 am
 
Forum: Investing - Theory, News & General
Topic: Shiller CAPE 10 — Why So High These Days?
Replies: 38
Views: 3481

Re: Small cap value premium

This all gets back to the three risks of factor investing: 1) it's always more expensive to implement than beta only 2) there can be a long delay between implementation and benefit 3) prolonged negative tracking error often leads to capitulation at the wrong time The decision to impliment a factor t...
by Rick Ferri
Sun Nov 23, 2014 5:29 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 19988

Re: Small cap value premium

Asset allocation is determined by considering the risk and return of asset classes, and to some extent, how those asset classes behave relative to each other. How one divides asset classes is subjective, but normally it's done using broad categories; US equity, international equity, investment grade...
by Rick Ferri
Sun Nov 23, 2014 8:03 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 19988

Re: Small cap value premium

Asset classes are divided into categories, styles, sectors, etc. They're all part of the same US equity asset class. How these categories are used in a portfolio is called strategy.

Rick Ferri
by Rick Ferri
Sat Nov 22, 2014 9:39 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 19988

Re: Small cap value premium

I think you are really trying hard here. It's accepted in the language of finance that small value is an asset class within the broader equity asset class. It's not a strategy, but an asset class. To the extent the US equity market is often divided into industry sectors and styles, one could refer ...
by Rick Ferri
Sat Nov 22, 2014 8:08 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 19988

Re: Small cap value premium

Rick You're kidding right, small cap value stocks are not an asset class? Larry Larry, If you're trying to make an augment that investment strategy is an asset class, I would disagree. The two are quite different. US equities are an asset class. How one chooses to invest in US common stocks is inve...
by Rick Ferri
Sat Nov 22, 2014 7:57 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 19988

Re: Small cap value premium

There is a difference between diversifying among asset classes and investing in a strategy within an asset class. People will stay diversified among asset classes because it's prudent to do so even when an asset class isn't performing. A strategy like small-value isn't an asset class. It's trying to...
by Rick Ferri
Fri Nov 21, 2014 6:57 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 19988

Re: Small cap value premium

In recent years, the longest period of time when small-value under-performed was 18 years (from 1984 through 2001). You should be prepared to wait that long if you're going to take this additional risk. I call it "a life-long investment strategy." Don't do it if you're not willing to commi...
by Rick Ferri
Fri Nov 21, 2014 6:01 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 19988

Re: Rick Ferri 60/40 portfolio

dbr wrote:Rick, it is truly refreshing to hear from a well regarded adviser and author in the field that people do not need to agonize over all the over-engineering of portfolios that is presented in too many places.


:happy

Rick Ferri
by Rick Ferri
Fri Nov 21, 2014 10:31 am
 
Forum: Investing - Help with Personal Investments
Topic: Rick Ferri 60/40 portfolio
Replies: 18
Views: 4838

Re: Small cap value premium

Is "factor crowding" a looming issue for smart beta investors? Bruce Jacobs and Kenneth Levy of Jacobs Levy Equity Management believe so: "Smart beta strategies are often based on common, generic factors used by many managers. This approach leaves their performance susceptible to fact...
by Rick Ferri
Fri Nov 21, 2014 10:24 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 19988

Re: Rick Ferri 60/40 portfolio

Hi Rick, I really like the Three Fund Portfolio. In fact, the older I get, the more I appreciate it. It has been reassuring to hear you discuss the many benefits over the last year or so. Best. A three fund portfolio provides the main ingredients of a successful asset allocation. All else is icing ...
by Rick Ferri
Fri Nov 21, 2014 9:45 am
 
Forum: Investing - Help with Personal Investments
Topic: Rick Ferri 60/40 portfolio
Replies: 18
Views: 4838

Re: Rick Ferri 60/40 portfolio

Hi and thanks for asking.

Start with three ETFs:

VTI for the US market
VXUS for the international market
BND for bonds or a comparable fund (or CD ladder)

Everything else is an add-on and not particularly important.

Rick Ferri
by Rick Ferri
Thu Nov 20, 2014 8:25 pm
 
Forum: Investing - Help with Personal Investments
Topic: Rick Ferri 60/40 portfolio
Replies: 18
Views: 4838

Re: Outperforming the Indexes

Your analysis included only funds that survived. On average, about 25% of actively managed mutual fund don't last over the next 5-years. Imagine how poorly the average would have performed if your series didn't include a survivorship bias?

Rick Ferri
by Rick Ferri
Thu Nov 20, 2014 5:53 pm
 
Forum: Investing - Help with Personal Investments
Topic: Outperforming the Indexes
Replies: 13
Views: 3644

Additional Betas: Defining and implementing

Here is a recent interview in did with Chrisitne Benz from Morningstar. The subject is smart beta, strategic beta, additional beta, exotic beta wor whatever you wish to call factor tilts in a portfolio.

Enjoy!

[erri: Patience Required for Strategic-Beta Strategies

Rick Ferri
by Rick Ferri
Mon Nov 17, 2014 6:06 pm
 
Forum: Investing - Theory, News & General
Topic: Additional Betas: Defining and implementing
Replies: 6
Views: 785

Re: Can active funds reliably beat the index? Actually, Yes

It's naive to say that active management "can't" beat the market or "doesn't" beat the market because neither are true. There have been people who beat the market and there will be in the future (nominally and risk-adjusted basis per Larry's point). Some managers do have skill. T...
by Rick Ferri
Sat Nov 15, 2014 2:46 pm
 
Forum: Investing - Theory, News & General
Topic: Can active funds reliably beat the index? Actually, Yes.
Replies: 41
Views: 7581
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