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Re: Value & Growth - 20 Years In Style

They're also more expensive. I've always said that "alpha goes to the manager." Interpret this as any excess return earned in a strategy above its risk goes to the manager of the strategy in the form of higher fees, not investors in that strategy. Full disclosure: I use a couple of DFA fun...
by Rick Ferri
Fri Apr 18, 2014 6:16 pm
 
Forum: Investing - Theory, News & General
Topic: Value & Growth - 20 Years In Style
Replies: 13
Views: 854

Re: Let's say we live for 150 years...

nisiprius

That's great! Absolutely. Thanks for posting.

Rick Ferri
by Rick Ferri
Fri Apr 18, 2014 11:59 am
 
Forum: Investing - Theory, News & General
Topic: Let's say we live for 150 years...
Replies: 16
Views: 2451

Let's say we live for 150 years...

How would you invest if you were starting out in your career at age 25 and know you would live until age 150? It probable helps to look at the very long-term return of assets classes and what makes them tick. That's what I took a stab at in this article: A Million-Mile View Of Investment Value Rick ...
by Rick Ferri
Thu Apr 17, 2014 11:46 am
 
Forum: Investing - Theory, News & General
Topic: Let's say we live for 150 years...
Replies: 16
Views: 2451

Re: Going from lump sum to desired portfolio allocation

I feel that I have a fiduciary duty here and don't want to see a drop in the principal in the event that it is needed.


Then invest the money in a short-term bond fund.

Rick Ferri
by Rick Ferri
Wed Apr 16, 2014 11:33 am
 
Forum: Investing - Help with Personal Investments
Topic: Going from lump sum to desired portfolio allocation
Replies: 4
Views: 314

Re: Please Help me understand 3-fund portfolio

Diversification reduces the risk of a large loss.

Rick Ferri
by Rick Ferri
Wed Apr 16, 2014 11:31 am
 
Forum: Investing - Theory, News & General
Topic: Please Help me understand 3-fund portfolio
Replies: 21
Views: 2059

Re: Please Help me understand 3-fund portfolio

There are two asset classes and three funds in the 3-fund portfolio. The asset classes are stocks and bonds. Within the stock asset class there are US stocks and international stocks, which are mutually exclusive. The bond/stock mix of a portfolio controls it's risk level. This is the most important...
by Rick Ferri
Wed Apr 16, 2014 9:58 am
 
Forum: Investing - Theory, News & General
Topic: Please Help me understand 3-fund portfolio
Replies: 21
Views: 2059

Re: What exactly is a risk premium?

Oops! I read that backwards. :oops:

Rick Ferri
by Rick Ferri
Tue Apr 15, 2014 9:30 am
 
Forum: Investing - Theory, News & General
Topic: What exactly is a risk premium?
Replies: 14
Views: 975

Re: What exactly is a risk premium?

Thanks to the very low correlation of stocks and bonds, a portfolio of 100% bonds actually has both a lower expected return and higher volatility than an 80% bond/20% stock mix. Not quite. Bonds and stocks do not always have low correlation. In fact, during most of the 70s, 80's and 90s they had hi...
by Rick Ferri
Mon Apr 14, 2014 9:16 pm
 
Forum: Investing - Theory, News & General
Topic: What exactly is a risk premium?
Replies: 14
Views: 975

Re: Favorite Investing Book?

"Bogle on Mutual Funds"

In 1996, it changed my life.

Rick Ferri
by Rick Ferri
Sun Apr 13, 2014 7:17 pm
 
Forum: Investing - Theory, News & General
Topic: Favorite Investing Book?
Replies: 42
Views: 3192

Re: Do Professional Active Investors have short-term incenti

I've heard that story a million times. The problem is finding someone who can prove it. This fellow sounds like a man who doesn't calculated his investment return correctly, if at all. But it sure sounds good! BTW, I used the same flawed logic when I was a rookie broker and didn't know anything, &qu...
by Rick Ferri
Wed Apr 09, 2014 5:28 pm
 
Forum: Investing - Theory, News & General
Topic: Do Professional Active Investors have short-term incentives?
Replies: 10
Views: 713

Re: When To Buy Index Funds

Don't try to time asset class returns when transitioning from active strategies to passive indexing. Trying to do so is in itself an active strategy that you're trying to get away from.

Rick Ferri
by Rick Ferri
Wed Apr 09, 2014 5:17 pm
 
Forum: Investing - Help with Personal Investments
Topic: When To Buy Index Funds
Replies: 4
Views: 505

Re: Among Heroes and Villains

Thank you for your service, Ted.
by Rick Ferri
Tue Apr 08, 2014 9:44 am
 
Forum: Local Chapters and Bogleheads Community
Topic: Among Heroes and Villains
Replies: 10
Views: 1118

Re: Asset location strategies for taxes are OK; but not grea

Rick, I agree with some of your points, and disagree with others. If your AA calls for 5% REIT, are you really suggesting that 5% of your taxable account should be REIT? (Use before tax or after tax value, whichever you prefer.) That's crazy talk. I don't suggest putting REITs in a taxable account ...
by Rick Ferri
Mon Apr 07, 2014 8:44 pm
 
Forum: Investing - Theory, News & General
Topic: Asset location strategies for taxes are OK; but not great
Replies: 27
Views: 2609

Among Heroes and Villains

Freedom is not free. Our rights and privileges come at a high cost. The brave men and women who fought and died for our freedom are not able to enjoy the sacrifices they gave, but their families and friends are, and that’s what’s important. Seeing this reality firsthand as a young Marine Corp office...
by Rick Ferri
Mon Apr 07, 2014 3:21 pm
 
Forum: Local Chapters and Bogleheads Community
Topic: Among Heroes and Villains
Replies: 10
Views: 1118

Re: Asset location strategies for taxes are OK; but not grea

An investment adviser from CA emailed me on this article and told me of another issue with asset location - married couple who are getting divorced. "when you allocate across spousal accounts and they subsequently divorce. Asset location decisions might lead to serious imbalances within each sp...
by Rick Ferri
Mon Apr 07, 2014 9:47 am
 
Forum: Investing - Theory, News & General
Topic: Asset location strategies for taxes are OK; but not great
Replies: 27
Views: 2609

Re: Burton Malkiel, Wealthfront CIO

Wealthfront previously raised $20 million in March 2013, and its total funding is now up to $65.5 million. That's just incredible. As the founder of one of the first and largest low-fee investment adviser firms in the country who is managing $500 million more than Wealthfront, I find their valuatio...
by Rick Ferri
Sun Apr 06, 2014 10:37 pm
 
Forum: Investing - Theory, News & General
Topic: Burton Malkiel, Wealthfront CIO
Replies: 89
Views: 10977

Asset location strategies for taxes are OK; but not great

I’m often asked what I think about asset location strategies. This is a tax management technique where an investor places the most tax-efficient investments in the least tax-efficient account type and vice versa to reduce near-term taxes. There are advantages and disadvantages to this strategy. I be...
by Rick Ferri
Sun Apr 06, 2014 10:29 pm
 
Forum: Investing - Theory, News & General
Topic: Asset location strategies for taxes are OK; but not great
Replies: 27
Views: 2609

Re: Foolish In Love And Money

Taylor, I think you know me by now that I don't "do" praise very well. Perhaps it's all those years in the Marine Corps. I can't say. They way I look at, as with you and everyone else on this board, we're all just trying to help do an important job that needs to be done. But thanks for not...
by Rick Ferri
Tue Apr 01, 2014 12:24 pm
 
Forum: Investing - Theory, News & General
Topic: Foolish In Love And Money
Replies: 11
Views: 2256

Bogle: Tilt To Corporates For More Yield

Here is a new interview with John Bogle by Olly Ludwig of ETF.com . This is the introduction: John Bogle, Vanguard’s founder who built a second career as an author and the conscience of American capitalism, is still vigorous and relevant at the age of 84. As always, Bogle counsels investors to keep ...
by Rick Ferri
Tue Apr 01, 2014 12:04 pm
 
Forum: Investing - Theory, News & General
Topic: Bogle: Tilt To Corporates For More Yield
Replies: 60
Views: 5655

Re: Foolish In Love And Money

You probably have written about the "anchoring, substitution, optimistic bias" etc and I would be very interested in reading your take on that.


There's so much to write about. The enemies of investment success are everywhere except in the markets.

Rick Ferri
by Rick Ferri
Mon Mar 31, 2014 9:38 pm
 
Forum: Investing - Theory, News & General
Topic: Foolish In Love And Money
Replies: 11
Views: 2256

Foolish In Love And Money

Love and money have a lot in common. It struck me how similar these two pursuits are while reading a recent Wall Street Journal article on the pursuit of a satisfying life by Charles Murray. We seek both love and money over our lifetimes; we’re drawn to them, fight over them, agonize over them, negl...
by Rick Ferri
Mon Mar 31, 2014 1:06 pm
 
Forum: Investing - Theory, News & General
Topic: Foolish In Love And Money
Replies: 11
Views: 2256

Watching The Market Is Not Investing

Warren Buffett's investment success is probably the most cited example by believers in active management. They infer that if Warran can do you, you can too. That's not true, of course. There's only one Warren Buffet, and I doubt he is reading this investment board. A funny thing about this argument ...
by Rick Ferri
Sat Mar 29, 2014 2:07 pm
 
Forum: Investing - Theory, News & General
Topic: Watching The Market Is Not Investing
Replies: 12
Views: 1736

Re: 3-to-1 Odds Favor Index Investors (SPIVA)

Maybe you can help with this survivorship bias thing. I can understand if I look at the funds in a category today some of them may not survive for the next five years. But if I restrict my universe to funds that have already been in existence for the last five or ten years the probability that they...
by Rick Ferri
Tue Mar 25, 2014 12:21 pm
 
Forum: Investing - Theory, News & General
Topic: 3-to-1 Odds Favor Index Investors (SPIVA)
Replies: 15
Views: 1716

Re: 3-to-1 Odds Favor Index Investors (SPIVA)

A couple of reasons. First, typically, the worst performance asset class has the highest number of active managers that outperform. Treasury bonds were poor performers. Active funds outperfomed by not being in Treasury bonds. Second. it was a massive bet against the Fed. I suppose when a market isn'...
by Rick Ferri
Mon Mar 24, 2014 9:37 pm
 
Forum: Investing - Theory, News & General
Topic: 3-to-1 Odds Favor Index Investors (SPIVA)
Replies: 15
Views: 1716

Re: 3-to-1 Odds Favor Index Investors (SPIVA)

If your using Morningstar screens the way you show above, then you have a survivorship bias. That's the 25% of active funds that went under that you're not counting. Thus, 81 out of 203 surviving 75% of funds isn't far off from SPIVA numbers. It does fluctuate. Also, the next stage of this is to loo...
by Rick Ferri
Mon Mar 24, 2014 7:04 pm
 
Forum: Investing - Theory, News & General
Topic: 3-to-1 Odds Favor Index Investors (SPIVA)
Replies: 15
Views: 1716

3-to-1 Odds Favor Index Investors (SPIVA)

On average, over a five-year period, about 25% of actively managed mutual funds will outperform their benchmark, 25% of funds will underperform by a small amount, 25% will underperform by a large amount, and 25% won’t make it the entire five years. 3-to-1 odds favoring index fund investing has showe...
by Rick Ferri
Mon Mar 24, 2014 5:34 pm
 
Forum: Investing - Theory, News & General
Topic: 3-to-1 Odds Favor Index Investors (SPIVA)
Replies: 15
Views: 1716

Re: Latest SPIVA Scorecard is now out

Yeah, same story. But it has to be told over and over because lies are louder than the truth.

Rick Ferri
by Rick Ferri
Sat Mar 22, 2014 2:18 pm
 
Forum: Investing - Theory, News & General
Topic: Latest SPIVA Scorecard is now out
Replies: 6
Views: 905

Re: New index funds aren't always great

Here is a recent WSJ article on the topic that includes my analysis:

Is 'Smart Beta' an Improvement Over Standard Indexing?

Rick Ferri
by Rick Ferri
Fri Mar 21, 2014 10:52 am
 
Forum: Investing - Theory, News & General
Topic: New index funds aren't always great
Replies: 3
Views: 735

Re: Latest SPIVA Scorecard is now out

Yep. Mondays blog. Thank you S&P.
by Rick Ferri
Thu Mar 20, 2014 10:43 pm
 
Forum: Investing - Theory, News & General
Topic: Latest SPIVA Scorecard is now out
Replies: 6
Views: 905

Re: An Interview with ETF.com Founder and CEO Jim Wiandt

I've been a fan for years. Thanks for your comments.

Rick Ferri
by Rick Ferri
Thu Mar 20, 2014 8:40 pm
 
Forum: Investing - Theory, News & General
Topic: An Interview with ETF.com Founder and CEO Jim Wiandt
Replies: 2
Views: 292

An Interview with ETF.com Founder and CEO Jim Wiandt

Those of us who follow all things indexing, index fund and ETF are very familiar with the good work of the journalist staff and guest writers at ETF.com (formally IndexUniverse.com). In addition to the website, ETF.com publishes the Journal of Indexes , ETF Report (ETFR), and runs industry conferenc...
by Rick Ferri
Thu Mar 20, 2014 11:26 am
 
Forum: Investing - Theory, News & General
Topic: An Interview with ETF.com Founder and CEO Jim Wiandt
Replies: 2
Views: 292

Re: Sibling is a Financial Adviser, ask investing advice?

Ask her what she thinks about low-cost total market index funds such as VTSMX and then make your decision to discuss more - or no more.

Rick Ferri
by Rick Ferri
Wed Mar 19, 2014 9:45 am
 
Forum: Investing - Help with Personal Investments
Topic: Sibling is a Financial Adviser, ask investing advice?
Replies: 30
Views: 1980

Re: Smart Beta: the new Bozo factor

Here are my comments on "Smart Beta" as published in the WSJ today:

Is 'Smart Beta' an Improvement Over Standard Indexing?

Rick Ferri
by Rick Ferri
Mon Mar 17, 2014 11:53 am
 
Forum: Investing - Theory, News & General
Topic: Dr. B on Smart Beta: the new Bozo factor
Replies: 6
Views: 853

Re: 3 Big Questions to Ask an Adviser

gerntz wrote:Honesty & looking out for the clients best interests tops these for me.


Absolutely agree. Except that how does anyone know this going in? Reputation perhaps. But then, Bernie Madoff had a great reputation until he was busted.

Rick Ferri
by Rick Ferri
Mon Mar 17, 2014 11:47 am
 
Forum: Personal Finance (Not Investing)
Topic: 3 Big Questions to Ask an Adviser
Replies: 34
Views: 2645

Re: Don’t Bother With That High Cost 401(k)

A few thoughts on the study: 1) The economics change completely if there is a company match. 2) The benefit of tax-deferral may be higher by qualifying an individual for other tax benefits due to lower income. 3) A plan may have index funds that are not being utilized enough, which counted against t...
by Rick Ferri
Mon Mar 17, 2014 11:44 am
 
Forum: Investing - Theory, News & General
Topic: Don’t Bother With That High Cost 401(k)
Replies: 28
Views: 2977

Don’t Bother With That High Cost 401(k)

A 401(k) plan is broken when the fund expenses overwhelm the tax benefit of participation. Employer sponsored 401(k) and similar tax-deferred savings plans encourage employees to save for retirement by deferring income taxes on their contributions. However, a recent study suggests that about 1 in 7 ...
by Rick Ferri
Mon Mar 17, 2014 10:01 am
 
Forum: Investing - Theory, News & General
Topic: Don’t Bother With That High Cost 401(k)
Replies: 28
Views: 2977

Re: 3 Big Questions to Ask an Adviser

Even when the answers are received, as you say, they only "narrow" the search to a "manageable list of potential candidates." Now what? I think it's hardest for people to answer #1. What do you believe? If a person is sophisticated enough to answer what philosophy they're seekin...
by Rick Ferri
Fri Mar 14, 2014 7:45 pm
 
Forum: Personal Finance (Not Investing)
Topic: 3 Big Questions to Ask an Adviser
Replies: 34
Views: 2645

3 Big Questions to Ask an Adviser

Investment advisers are everywhere. There are thousands of them. Finding one that’s right for you is a challenge. How do you find an adviser that fits your needs? I’ve read articles that provide 20 questions, 10 questions, etc. Here are my “3 Big Questions” to narrow the adviser universe down to a m...
by Rick Ferri
Fri Mar 14, 2014 7:54 am
 
Forum: Personal Finance (Not Investing)
Topic: 3 Big Questions to Ask an Adviser
Replies: 34
Views: 2645

Re: Total Market Investors Are Not Dumb

AndrewXnn wrote:So, is the Fama and French 3 factor model wrong?


No. It is correct. When you take additional risks in a portfolio with tilts to small cap and value stocks, your expected return before extra cost is higher than the total market expected return.

Fama and French 3 factor model

Rick Ferri
by Rick Ferri
Tue Mar 11, 2014 8:34 am
 
Forum: Investing - Theory, News & General
Topic: Total Market Investors Are Not Dumb
Replies: 11
Views: 2345

Total Market Investors Are Not Dumb

Are you a dumb index fund investor? Is so-called "Smart Beta" stealing returns from your dumb beta strategy? No. You're not losing one penny. When excess returns are earned by one active investor they must come from another active investor who loses, and that's before fees. Total market in...
by Rick Ferri
Mon Mar 10, 2014 10:38 am
 
Forum: Investing - Theory, News & General
Topic: Total Market Investors Are Not Dumb
Replies: 11
Views: 2345

Re: Getting Rich By Reading Fiction

Thanks for posting. Excellent!

Rick Ferri
by Rick Ferri
Sun Mar 09, 2014 11:11 am
 
Forum: Investing - Theory, News & General
Topic: Getting Rich By Reading Fiction
Replies: 7
Views: 1715

Re: How To Be An Index Investor

Maybe I should read that book. I might learn "how all investors can immediately use these all-purpose securities for both instant profits and protection against risk." :happy

Rick Ferri
by Rick Ferri
Sat Mar 08, 2014 10:43 am
 
Forum: Investing - Theory, News & General
Topic: How To Be An Index Investor
Replies: 23
Views: 2671

Re: How To Be An Index Investor

I did read this last night and thought it was an excellent article. I did not know your new book was so challenging but I can understand why now. I think it's easier to write a 375 page descriptive manual like The ETF Book than a heart-felt, crystal clear 100 page "How To Be An Index Investor&...
by Rick Ferri
Fri Mar 07, 2014 12:55 pm
 
Forum: Investing - Theory, News & General
Topic: How To Be An Index Investor
Replies: 23
Views: 2671

Index Funds, Active Funds, or Both? WSJ Video

Should you buy index funds, active funds or both? This was the topic of a recent WSJ on-line debate of sorts monitored by Karen Damato and featuring yours truly and a couple of advisers who use active management (because they know how to pick-em'!). I think I held my own. Index Funds, Active Funds, ...
by Rick Ferri
Fri Mar 07, 2014 10:16 am
 
Forum: Investing - Theory, News & General
Topic: Index Funds, Active Funds, or Both? WSJ Video
Replies: 4
Views: 330

Re: How To Be An Index Investor

arcticpineapplecorp,

Thanks for the catch. It's being corrected.

Don,

Vanguard has a report that looks at the trading of their own ETFs. It is higher than open-end funds, but not as high as you might think. ETFs: For the Better or the Bettor?

Rick Ferri
by Rick Ferri
Fri Mar 07, 2014 10:02 am
 
Forum: Investing - Theory, News & General
Topic: How To Be An Index Investor
Replies: 23
Views: 2671

Re: How To Be An Index Investor

Rick: Sometimes I think you are most interested in helping investors avoid advisers (like yourself). Best wishes. Taylor Taylor, I can answer that. 1) My view is that information about investing should be open to all for free. There shouldn't be any secret recipe that only advisers know about or ha...
by Rick Ferri
Thu Mar 06, 2014 2:23 pm
 
Forum: Investing - Theory, News & General
Topic: How To Be An Index Investor
Replies: 23
Views: 2671

How To Be An Index Investor

I hear it all the time. “How hard can it be to buy a few index funds that track the markets? Anyone can do it. It’s a no brainer.” If only this was true. Investing in index products alone won’t make you a successful index investor. The problem isn’t the products – it’s your brain. In fact, the openi...
by Rick Ferri
Thu Mar 06, 2014 12:11 pm
 
Forum: Investing - Theory, News & General
Topic: How To Be An Index Investor
Replies: 23
Views: 2671

Re: Beat the S&P 500 with the S&P 500? Not likely.

Interesting article and thought. Now we only need an equal-weighted ETF. :) Also: in Figure 3 in the 'No Free Lunch' article: why do you depict the S&P 500 slightly below the capital market line? Shouldn't it be on the line? Well, OK, but it's VERY close! There is some noise in the numbers. The...
by Rick Ferri
Tue Mar 04, 2014 12:33 pm
 
Forum: Investing - Theory, News & General
Topic: Beat the S&P 500 with the S&P 500? Not likely.
Replies: 15
Views: 1579

Re: Beat the S&P 500 with the S&P 500? Not likely.

If one wishes to beat the performance of the S&P500 for the year, all one has to do is buy the S&P500 when it is lower than it started the year. There already have been some good opportunities this year to do so (think Feb 3rd for instance). Then one can sit back and relax for the rest of t...
by Rick Ferri
Tue Mar 04, 2014 12:29 pm
 
Forum: Investing - Theory, News & General
Topic: Beat the S&P 500 with the S&P 500? Not likely.
Replies: 15
Views: 1579
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