Bogleheads.org

The SEC defines an index fund as “a type of mutual fund or unit investment trust (UIT) whose investment objective typically is to achieve approximately the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, the Russell 2000 Index or the Wilshire 5000 Total...

Every investment should be entered into with the prospect of providing a positive return after taxes and inflation. A successful investment is one that allows you to buy more goods or services at its conclusion because you have more after-tax inflation-adjusted dollars to spend. Rick Ferri Agree wh...

Back-fitting the returns of HY bonds to some blend of stocks and investment grade bonds is useless information unless you're able to prove that this blend will be the same blend in the future. If it is not, then it means the past blend was random and the future blend will also be random. Even the pa...

I wish to know TODAY, exactly what mix of stock and bond indexes will equal the return of high yield in the future. Can anyone tell me this? If the answer is no, then this entire conversation is senseless. What is true is the following: You cannot know what mix will synthetically create the same re...

And at times they have high correlation with stocks just like investment grade corporate bonds Not in the least. IG corporates and the stock market are quite uncorrelated. Depending on the exact credit quality the correlation can be as low as Treasuries (about zero). On the other hand, HY correlati...

My father once told me that people who truly want to help you don't ask for anything in return. I think that advice is exemplified by all Bogleheads who spend time posting on this forum.

Rick Ferri

Sure, high yield bonds have similarities to other bonds - because they ARE bonds! And at times they have high correlation with stocks just like investment grade corporate bonds (how soon people forget what happened to ALL corporate bond funds during the financial crisis). So, of course the long-term...

"From this point of view, the basic idea is that you can replicate the performance of most high yield strategies using stocks and high-quality bonds." So, what Jared is saying is that he can replicate the performance of ANY asset class as long as he knows the highest returning asset and t...

Good article in part because of luinks. I do disagree strongly with one staement namely "Past performance does not provide useful information about future performance." It is my understanding that long term bad performance is a good predictor of future bad performance in part of course be...

That answer is incorrect. Hedging expenses are the trading costs and the cost to carry the trade. These are not part of a fund's expense ratio or the purchase fee.

Rick Ferri

If everyone suddenly adopted Rick Ferri's philosophy, I think, all stocks would move in tandem regardless of the underlying fundamentals. Is that right Rick? That's not something I'll ever have to worry about in my lifetime, but generally, yes, this is true. There is already evidence in S&P 500...

Don't know where the talk about small cap started. I talk about small-cap value stocks as having the highest correlation of return with private equity. This is stated clearly several times in the article, with an academic reference. The article only addresses an equity allocation. It is not an artic...

Perhaps I should ask, HOW does one become a Boglehead? These questions are not simple to answer. A few day ago, "noyopacific" posted his frustration in Trying to Advise Friends and Family About Investing . My response was that his feelings are universal. Getting someone over "the moun...

Now why is it that I knew you would highlight that exact sentence?! I regretted using that phrase the moment I pressed Submit. LOL! Don't feel bad. It has happened to me MANY times on this forum. What I'm trying to point out is that the OP is holding a fund with a duration that suggests that it may...

06/13/2013: now may be a good time to revisit the durations of their existing bond funds and perhaps downshift to offerings with shorter durations and less rate sensitivity. Kevin McDevitt, CFA, Mornginstar Haven't you learned anything about CFAs? We're either late or early; we're never wrong! Rick...

Good point, Grt2bOutdoors:

Investing is setting aside gratification today with the hope of more gratification tomorrow.

Rick Ferri

The second is considering my life experience within the past several decades because I need to relate to my own experience on a more personal level. Unfortunately, this subjects you to a recency bias. You're saying that interest rates should go higher because during your investing lifetime the aver...

The mutual fund universe is full of shooting stars. In fact, picking a manager based on his or her superior past return more often results in sub-par returns than a repeat performance. See my lasted on this often discussed topic.

Wishing Upon A Star Manager Doesn’t Work

Rick Ferri

Anything can happen. Investing is about assessing risk, which is basically a probability question. How probable is 5% and how probable is 1%? Each investor makes their own determination, and the dollar-weighted average becomes the 10-year yield. Right now, this average puts the 10-year at a 2.2% yie...

I held onto the money because at the beginning of the year doom and gloom was everywhere. There were many predictions of a big dip in the market. One of the guys I work with pulled a lot of money out of the market at the beginning of the year for the same reason I held off on investing mine. He act...

It doesn't matter if the markets are efficient or not. What matters is an efficient way to invest in the market, and that answer is with a fixed allocation to a diversified portfolio of low-cost index funds.

Rick Ferri

I don't think people ignore the evidence as much as not understand it. You can be told about the evidence, read about it and even memorize it, but if you don't understand it, that's not ignorance - it's a communication problem. It takes many "hits" of the same message to begin to see the b...

Every investment should be entered into with the prospect of providing a positive return after taxes and inflation. A successful investment is one that allows you to buy more goods or services at its conclusion because you have more after-tax inflation-adjusted dollars to spend.

Rick Ferri

Thanks for the reminder to read Being Wrong: Adventures in the Margin of Error by Kathryn Schulz

Rick Ferri

I recommend investing at the same time each year or month regardless of where the market is. This way you're mind doesn't play tricks on you. Monthly is actually easier because you're investing a lesser amount and it can be done using an automatic investment program.

Rick Ferri

Rick, normally I like your contributions, but this time it reads like you are just another 'I told you so, except I'm only now telling you so after it happens' guy ... what would you be saying about this guy you're making fun of if EM were up and US were down right now? Would you have some other an...

"After auguring with the guy for several minute..." Coolest Freudian slip EVAH! :D Funny...I was thinking of "auger" in that you just can't drill some things into people's heads...but "augur" is even more apropos. Too funny. Yeah, yeah. OK. It's fixed. :oops: Rick Ferri

pastafarian wrote:Interesting factoid that Vanguard's currency hedging costs essentially double the ER of their new international bond fund.

There is no "official" hedging expense published by Vanguard, but my source is good.

Rick Ferri

Emerging market stock and bond funds have been hammered this year. The Vanguard FTSE Emerging Markets ETF (VWO) is down 11% and it's at a cumulative loss for the past 2-years. My how things change. Weren't emerging market supposed to be the saving grace of investor's portfolios? Many advisers though...

Rick, YN -- the context was: If you're not confident that you'll stay the course and would rather have someone else steer the boat and hang with you through rough seas, then pay the guy. , meaning an a-priori lack of confidence. I'm pretty sure a therapist can look into that. Many normal people are...

With all due respect, at 1.5% therapy would very likely be cheaper. If the OP can negotiate something in the 0.5% range, then maybe, but 1.5% is pretty terrible. We don't know the absolute size of the portfolio, but if it's small enough that 1.5% is not a whole lot, the OP should have that much les...

The market is more efficient than you or I will ever be.

Rick Ferri

I can tell you from experience that you can copy an adviser's portfolio or come up with your own logical allocation, the results of all portfolios with the same equity and fixed income allocation are going to be based on risk and randomness ~ and more so on randomness. One intelligently crafted mix ...

I spoke with financial planner Jim Ludwick about bonds yesterday. We discussed: 1) The current bond market and interest rates. 2) What do do about your portfolios. 3) Vanguard's new international bond funds. 4) Senior loan funds and TIPS. Worried about bond losses? Rick Ferri BTW, I may sound like I...

I wrote an article about this recently:

The Heavy Toll Of Investment Fees

The article measures investment fees as a percentage of expected return rather than assets under management.

Rick Ferri

My record at giving advice however suggests I'm not very good at convincing others of the wisdom and elegant simplicity of following a Boglehead type of plan. And you think you're different than anyone else? Getting someone over "the mountain" is extremely difficult. People have to hear t...

Ten years ago, the couple retired with an IRA account worth $2 million. They did not take any money out on the advice of their adviser. The account earned 7% per year since retirement, and is now worth $4 million. Through good financial planning described in Mr. Baldwin’s article, they have paid no...

I've always been interested in the increasing tax burden that retirees with large IRAs have as the age and required minimum distribution (RMD) amounts increase. A recent tax article written for Forbes by William Baldwin titled How Retirees Pay Zero Taxes , prompted me to look into this further. Some...

This question is for Rick. What do you think of a 90%/10% stock/bond allocation? From what I have read, Vanguard's Target Retirement 2040 fund is 90% stock. This has been shown to be a good idea to be this aggressive until close to retirement time. Temwil I always like to have some in bonds so that...

There's a persistent concept with some people that, "if XXX can do it, so can I." Similar to the idea that all you have do to be a successful stock picker is to be able to read a balance sheet. Brian You mean, watching Tiger Woods play golf on television won't qualify me for the PGA tour?...

It takes superior information to earn a superior return by choosing individual stocks. Do you have any? Do you know something material about these "good companies" that isn't publicly known or that very few people have figured out? If not, then you have to assume the market is correctly p...

It takes superior information to earn a superior return by choosing individual stocks. Do you have any? Do you know something material about these "good companies" that isn't publicly known or that very few people have figured out? If not, then you have to assume the market is correctly pr...

That's great!



Congrats Steve and Dan!

Rick Ferri

Don't you believe that you can get an edge with a value approach? Do you find those ratios completely irrelevant? Many studies show that they do give an statistically significant edge. Perhaps there will continue to be a value premium in the market, but I don't need to pick stocks to capture it. Th...

Rick, a Buy option is not a possibility for me unless the NAV gets to $9.00/share or below,do you think that may happen? Interest rates will have to go up more than 3% in a short period of time, taking the yield of the fund near 5%. It's possible, but not likely. There is no economic reason for tha...

Frugal Al wrote:

Rick Ferri wrote:Where is the BUY option?

Rick, you seem to have gone from making a reasonable case for interest rates possibly going lower to declaring that you know they will.

I'm not saying that. I have no idea. I was just asking why this wasn't a poll option and gave reasons why it should be.

Rick Ferri

Don't you believe that you can get an edge with a value approach? Do you find those ratios completely irrelevant? Many studies show that they do give an statistically significant edge. Perhaps there will continue to be a value premium in the market, but I don't need to pick stocks to capture it. Th...

Active management is what makes indexing work.

Rick Ferri

Thanks, Taylor. Only my mother and the WSJ call me an expert. Henry Ford once said something to effect of, "No one calls himself an expert if he really knows his job" and "If I wanted to destroy my competition, I would send them every engineer who considers himself an expert." Ha...

There is always strong survivorship bias in articles like this one. The journalist can only interview fund managers whose funds actually survived. This makes it sound as though picking a winning fund is easier than it is. There were 473 large cap value funds on Jan 1, 1997. By December 2011, only 26...