Yet another study comparing the returns of active and indexed mutual funds has named indexed funds as the clear winners. The study of active mutual funds showed that over a 10-year period ending in 2003, active funds underperformed their benchmark indexes by three to one. The poor results were not limited to large stocks, moreover: funds in every stock size […]
Investments
Bonds prove that common wisdom can be wrong
Earlier this year a rash of news stories and market commentaries warned investors about a coming decline in the bond market. The Federal Reserve had all but guaranteed it would begin raising interest rates for the first time in four years in order to head off incipient inflation. Rising rates are bad for bonds: their prices fall. The general wisdom […]
Take a random walk down Wall Street
Our analysts will uncover the best stocks to buy. The chart on that stock forecasts a breakout to new highs. Our mutual fund beats the market because our manager is really, really smart. Sure, and the check is in the mail. It is simply amazing that 40-plus years after academic investment researchers began poking holes in Wall Street’s unsupported claims […]
Avoid dangerous investor mistakes
Investment research has long shown that an investor does best by holding investments in a variety of different assets whose returns are not closely correlated. This type of investing, known as “asset class investing,” has plenty of support in academic research and in practice. In general, a well-diversified asset-class portfolio behaves in a more stable fashion over time and, given […]
Inflation-protected U.S. bonds are set to take off
As interest rates are poised to rise from their current record lows, bond owners are worried about being stuck with their current fixed yields. But not every bond owner is worried: the growing number who have purchased Treasury inflation-indexed securities are confident they will stay ahead of higher rates and higher inflation. The U.S. Treasury in 1997 began offering the […]
Unrealistic expectations threaten your retirement
Don’t fall into the trap that has grabbed a lot of your fellow workers: they have unrealistic expectations about investment returns and retirement assets and face disappointment in their golden years. A recent survey by Merrill Lynch uncovered some not so surprising mistakes workers are making in their retirement planning. Two of the top concerns of the 1,100 survey participants […]
Magellan’s woes: It isn’t easy to beat the index
Once upon a time there was a mutual fund named Fidelity Magellan that seemed to do no wrong. Under the leadership of its dynamic portfolio manager, Peter Lynch, the fund racked up an eye-popping average annual gain of 29% over 13 years. Investors took notice and poured billions of dollars into the fund, making it the largest stock mutual fund […]
Muzzle your urges, boost your return
The stock market has delivered an average annual return of 12.9% over the 20 years ended in March, and individual investors have had access to plenty of decent stock mutual funds that have come close to that return. Why, then, has the average investor realized vastly inferior returns over this period? A study performed last year by DALBAR, an independent […]
Where to find real stock market value
Many investors have a vague notion that “small” stocks and “value” stocks are something they should consider for their portfolios. Yet the average investor’s portfolio is often more “market-like,” that is, invested in big U.S. growth stocks. So where do value and small stocks fit in and why would an investor want them? The answer is very important for long-term […]
Supercharging an indexed portfolio
Let’s say you have made the breakthrough to indexed investing. You no longer believe that some swaggering Wall Street money manager can consistently beat the market for you. You no longer want to pay high fees to take that risk, and have decided on a more rational course. Great—you’ve come to the conclusion shared by a lot of other very […]
