ACTIONABLE ADVICE FOR FINANCIAL ADVISORS: Newsletters and Commentaries Focused on Investment Strategy

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2014-04-22 Does Rebalancing Reduce Risk? by Michael Edesess (Article)

In a previous article I asked whether rebalancing increases return, as the term "rebalancing bonus" implies. I concluded that it does not. In this article I ask whether it is a tool for reducing risk. The answer depends on whether you believe that the standard deviation of long-term returns is the appropriate measure of risk. This article will show why it often is not.

2014-02-15 The Economic Singularity by John Mauldin of Millennium Wave Advisors

Today, let’s think about central banks and liquidity traps and see if we agree that central bankers are driving the car from the back seat based upon a fundamentally flawed theory of how the world works. That theory helped produce the wreck that was the Great Recession and will have its fingerprints all over the next one.

2013-12-10 How Much Can Clients Spend in Retirement? A Test of the Two Most Prominent Approaches by Wade Pfau (Article)

In my last article, I described research-based innovations for variable withdrawal strategies from retirement portfolios. In this article, I put Guyton’s and Blanchett’s strategies to the test. My results provide planners with a better understanding about the potential spending paths generated by these different approaches.

2013-11-19 Asset Class Allocation and Portfolios: Critique and Complication by Adam Jared Apt (Article)

In Part 1 of this essay, I explained that for asset class allocation to become an investment practice, it required a foundation of theory. And Modern Portfolio Theory was that foundation. But today, most financial journalists and investment advisors who proffer advice centered on asset class allocation are?if I may judge from their writings?oblivious of this. And why shouldn’t they be? Theory is abstract and difficult to apprehend.

2013-11-19 Research from Yale on Commodities by Robert Huebscher (Article)

Many would consider the practice of placing assets in a commodity fund to be speculation rather than investing. That perception was amplified by a recent Bloomberg article, which reported the dismal performance of many managed-futures funds and commodity-trading advisors (CTAs). Contrary to that image, Geert Rouwenhorst, a Yale University professor, claims he has found a way to construct a commodity-based fund that earns a significant premium over inflation.

2013-11-05 The Key Issues in Today’s Muni Bond Market by Hildy Richelson and Stan Richelson (Article)

Investing in high quality municipal bonds paying a predictable cash flow and returning your principal at the end of the investment is a well-trodden system for lifetime economic success. In this article we discuss some key issues in purchasing municipal bonds to help you make wise choices for your investing system.

2013-10-29 Why Deficits Don’t Matter by Bob Veres (Article)

Stephanie Kelton, Associate Professor of Economics at the University of Missouri/Kansas City, believes that the root of our deficit problems can be found in a fundamental misunderstanding ? shared by Democrats, Republicans and mainstream voters alike ? about the government’s balance sheet. She argues, plausibly, that the whole idea that we should control the deficit at all is costing our nation trillions of dollars in lost output. The result is lost income, savings, wealth and prosperity.

2013-09-24 Why Retirees Should Choose DIAs over SPIAs by Wade Pfau (Article)

Retirement portfolios can be constructed from a mix of asset classes, including stocks, bonds and annuities. In the past, I’ve shown that retirees achieve some of the best outcomes by allocating a portion of those assets to SPIAs. In this column, I extend my analysis to show that DIAs work even better than SPIAs, by providing more liquidity and better longevity protection at a lower cost.

2013-09-24 Why Bond Funds are Toxic for Your Portfolio by Raul Elizalde (Article)

Thirty years of rate declines have convinced many that bonds are safe. Indeed, a conservative portfolio has come to be synonymous with one that is heavy on bonds. But a rising interest-rate cycle is taking hold, and bond investors are now exposed to unfamiliar risks in their conservative portfolios. Bond funds will not provide the safety that investors seek. Holders of individual bonds will fare much better.

2013-09-07 Unrealistic Expectations by John Mauldin of Millennium Wave Advisors

Two well-respected analysts of pension funds have produced reports this summer suggesting that pensions are now underfunded by more than $4 trillion and possibly more than $5 trillion. I would like to tell you that the underfunding is all the bad news, but when you probe deeper into the problems facing pension funds, it just gets worse.

2013-07-26 Investing In Bonds When Rates Are Rising by Tom Dalpiaz of Advisors Asset Management

How can investors “stay in the bond game” during these difficult rising rate environments? Here are some suggestions.

2013-06-25 The Price Your Clients Pay for Using Safe Withdrawal Rates by David B. Loeper (Article)

Safe-withdrawal rates (SWRs) are perhaps the most extensively studied topic in financial planning literature. But applying a single SWR-driven methodology to all clients neglects their unique and individual needs. A better approach is for advisors to assist clients in defining their ideal and acceptable goals and the relative priorities among them. Then they can demonstrate through Monte Carlo simulation the likelihood of the recommended plan becoming over- or under-funded relative to those goals.

2013-05-07 How to Construct a Low-Cost Conservative Portfolio by Geoff Considine (Article)

One of the greatest challenges for investors today is constructing low-risk portfolios that provide the best returns using low-cost funds or ETFs. Doing so requires advisors to define risk as the potential for retirees to fail to achieve their financial goals, instead of as volatility, as it is traditionally measured. I will show how to construct a low-cost portfolio that minimizes this definition of risk while generating a reasonable real return.

2013-04-29 Long Live China's Slowdown by Stephen Roach of Project Syndicate

China doubters around the world have been quick to pounce on slower-than-expected GDP growth in the first quarter of this year. But slower growth is actually good for China provided that it reflects the long-awaited shift to an economic structure that draws greater support from domestic private consumption.

2013-03-19 Understanding the Role of SPIAs in a Retirement Portfolio by David B. Loeper (Article)

Wade Pfau’s recent article, Breaking Free from the Safe Withdrawal Paradigm, was well researched. Its goal was to accurately calculate the benefits of using SPIAs based on certain assumptions. I fear, however, that many readers may have not fully grasped the impact of a few key assumptions that drive his results.

2013-03-12 Letters to the Editor by Various (Article)

Two readers respond to Joe Tomlinson's article, Can Advisors Add Value Through Fund Selection?, which appeared on February 26, and a reader responds to Wade Pfau's article, Breaking Free from the Safe Withdrawal Rate Paradigm: Extending the Efficient Frontier for Retirement Income, which appeared last week.

2013-02-19 Letter to the Editor by Various (Article)

A reader responds to Gary Halbert's commentary, The Economy: Worst Five Years Since the Depression, which appeared on February 13.

2013-01-23 Dissipating Gloom by Charles Lieberman (Article)

Investor confidence seems to be returning, as the economic outlook improves and policy concerns are addressed. The tone of media coverage and strategy commentaries has improved considerably. Nonetheless, investors are not positioned for a more optimistic view. Hedge funds and other professional money managers remain underexposed to equities and retail investors are dreadfully light in equities and badly overweight bonds. Stocks will enjoy a very nice tailwind as these portfolios are rebalanced to reflect the more positive view.

2012-11-13 The Downside to Socially Responsible Investing by Robert Huebscher (Article)

Who wouldn't want a cleaner environment or a more just society? We can all agree these are worthy goals. But it's an established fact that pursuing them through one's investing is costly; environmental-, social- and governance-based investing (ESG) does fine on a gross basis, but loses money net of fees. Now, a recently published paper argues that that ESG is basically a waste of time.

2012-11-06 Letters to the Editor by Various (Article)

A reader responds to Gary Halbert's commentary, What Really Happened in Benghazi on Sept. 11, which appeared on October 31, and a reader responds to David Schawel's article, Will Bonds Be 'Burnt to a Crisp?', which appeared on October 16.

2012-10-09 Dividend Income: Music to Our Ears by ClearBridge Advisors (Article)

The hunger for income among investors is helping put dividends in the spotlight, say Hersh Cohen and Mike Clarfeld of ClearBridge.

2012-10-09 A Q3 Letter to Clients - Insights from a Wall Street Legend by Dan Richards (Article)

Here is a template for a letter to serve as a starting point for advisors looking to send clients an overview of the past 90 days and the outlook for the period ahead. In it, I draw upon investing principles articulated by the legendary Barton Biggs, who passed away earlier this year.

2012-10-09 High-Dividend Yield Strategy under the Microscope by Michael Nairne (Article)

High-dividend yield stocks have become the favorite recommendation of a host of advisors, but an undue focus on income alone obscures the irreducible fact that long-term investment success is based on the total return of a portfolio including both income and capital growth. This raises two questions. How has the total return of a high-dividend yield strategy fared relative to the market? How does its total-return performance compare to the returns of other possible stock-selection strategies?

2012-10-02 Confronting the Unemployment Crisis by Robert Huebscher (Article)

Policymakers seeking a path to economic recovery must first answer one crucial question: Is our persistently high unemployment structural or cyclical? If it's cyclical, then monetary and fiscal measures designed to boost consumer spending will restore the US to full employment in due course. But if we face a structural problem, then quick fixes won't work until we correct deeper imbalances that have left 12.5 million Americans without jobs.

2012-09-18 The Trend is Your Friend by Keith C. Goddard, CFA (Article)

John Hussman's recent market commentary, The Trend is Your Fickle Friend, highlighted the limitations of trend-following investment strategies that rely on moving-average crossover rules as a primary filter. But an extensive study conducted by our firm demonstrated that a simple moving-average crossover system outperforms buy-and-hold, while reducing drawdown risk and volatility.

2012-09-18 Your Clients' Toughest Retirement Decision by Wade Pfau (Article)

Want to trigger an impassioned debate? Ask a group of advisors about the choice between systematic withdrawal plans and single-premium immediate annuities. Fee-only advisors are loath to cede control of client assets to an insurance company that might someday default, while annuity advocates fire back that only their strategies provide a lifetime income guarantee.

2012-09-17 Ben Wants You To Spend Cash by John Petrides (Article)

This week the Federal Reserve launched its third round of monetary policy easing in as many years. Under QE3 (quantitative easing), the Fed will purchase $40 billion of mortgage backed securities on a monthly basis with the purpose of continuing to fuel the housing market. Under QE3, the Fed said it will keep its zero interest rate policy until mid-2015, with the goal of removing market assumptions of a rising rate environment. The Fed is and always will be data dependent, so all of these actions are subject to change.

2012-07-10 Recession is Not Imminent by Dwaine van Vuuren (Article)

Perma-bears are bombarding us with alarm bells, sounding the doom of the US economy. We find ourselves in yet another 'summer slowdown scare,' for the third year running. In 2010 and 2011, the purported slowdowns turned out to be soft landings. Investors who ran to the sidelines stared in disbelief as the stock market roared ahead, leaving them behind. We are likely in the same position now.

2012-07-10 The Plight of the Conservative Retiree by Michael Nairne (Article)

Today's extraordinarily low rates on top of a lower equity premium leave conservative retirees with the risk of heightened capital depletion as poorer portfolio returns may be inadequate to offset the combined impact of withdrawals and inflation.

2012-06-12 Investing for Retirement: SPIAs, TIPS, Stocks and the 4% Rule by Joe Tomlinson (Article)

Relying only on stocks and bonds to fund a decumulation strategy may no longer be feasible, given today's low interest rate environment and the prospect of muted returns from the equities market. Investors should instead consider using single-premium immediate annuities (SPIAs) to fund at least a portion of retirement needs.

2012-06-05 Letters to the Editor by Various (Article)

A number of readers respond to our article, Can Krugman Fix Our Economy?, which appeared last week.

2012-05-29 The Bargains in Europe's Great Oversell by Bob Veres (Article)

When was the last time we saw negative headlines drive valuations as low as they have in Europe? Evermore's David Marcus, who succeeded Michael Price as manager of the Mutual European Fund, says this period of obsession with Greek debt, bank restructuring and single-digit P/Es may be known as The Great Oversell.

2012-05-01 Making the Right Wager on Client Longevity by Manish Malhotra (Article)

Using annuities to fund retirement is anathema to most advisors, who view the loss of control over one's capital and impossibility of a bequest as nonstarters for their clients. But as clients reach the later stages of their retirement, those arguments no longer apply. A single-premium immediate annuity is superior to a TIPS ladder or a systematic-withdrawal portfolio for funding the last phase of retirement.

2012-04-24 Why a 60/40 Portfolio isn?t Diversified by Alex Shahidi (Article)

Maintaining a balanced portfolio is critical, especially when predictions of growth and inflation vary as widely as they do today. Investors are always better off spreading risk than aggressively betting on one economic outcome, and that's especially true when the range of possible economic outcomes is so wide.

2012-04-17 The Real Reason to Worry about Oil by Robert Huebscher (Article)

Few question the prevailing wisdom that tensions with Iran have caused the recent rise in oil prices. But another possibility exists - and it's a much greater long-term threat to economic growth.

2012-04-17 The Rebalancing Problem by Michael Nairne (Article)

Selling winning asset classes to buy losers runs counter to human nature. But doing so with discipline can increase the potential return of a portfolio while critically maintaining its risk profile. The rebalancing premium is an important and often overlooked addition to returns of properly managed portfolios.

2012-04-10 Super Macro - A Fundamental Timing Model by Theodore Wong (Article)

Rather than endure losses in bear markets - as passive investors must - I have shown that a simple trend-following model dramatically improves results, most recently in an Advisor Perspectives article last month. Now it's time to extend my approach by showing how this methodology can be applied to fundamental indicators to further improve performance.

2012-03-27 GMO: Two Questions We Can't Answer by Robert Huebscher (Article)

Its reputation was built on stellar returns achieved with long-term bets on undervalued asset classes. Current market conditions, however, pose two unanswerable questions for GMO ? leaving the firm with an uncertain strategy for its equities and fixed-income allocations.

2012-03-27 Questions of Character by Michael Lewitt (Article)

As a long-time investor in leveraged companies, the character of management has long informed my decisions of where to direct capital. There is no margin of safety when you invest in a company managed by dishonest or reckless managers, or a management team that has a history of placing its own interests before those of its shareholders or creditors. The same is true of choosing an investment manager.

2012-03-20 Bob Rodriguez on the Dangers in Today's Markets by Robert Huebscher (Article)

Bob Rodriguez is the managing partner and chief executive officer of Los Angeles-based First Pacific Advisors. In this interview, he discusses how the challenges faced by the US economy will impact the capital markets.

2012-03-06 Why Invest? - Part 2 by Adam Jared Apt (Article)

Risk tolerance is a quality inherent in an individual or an institution. Whether quantified or not, risk tolerance is the amount of return the investor requires as compensation for the extra risk that comes with investing. It's a concept that is essential for making investment decisions, yet it is elusive and maddeningly difficult to specify. Even so, many investment advisors like to give the public the impression that they're proficient at determining it.

2012-02-14 ?The Greatest Anomaly in Finance' by Geoff Considine (Article)

If I told you that there is an easy-to-exploit market anomaly that has enabled investors to consistently and substantially outperform the market with less risk for more than four decades, your first instinct might be to roll your eyes. After all, the unending quest to improve returns while lowering risk has yielded countless methods with initial promise that subsequently collapse under further scrutiny.

2012-02-14 The Safety-first, Goals-based Approach to Financial Planning by Wade Pfau (Article)

Little of what is taught in traditional investment textbooks is of value in personal financial planning. Risk is not standard deviation; it is the probability and consequences of not meeting one's goals. That real-world perspective animates a new book by Zvi Bodie and Rachelle Taqqu that implores advisors and their clients to lock in the funding of their essential expenses before worrying about their discretionary goals.

2012-01-31 Why Target-Date Funds Fail by Robert Huebscher (Article)

New research explains why target-date funds have failed to meet investors' objectives. While most of the criticism has been directed to overly aggressive glide paths, that is merely a symptom of the underlying problem - the misalignment of incentives between investors and fund companies.

2012-01-31 Letters to the Editor ? Reinhart and Rogoff by Various (Article)

Several readers respond to Robert Huebscher's article, Beyond Reinhart and Rogoff, which appeared last week.

2012-01-24 Must Bond Investors Fear Rising Interest Rates? by Andrew D. Martin (Article)

Thirty-one years ago, in 1981, the one-year Treasury reached its all time high of 14%. Today it hovers around 0.10%. Never before have interest rates fallen so far. Many economists and investment advisors, seeing nowhere to go but up, expect interest rates to climb from these historic lows. But that would not be the catastrophe that many bond investors fear.

2012-01-24 New Tools to Help Clients with Retirement Decisions by Joe Tomlinson (Article)

Our clients face a range of financial planning issues, and the arrival of retirement typically involves making numerous decisions. Here is a set of tools that provide useful information to professionals who work with clients on the verge of retirement - especially financial advisors, accountants and lawyers.

2011-12-13 GLWBs: Retiree Protection or Money Illusion? by Wade Pfau (Article)

One of the most popular variable annuity riders is the guaranteed lifetime withdrawal benefit (GLWB), which offers downside protection through lifetime income, upside potential with step-ups based on market performance, and minimal surrender penalties. But, examining historical data, I have found that those riders carry a cost that will not be readily apparent to retirees: their cash flows rapidly decrease on an inflation-adjusted basis.

2011-12-06 The Unspoken Truth about Hedge Funds by Michael Edesess (Article)

The popularity of the endowment model among advisors has been driven by the belief that hedge funds have produced positive risk-adjusted returns. But the basis for that notion has been statistics gleaned from hedge fund databases, and new research shows returns from those databases are even more upwardly biased than previously thought; the supposed alpha never really existed.

2011-11-22 Morningstar?s Attempt to Predict Performance by Robert Huebscher (Article)

Few question that skillful mutual fund managers exist, but virtually all attempts to identify them ex ante have failed. Last week, Morningstar took up the challenge with its Analyst Ratings, which aim to identify funds with the 'long-term potential for superior risk-adjusted performance.' Given the futility of such efforts over the last several decades, advisors should approach this new effort with skepticism.

2011-11-15 Are TIPS Really Safe and Worry-Free? by Wade Pfau (Article)

The Fed's aggressive monetary easing has many investors considering TIPS as a cornerstone of their retirement strategy. While TIPS' unique ability to protect against CPI-based inflation is undeniable, many investors neglect to consider the risks they pose, particularly for those who have not yet reached retirement.

2011-11-08 Politics, Taxes and the Markets by Robert Huebscher (Article)

One of the most engaging speakers at last week's Schwab IMPACT conference was Andy Friedman, who offered some provocative predictions about next year's elections and what we can expect from the deficit super committee.

2011-11-08 Is One Better than Three? by Dave Loeper, CIMA, CIMC (Article)

One way to 'juice' a portfolio is by increasing allocations to small- and mid-caps, as one recently published paper contends. But a careful analysis - properly adjusting for risk - shows how that seemingly appealing approach can destroy client wealth.

2011-10-25 On Market Timing and Whiskey by J.J. Abodeely (Article)

Noah S. 'Soggy' Sweat, Jr. a Mississippi legislator, gave a famous speech addressing the controversial subject of prohibition. The consummate politician, Soggy tried to appeal to advocates on both sides of the issue, illustrating a lesson that advisors today will surely appreciate: In order to get at the substance of a contentious issue, sometimes you have reframe the question.

2011-10-11 A Q3 Client Letter Drawing on Buffett?s Optimism 'The U.S. is coming back now' - and why three inves by Dan Richards (Article)

Since 2008, each quarter I have posted a template for a letter to clients; these are consistently among my most popular articles. This quarter's letter provides clients with perspective on the recent market turmoil.

2011-09-27 Do Low Correlations Favor Active Managers? by FundQuest Investment Management & Research Group (Article)

There has been much debate regarding the challenges for active managers in market environments with persistently high correlations. Some argue that high correlations hinder active managers seeking to generate alpha through security selection. Indeed, in a recent study, we found that active managers were more likely to succeed in low-correlation environments.

2011-09-13 The Handicap of Experienced Investors by J.J. Abodeely, CFA, CAIA (Article)

In the investment business, assets under management are concentrated with the largest and most established firms. Understandably, investors tend to allocate capital to managers after they've established a good track record. Unfortunately, for many, the analysis stops there. By failing to separate good results from identification of what makes a great investment manager, investors are primed for disappointment.

2011-08-30 What to Tell Clients Today - Ten Tips for Effective Client Communication by Dan Richards (Article)

Given the recent market tumult, many advisors know they should be communicating with clients, but hesitate because of uncertainty about what to say and apprehension about making things worse rather than better. Here are five general guidelines for client communication in turbulent markets and five tips for crafting the message that you send today.

2011-08-16 A Commentary on the Correction by Michael Nairne (Article)

Market corrections are always painful and this one particularly so because of the lingering anxiety from memories of the 2008-2009 market crash. I explore the history of stock market corrections and examines the dynamics of the recent downturn as well as actions that may be warranted, depending on individual circumstances.

2011-07-19 Retirement Planning and Worst-Case Scenarios by Wade Pfau (Article)

New research suggests that skepticism in a 4% safe withdrawal rate (SWR) is well justified. It is perhaps due to good luck that American retirees have not yet experienced a withdrawal rate below 4%. But a better approach than worrying about SWRs is to focus on the savings rate needed to meet your retirement spending goals, not on what the safe withdrawal rate is.

2011-07-12 Harold Evensky on the New Rules for Wealth Management by Robert Huebscher (Article)

If you don't have a copy of The New Wealth Management on your bookshelf, you should. From gauging the risk tolerance of your clients to measuring the performance of their portfolios, this book provides comprehensive guidance for virtually every aspect of a financial advisory practice. Harold Evensky, the lead author, spoke with me last week and highlighted some key themes in the newly released second edition.

2011-06-14 A Cautionary Tale from the World's Most Influential Economist by Dan Richards (Article)

Raghuram Rajan was recently cited by The Economist as having the most important ideas for the post-crisis world. In this interview, he identifies key policy issues the Obama administration must confront. This is a transcript of the interview.

2011-05-31 Fantasy-world Returns for Equity Indexed Annuities by Robert Huebscher (Article)

When research fails to meet the basic standards of academic rigor, its conclusions should be questioned. One such case is a recent paper, Real-World Index Annuity Returns, whose conclusions you should trust at your own risk.

2011-05-10 Something's Fishy in the Russell Rebalancing by Mariko Gordon (Article)

We humanoids think in words; it's just the way we're wired. As a result, the labels we assign to things affect our view of the world. I look at two frequently used investment labels: 'growth' and 'value.' I'll explain why both are high on my list of jargon pet peeves.

2011-04-12 Ten Trends that will Reshape the Fund Industry by Robert Huebscher (Article)

For advisors scouring among thousands of mutual funds, bargains and inefficiencies will be harder to find in coming years. Intense competition among funds for shelf space will not translate to lower fees, and the new class of broad asset allocation funds is unlikely to live up to its marketing promises. Those were among the surprising forecasts from Geoff Bobroff, with whom I met last week.

2011-04-05 Two Critical Lessons from Japan An End-of-Quarter Letter to Clients by Dan Richards (Article)

Given recent events in Japan and North Africa, many clients are looking to their advisors for direction on what they should do. This template for an end-of-quarter letter is intended to be a starting point for your letter to clients.

2011-03-22 What Investors Should Fear in the Permanent Portfolio by Geoff Considine, Ph.D. (Article)

Over the last decade, the assets of the fund PRPFX have swelled from $50 million to more than $10 billion. The concept underlying that fund, Harry Browne's Permanent Portfolio (PP), has rewarded PRPFX investors with attractive risk-adjusted returns. Those investors, however, may want to rethink their exposure - especially if PRPFX is the core of a retirement-oriented strategy.

2011-02-23 Coping with Volatility by Charles Lieberman (Article)

The decline in equity prices in reaction to the fighting in Libya is a typical example of how equity markets are vulnerable to stocks at almost any time. We handle such volatility by balancing stocks with less volatile securities, like bonds and preferred stocks, to varying degrees in different types of portfolios. If investors are matched up correctly with the portfolio that provides the correct blend of potential return, stability, and income, they need not flee the market at exactly the wrong time and they can stick with their longer term investment strategy to achieve their objectives.

2011-02-15 The Stuxnet Paradigm by Michael Lewitt (Article)

Michael Lewitt discusses the situation in Egypt, the economy, rising risk appetites in the market, sovereign debt and municipal bonds. 'It might be very easy,' he writes, 'to be impressed by the 'two years and thousands of man hours' that Ms. Whitney spent researching the fiscal condition of the 15 largest states. What in the world required so much time and effort? It shouldn't have taken nearly so long to determine that these states are in severe financial trouble and that their options for dealing with it are limited.

2011-02-08 Optimizing Your Fixed Income Allocation by Geoff Considine, Ph.D. (Article)

Here's a little-known fact: The traditional 60/40 portfolio, when using the aggregate-bond index for its fixed-income allocation, has a 99% correlation to the returns of the S&P 500. One way to overcome the limited diversification value offered by the aggregate index is to use a risk-parity approach. In this article, I explore the concept of risk parity in asset allocation and how it provides value for portfolio management.

2011-02-08 The Key Ingredient to Effective Communication by Dan Richards (Article)

When it comes to communicating with clients, too often we revert to the habit of using words alone. To maximize the impact of your communication, you need to help others visualize your message.

2011-01-25 Should Advisors Care about Short-Term Volatility? by James Colon, John Gambla and Rob Guttschow (Article)

How can advisors construct portfolios that meet their clients' risk preferences across economic environments? You may be surprised to learn that tactical asset allocation has an important role to play.

2011-01-24 A Malicious Mix of Economics and Politics by Charles Lieberman (Article)

I suspect 2011 will continue to produce its ups and downs (much like the past few years). The European debt crisis is still a big issue. The US Municipal debt (particularly in Illinois) issue is lingering. Congress is still Congress. When and if these issues present themselves and the markets react, we could view those situations as continued buying opportunities since the underlying fundamentals of stocks improve. However, long term investors should not wait for dips to begin investing, but rather start a systematic plan of redistributing cash back into the market.

2011-01-18 Refuting Meredith Whitney by Robert Huebscher (Article)

Wealthy investors, seeking safe tax-free income, have historically centered their portfolios on municipal bonds. The fiscal problems faced by many states and local governments, however, are leading many to question that strategy, none more vocally than the analyst Meredith Whitney, who predicted 'hundreds of billions' in municipal bond defaults in a recent 60 Minutes interview. We present the rebuttal to Whitney.

2011-01-18 Jeffrey Gundlach: The Greatest Investment Opportunity of 2011 and 2012 by Robert Huebscher (Article)

In June of 2007, against a backdrop of strong equity and corporate bond performance, Doubleline's Jeffrey Gundlach was one of the first to warn investors that sub-prime mortgages were 'a total unmitigated disaster, and they are going to get worse.' In an equally bold statement, last week he identified the asset class he considers the greatest investment opportunity for the next two years. Again, it was one for investors to avoid.

2011-01-11 Tactical Asset Allocation and Market Timing: What's the Difference? by Nancy Opiela (Article)

Why is it that the industry dismisses significant changes to portfolio allocations as "market timing" transactions but embraces the subtler "tactical shifts" many advisors are making in the current, transitional market? As advisors debate the nuances of that question, the more relevant question may be: How would you respond if a client asked you to explain the difference between market timing and tactical asset allocation?

2011-01-11 The Two Elephants Facing the US Economy by Michael Lewitt (Article)

The consensus has reached the conclusion that financial markets will enjoy a strong start to 2011. This is reason enough to approach the markets with caution as the year begins. When everybody is leaning to one side of the boat, the vessel is far more likely to tip over, particularly if it hits an unexpected wave.

2011-01-04 Building a Better Income Portfolio by Geoff Considine, PhD (Article)

One of the greatest concerns for income-oriented investors is the possibility that dividends will be cut. The financial crisis showed that traditional metrics, such as a stock's dividend history and its payout ratio, failed to warn investors of impending dividend cuts. By evaluating stocks based on volatility, however, investors can select securities that are more likely to maintain or improve their dividend rates.

2010-12-06 The Dangers of Rebalancing by Michael Edesess (Article)

Every portfolio should be rebalanced to its targeted asset allocation, we are taught. Indeed, there may be no other precept as routinely and studiously practiced among financial advisors. But does rebalancing either increase expected return or reduce risk? If so, why? The answers to those questions reveal that it may be prudent to rebalance, but not for the reasons you think.

2010-11-23 Stop Front-Running the Fed by Keith C. Goddard, CFA (Article)

A change of mindset is in order for bond investors, who must recognize that it is no longer wise to 'front-run' monetary policy by purchasing the same bonds the Federal Reserve is targeting with its latest round of quantitative easing.

2010-11-16 Skin in The Game, Part II by Mariko Gordon (Article)

In my previous column, I examined the validity of using the 'skin in the game' metric when evaluating a money manager. Today, we see how well it applies when used to assess corporate management. (Hint: Not so well.)

2010-11-09 A Reading List for 2010 by Vitaliy Katsenelson (Article)

Updated for 2010 and in time for the holidays, here is the latest installment of my recommended books. I originally wrote this list in 2008 and again last year. I intend to keep adding to and revising it every year. It contains seven sections: Selling, Think Like an Investor, Behavioral Investing, Economics, Stock Market History, Risk and Books for the Soul. The first three sections are presented below and the remaining four will be presented next week.

2010-10-29 Cliff Asness: Understanding Managed Futures by Robert Huebscher (Article)

In a portfolio with equities and fixed income, managed futures offer strong diversification value and high returns, according to Cliff Asness. Asness is the founder and Managing Principal of AQR Capital Management, a provider of managed futures products.

2010-10-26 An Exceptional Resource for Asset Allocation by Michael Edesess (Article)

Roger C. Gibson's fine and exemplary book, Asset Allocation: Balancing Financial Risk, Fourth Edition, shows that character and conscience-based counseling still exist, even in the financial profession. It is still possible for advisors to look out for their clients' long-term interests.

2010-10-12 Why Warren Buffett is Optimistic: A Quarterly Letter to Send Clients by Dan Richards (Article)

Dan Richard's quarterly letter is designed to balance some of the extreme pessimism among many investors. Negative sentiment is understandable given the real challenges facing the U.S. and European economies, but is also a function of the overwhelmingly negative media coverage to which clients are exposed. To balance today's disproportionately negative views, you need hard facts.

2010-10-05 The Information Risk Premium: A New Danger to Client Portfolios by Bob Veres (Article)

Michael Aronstein, who manages the Marketfield Fund, connected two dots that most of us are aware of intuitively, but may not have consciously considered. As Bob Veres writes, Aronstein says that the primary challenge for investment advisors, financial planners and money managers today, which is different from the challenges you faced in the past, is the sheer amount of attention that investors are now able to pay to the ups and downs in their portfolios.

2010-09-21 The One-Sided Fallacy by Richard E. Cripps, CFA (Article)

The current tenor of political debate has amplified one-sided arguments as each party attempts to sell their view to voters. The same polarization has become evident in approaches to investment, and market bears are exhibiting all the classic symptoms of confirmation bias. But we know better than to let these slanted arguments sway our market convictions. As Richard Cripps explains in this guest contribution, there are plenty of reasons to remain invested in equities.

2010-09-14 Identifying Opportunities in the Municipal Bond Market by RidgeWorth Investments (Article)

Ridgeworth Investments shares its perspective on the muni bond market in a recent white paper entitled "Identifying Opportunities in the Municipal Bond Market" which outlines the historical benefits of municipal bonds, the changing market dynamics in 2009 as well as RidgeWorth's outlook for municipal bonds in 2010 and potentially beyond. RidgeWorth concludes that despite a challenging market environment, munis still offer attractive investment opportunities. We thank them for their sponsorship.

2010-08-17 A New Framework for Retirement Income Planning by Manish Malhotra (Article)

In this guest contribution, Manish Malhorta proposes a new framework to solve many problems associated with retirement income planning, one that answers questions investors often ask, such as: "How much retirement income can I have with only a 10% chance of failure?" and "How much do I need to have now to draw $50,000 for 30 years with full certainty?"

2010-08-10 When Active Management Matters by Kenneth R. Solow, CFP and Michael E. Kitces, MSFS, MTAX, CFP (Article)

Financial planners have eagerly awaited any research that could finally, definitively prove - or disprove - the pesky notion that active management is effective. Though no one has yet risen to that challenge, past academic studies have been improperly interpreted to show that portfolio policy, or asset allocation affects portfolio returns far more than active management. As Ken Solow and Michael Kitces write in this guest contribution, the most recent study to tackle the active management debate, by Yale professor Roger Ibbotson, shares two weaknesses with previous research.

2010-08-10 Public Pension Showdown: Actuaries vs. Economists by Charlie Curnow (Article)

Public pensions are severely underfunded, at least according to the economists. Actuaries disagree, and at stake is nearly $2 trillion. We look at why these groups arrive at such different valuations, and which one is likely to be correct.

2010-08-03 Rebuilding Confidence in Stocks by Dan Richards (Article)

These days, there's a cloud of uncertainty over markets, with questions about economic growth, government deficits, the timing and impact of interest rates increases, unemployment levels and the housing market. As Dan Richards writes, this environment is when advisors can bring value, by providing perspective on both sides of the debate about the value that stocks provide at today's levels.

2010-06-29 Winning Clients...By Being Dumb by Justin Locke (Article)

In this guest contribution, Justin Locke says "looking dumb" is a better strategy than trying to be smarter than your clients and prospects. Locke is a professional musician and author of a book we previously reviewed, The Principles of Applied Stupidity, and he outlines a key tactic to persuade prospects.

2010-06-22 Market Changes Affect the Role Fixed Income May Play in Client Portfolios by Janus (Article)

Investment consistency, sector allocation and credit analysis are three of the critical ingredients of successful fixed income management. Janus shares their views on these important topics and how to use this information in your discussions with clients. We thank them for their sponsorship.

2010-06-15 Asset Allocation Matters, But Not as Much as You Think by Robert Huebscher (Article)

The market downturn has caused a rethinking of many core principles underpinning investment advice, chief among them the role of asset allocation. We talk with Yale's Roger Ibbotson about the impact of market returns and active management in explaining return variance and the role of asset allocation going forward.

2010-06-15 Today?s Top Economic Historian: The Path to European Stability by Dan Richards (Article)

Harvard's Niall Ferguson is arguably today's leading economic historian. In this interview with Dan Richards, Ferguson discusses the current troubles and future outlook for Europe. We provide a transcript and a video.

2010-05-11 A Historical Perspective on the Slight Depression by Robert Huebscher (Article)

Armed with textbooks and formulas, economists attack a problem by drawing lines, forming equations and trying to fit data to the real world. Niall Ferguson, a historian by training, thinks you can learn more simply by analyzing what has already happened. So what's a historian's take on the current crisis? Ferguson says it has yet to run its course.

2010-05-11 Talking to Clients about Expected Returns by Dan Richards (Article)

Of all the assumptions that go into clients' retirement plans, none has a bigger impact than the expected return on their investments, says Dan Richards. That number determines how much investors need to save, when they can afford to retire and the kind of lifestyle they can anticipate. Richards provides a context for discussing expected returns with clients.

2010-04-27 The Four Horsemen of Growth: David Kelly?s Guide to Markets by Katie Southwick (Article)

With unprecedented volatility now largely behind us, J.P. Morgan's Chief Investment Strategist David Kelly believes that the economy is entering a period of recovery. To move forward, we must abandon our negative mindsets and focus on opportunities for expansion.

2010-04-06 A Q1 Letter to Send Clients by Dan Richards (Article)

Dan Richards provides the latest in his very popular series of quarterly letters for advisors to send to their clients. This Q1 2010 article combines the attributes he considers essential: a balanced outlook, candor, short enough for clients to get through yet long enough to be substantial, fact-based, and customizable to your own voice.

2010-03-30 Your Clients? Lives Are NOT a Game by Dave Loeper (Article)

The dialog between Roger Schreinerand Dave Loeper continues, with Loeper responding to Lance Paddock's article last week, Game On!. Loeper refutes Paddock's charges, and offers data demonstrating his key point: superior returns and lower risk do not necessarily lead to greater wealth accumulation for clients.

2010-03-30 Not a Lost Decade for Diversified, Balanced Portfolios by Joni L. Clark, CFA, CFP (Article)

Did the last ten years really demolish the foundations of Modern Portfolio Theory and classic investing principles? How did portfolios that stuck to the principles of effective diversification and buy-and-hold investing actually perform during the so-called "Lost Decade?" The answers to both questions is an unqualified "no," writes Joni Clark of Loring Ward in this guest contribution, based on her analysis of a DFA-based strategy.

2010-03-16 No Shell Game? Then What Is It? by Dave Loeper (Article)

Wealthcare's Dave Loeper responds to Roger Schreiner's recent article, It's No Shell Game. Loeper contends that the rules of Schreiner's challenge ensure that Schreiner will win and, from a larger perspective, active management advocates sacrifice their clients' wealth by exposing them to risks those advocates cannot control.

2010-02-05 Discounts and Relative Performance by Rob Arnott of Research Affiliates

Arnott reviews the methodology behind fundamental indexing. Over the short term, fundamental indices take on much greater exposure in volatile markets to companies which underperformed relative to their economic size. This article explores the performance implications of the difference in relative valuation multiples.

2010-01-26 Buffett?s Gold by Emilio Vargas (Article)

Warren Buffett's valuation of Burlington Northern and his use of arguably cheap Berkshire Hathaway stock to purchase it have created a bit of a cacophony among analysts. It seems to some very un-Buffett-like to pay top dollar for an asset and to use precious equity currency to get a deal done. What does Buffett see that others do not? Oddly, the argument made by gold bugs for their asset of choice may hold the answer.

2010-01-19 Letters to the Editor by Various (Article)

Readers responded to a range of topics in our letters to the Editor: our Paul Krugman interview, our article last week on the causes of the financial crisis, our article on the true cost of insuring the uninsured, and our article on costless collars using options.

2010-01-05 The Falling Dollar: Should We Worry? by Elisabeth L. Talbot, CFA (Article)

Over the past several months, it has become increasingly fashionable to refer to the decline of the U.S. dollar as another financial "crisis." Yet, given the current state of the global markets, declaring that the dollar's recent losses amount to a "crisis" is an overstatement, says Elisabeth Talbot in this guest contribution. To the contrary, current conditions surrounding the dollar are arguably supportive of - if not integral to - economic recovery.

2009-12-29 The Top 10 Articles You Didn?t Read (But Should Have) by Robert Huebscher (Article)

We closely monitor which articles draw the most readership. This allows us to fine-tune our content to the preferences of our audience. Reflecting on those articles that were most popular over the last year, however, we believe other articles also deserved your attention. We provide the "Top 10" articles you didn't read - but should have.

2009-12-15 Letters to the Editor ? Morningstar Responds by Various (Article)

Our article last week, Morningstar's Ratings Fail over a Full Market Cycle, drew two responses from readers and a response from Morningstar. John Rekenthaler, Morningstar's VP of Research, says the three-year time period we chose was arbitrary and does not necessarily reflect a full market cycle. We also have a letter regarding our article last week, The Investment Value of Art.

2009-12-15 A Template for a Year-end Letter by Dan Richards (Article)

Many advisors have told Dan Richards they receive a positive response from the quarterly review letters they've sent over the past year based on the templates he has provided. Here's a template that can be a starting point for a year-end review letter.

2009-12-08 Morningstar Ratings Fail over a Full Market Cycle by Robert Huebscher (Article)

When active managers are tested, as they were during the 2008 bear market and 2009 bull market, so are the systems used to predict their performance. Perhaps no system is as widely used as Morningstar's "star" rating system. In an update to a study we originally did two years ago, we show that Morningstar's ratings fail to offer any predictive ability when measured over a full market cycle.

2009-12-01 To Roth or not to Roth, That is the Question by David B. Loeper, CIMA, CIMC (Article)

With the new Roth conversion rules about to be lifted next year and a "one-time special offer" available to allow investors to spread the tax bite of conversion over two years, more and more Roth conversion calculators are showing up every day. Be wary, says Dave Loeper of Wealthcare Capital. If you use one of these calculators, don't say he didn't warn you about how misleading the results can be.

2009-11-17 Bruce Greenwald on Positioning First Eagle?s Funds by Robert Huebscher (Article)

Bruce Greenwald is a professor of finance at Columbia, the Director of Research at First Eagle Funds, and a leading expert on value investing. Last week we published part one of our interview, where he discussed the structural problems in the economy and his forecast for higher unemployment. This week he discusses the positioning of First Eagle's investments, and why Warren Buffett's purchase of Burlington Northern was a mistake.

2009-11-03 The Best Books on Investing by Vitaliy Katsenelson (Article)

Author and fund manager Vitaliy Katsenelson provides us with his list of the best books on investing. It contains six sections: Selling, Think Like an Investor, Behavioral Investing, Economics, Stock Market History, and Books for the Soul.

2009-10-27 Leveraged Index Mutual Funds Evolve to Meet Market Needs by Direxion Funds (Article)

Until recently, leveraged index funds had daily objectives, rebalancing their leverage at the end of each trading day in order to match their stated exposure rate. This characteristic made it necessary for investors to monitor them daily in order to both track and manage the exposure rates applied to their investments in the funds. Direxion Funds has released the first monthly-rebalanced leveraged funds, and they explain how they operate. We thank them for their sponsorship.

2009-10-27 Stay the Course or Plot Another? by Ted A. Ponko, CFA (Article)

Is it reasonable for investors' objectives to change along with major fluctuations in their wealth? In these instances, sticking with the current portfolio may not be the best option - even for long-term investors. In this guest contribution, Ted Ponko of Klein Decisions argues advisors need a reliable way to determine when to stay the course and when to plot another.

2009-09-22 Predictably Irrational - How Investors Frame Decisions by Robert Huebscher (Article)

One of the most provocative sessions at last week's Schwab Impact conference was given by Dan Ariely, who deftly summarized his current research in the important field of behavioral finance. Ariely's message was that, no matter how good their intentions or how deep their experience, people - investors specifically - consistently make the wrong decisions. They behave irrationally, and predictably so.

2009-09-01 Shiller P/E's and Predicting Returns by Joseph A. Tomlinson, FSA, CFP (Article)

It becomes clearer every day that the stock market does not follow a random walk and that there may be some predictability in long-term returns. But there's little agreement on how best to make such predictions. In this guest contribution, advisor Joe Tomlinson takes a look at using price/earnings ratios to predict future stock market performance.

2009-09-01 Dougal Williams Responds: The Failure of Asset Allocation Funds by Dougal Williams, CFA (Article)

Dougal Williams' article two weeks, A Crash Course in Investing: Six Lessons from the Market Meltdown, also drew comments from a reader, who challenged the methodology Williams used when he argued that asset allocation funds have failed to deliver out-performance. Williams responds to those criticisms and offers new evidence of the failure in that fund category.

2009-08-25 Should Investors Hold More Equities Near Retirement? by Ron Surz (Article)

A just-published paper argues that investors should hold more equities as they near retirement, contrary to conventional wisdom and to the glide paths employed by the target date fund industry. Ron Surz examines this research, and argues that the authors of the paper failed to properly consider the risks inherent in such a strategy.

2009-08-25 Letters to the Editor by Various (Article)

In our letters to the Editor, a reader responds to Dougal Williams' article last week, A Crash Course in Investing: Six Lessons from the Market Meltdown, and other readers respond to our article on Actively Managed TIPS and to an Advisor Market Commentary on healthcare policy.

2009-08-18 Actively Managed TIPS? by Robert Huebscher (Article)

When PIMCO talks, the market listens. But we mustn't forget that the bulk of PIMCO's revenue comes from actively managing bond portfolios so, when they claim that alpha can be earned by actively managing TIPS, a healthy dose of scrutiny is warranted. Our article shows why that scrutiny is justified.

2009-08-04 Letters to the Editor by Various (Article)

In our letters to the Editor, readers respond to last week's article, How Long is the Long Run?, Geoff Considine's article, The Retirement Portfolio Showdown: Jeremy Siegel v. Zvi Bodie , and Ted Wong's article, Moving Average: Holy Grail or Fairy Tale - Part 3.

2009-07-21 The Retirement Portfolio Showdown: Jeremy Siegel v. Zvi Bodie by Geoff Considine, Ph.D. (Article)

When investing for retirement over long time horizons, advisors can choose from two apparently conflicting approaches. They can follow the advice of Wharton professor Jeremy Siegel, who has steadfastly advocated equity-centric portfolios, most notably in his highly popular book, Stocks for the Long Run. Or they can listen to Boston University professor Zvi Bodie, who says equities are simply too risky over the long term, and the core of a retirement portfolio should be Treasury Inflation Protected Securities (TIPS). Geoff Considine's article shows how to resolve this conflict.

2009-07-21 Q2 2009 Performance among the Most Popular Mutual Funds in the Advisor Perspectives Universe by Robert Huebscher and Mary Pitek (Article)

Each quarter we analyze changes in the Advisor Perspectives database - a $50+ billion universe of high- and ultra-high net worth assets managed by Registered Investment Advisors. Our analysis has three parts. We look at changes in asset allocation, the performance of the most popular mutual funds, and the mutual funds that showed significant gains or losses in popularity during the quarter.

2009-07-07 The True Cost of Volatility by Dan Richards (Article)

Most advisors and investors hate volatility - the up and down hits to clients' long term goals. (To be more accurate, we hate the downs - the ups we don't mind so much.) Dan Richards discusses the big price clients pay for that volatility - not just stress and lost sleep at night, but volatility in portfolios that induces behavior that costs many investors serious money.

2009-06-23 A Mid-Year Letter to Your Clients by Dan Richards (Article)

Even with the 40% market recovery since March, many investors are still very anxious and looking for guidance and direction from their advisors. One way to respond to this demand is by sending clients a mid-year letter with your thoughts on where we are today and an outlook for the period ahead. Dan Richards has prepared a template for you to use.

2009-06-16 Moving Average: Holy Grail or Fairy Tale - Part 1 by Theodore Wang (Article)

Buying and holding a diversified portfolio works well during good times, but falls short when supposedly uncorrelated asset classes drop in unison in bear markets. Are there alternative investment strategies that work for all seasons? Ted Wong evaluates strategies using moving averages to determine their effectiveness.

2009-06-09 Changes in Asset Allocation by Robert Huebscher and Mary Pitek (Article)

Each quarter we review changes in the Advisor Perspectives (AP) Universe, which represents $50 billion in high-net worth assets managed by RIAs. Our analysis looks at changes in asset allocation, the mutual funds and ETFs that gained or lost market share, and the performance of the most popular actively managed mutual funds. This analysis focuses on changes in asset allocation.

2009-06-09 Changes in the Most Popular Mutual Funds by Robert Huebscher (Article)

Each quarter we review changes in the Advisor Perspectives (AP) Universe, which represents $50 billion in high-net worth assets managed by RIAs. Our analysis looks at changes in asset allocation, the mutual funds and ETFs that gained or lost market share, and the performance of the most popular actively managed mutual funds. This analysis focuses on the most popular mutual funds.

2009-06-09 Q1 2009 Performance among the Most Popular Mutual Funds in the Advisor Perspectives Universe by Robert Huebscher and Mary Pitek (Article)

Each quarter we review changes in the Advisor Perspectives (AP) Universe, which represents $50 billion in high-net worth assets managed by RIAs. Our analysis looks at changes in asset allocation, the mutual funds and ETFs that gained or lost market share, and the performance of the most popular actively managed mutual funds. This analysis focuses on performance across the most popular mutual funds.

2009-05-26 The Importance of Being Active by C. Thomas Howard, PhD (Article)

New research from Tom Howard of Athenainvest shows buying and holding the typical active US equity fund is a recipe for underperformance. On the other hand, Howard shows that funds actively placing stock selection bets and enjoying recent return success earn increasingly superior returns and experience an improved likelihood of beating the market as the fund ages. Howard argues for the importance of being truly active as a fund manager.

2009-05-26 The Big Issues Facing the Hedge Fund Industry by Robert Huebscher (Article)

Last week, the Argyle Executive Forum hosted its 2009 Hedge Fund Leadership Forum in New York. This event attracted more than 200 leaders from the hedge fund industry, with a series of panel discussions centered on the key issues managers now face. Although the sessions were "off the record," we have summarized the key themes from the discussions.


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