In the past few years, some investors have asked us whether they should replace a portion of their high-quality bonds or bond mutual fund holdings with strategies ranging from high-dividend stocks to oil and gas master limited partnerships because “rates are low.” We have generally counseled investors that every one of these strategies involves substantially more risk than high-quality bonds and that a much better way to increase the level of risk that you are taking is to increase your allocation to a diversified, low-cost stock fund portfolio.
Everyday appears to bring a new development on the situation surrounding the turmoil in Greece and the Eurozone. With that in mind, below you’ll find a link to a special posting by our strategic partner Dimensional Fund Advisors (DFA).
Inasmuch as we utilize DFA Funds to a great extent in our client portfolios and in our own 401(K) Profit-Sharing Plan, the sentiments expressed in the report greatly reflect how we view this situation and what we are telling our clients on our conversations with them.
Download Report (pdf, 452kb)
Vanguard recently announced that it would be closing its high-yield corporate fund “effective immediately” and that the fund had received “approximately $2 billion” of flows over the past six months. While growth of Vanguard’s assets under management is almost always a good thing, a fund shuttering its doors to new flows makes one wonder just how frothy credit markets have become. Let’s take a step back, though, and look at high-yield bonds as an asset class. Many investors simply don’t understand the returns that high-yield bonds have historically generated or just how closely correlated they are with the equity markets.
The Eurozone debt crisis is now in its third year, and we want to share our perspective on recent developments. It now appears more likely than ever that Greece may exit the Euro currency, and you may be wondering how such a development would affect the markets and our approach to investing. (more…)
More investment options can mean more peril
Investing is complicated for everyone, but as you amass more wealth and have more investment choices, it only gets more complex. As it turns out, having more choices isn’t always better; it often means more twists, tricks, and traps. Here are six potential pitfalls to carefully avoid:
Taxes are often considered a necessary evil. The topic evokes strong emotions. How we perceive taxes and how we feel about paying them are complex issues.
Wealth counselor and psychotherapist Marilyn Wechter shares insights into how parents can better communicate with their children about the topics of money and wealth. Marilyn also offers practical tips on establishing effective allowances and budgets. (more…)
It can be hard to hear the best course of action during tough market times may be to do nothing. It can be even harder to repeatedly hear the message as things seem to get worse. But it is a message we would not repeat if we did not truly believe it was in your best interests. The following discusses why our message is not wavering despite market conditions.
According to Prof. Steve Horwitz, one contemporary myth is that the cost of living has consistently risen over the past century. Sure, prices are higher than before, but that shouldn’t be the only factor considered. One way of avoiding inflationary distortions is to look at the amount of labor hours required to make a purchase. Watch this video for some surprising facts.
Burton Malkiel, professor emeritus of economics at Princeton University and acclaimed author of “A Random Walk Down Wall Street,” addressed this question on the opinion page of the Wall Street Journal today. We recommend you read his entire column. Some excerpts follow:
“I think not….I believe it would be a serious mistake for investors to panic and sell out. There are several reasons for optimism.”
“First, I believe stocks today are cheap.”
“Moreover, the structure of U.S. corporate earnings increasingly reflects economic activity abroad…[which] is more important than the inability of Europe to get its house in order and the paralysis in the U.S. and Japan.”
“And for those who believe that the decline in the stock market reliably predicts a new recession, remember the famous dictum of the late economist Paul Samuelson: ‘The stock market has predicted nine of the last five recessions.’ “
“No one can tell you when the stock market will end its decline…. We have abundant evidence that the average investor tends to put money into the market at or near the top and tends to sell out during periods of extreme decline and volatility… the average investor has earned substantially less than the market return, in part from bad timing decisions. My advice for investors is to stay the course.”
For additional perspective, we recommend you read Larry Swedroe’s latest blog post,
“How Markets Have Responded to Past Sovereign Downgrades.”