For over ten years we have preached the the merits of the efficient markets hypothesis and why investors should use low-cost, tax-efficient, broadly diversified asset class funds in an asset allocation plan tailored to their unique concerns, goals and risk tolerance. We believe this strategy is the optimal way to grow and protect wealth. And many of the greatest minds in modern finance agree:
"It is nearly always unwise to act on insights that you think are your own but are in fact shared by millions of others."
--John Bogle, Founder of The Vanguard Group
"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees."
--Warren Buffet
"Investors should remember that excitement and expenses are their enemies."
--Warren Buffet
"Again, the problem is not that investment research is not done well. The problem is that it is done so well by so many...that no single group of investors is likely to gain a regular and repetitive useful advantage over all other investors."
--Charles Ellis, Vanguard Director and author of "Winning the Loser's Game"
"I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities."
--Benjamin Graham, Warren Buffet’s mentor and "Father" of security analysis
"All the time and effort that people devote to picking the right fund, the hot hand, the great manager, have in most cases led to no advantage."
--Peter Lynch, author of "Beating the Street"
"Don't try to beat the market, and don't believe anyone who tells you they can—not a stock broker, a friend with a hot stock tip, or a financial magazine article touting the latest mutual fund."
--Burton Malkiel, Professor of Economics, Princeton University
"Don't try to beat the market. Put your savings into some indexed mutual funds, which will make you just as much money (if not more) at much less cost."
--William Sharpe, Professor of Finance, Stanford University, Nobel Prize in Economics
"Invest in index funds. Your odds of beating the market in an actively managed fund are less than 1 in 100."
--David Swensen, Chief Investment Officer, Yale Endowment Fund
"As a general rule of thumb, the more complexity that exists in a Wall Street creation, the faster and farther investors should run.”
--David Swensen
Quotes on the Lighter Side
"Every day, self-proclaimed stock market "experts" tell us why the market just went up or down, as if they really knew. So where were they yesterday?"
--Anonymous
"If stock market experts were so expert, they would be buying stock, not selling advice."
--Norman R. Augustine
"There are two kinds of investors, be they large or small: those who don't know where the market is headed, and those who don't know that they don't know. Then again, there is a third type of investor--the investment professional, who indeed knows that he or she doesn't know, but whose livelihood depends upon appearing to know."
--William Bernstein
"Prediction is very difficult, especially if it is about the future."
--Niels Bohr, 1922 Nobel Laureate
"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."
--Warren Buffett
"In the business world, the rearview mirror is always clearer than the windshield."
--Warren Buffett
"...there's no better advice on how to live longer than to quit smoking and buckle up when driving. The lesson: advice doesn't have to be complicated to be good."
--Charles Ellis
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute."
--William Feather
"There are two times in a man's life when he should not speculate: when he can't afford it, and when he can."
--Mark Twain
Wednesday, July 27, 2011
Monday, July 25, 2011
58 Percent of Investors Have Lost Faith in the Stock Market
Surveys are beginning to record what we all know is true. The financial crisis has had a profound impact on investors. In fact, 58 percent of investors have lost faith in the stock market, according to a survey of 1,274 Americans conducted by Prudential Financial. Forty percent say they have a conservative portfolio, up from 33 percent before the recession, and 44 percent say they are unlikely to ever again invest in stocks. Only 37 percent describe their portfolios as aggressive, down from 46 percent prior to the recession.
While 70 percent of the respondents said they have taken steps to improve their financial situation by saving more or reallocating their investments, the majority have moved their money to more conservative investments. This move to safety creates a new risk that they might fall short on achieving their retirement goals.
For most investors, the biggest threat to a financially secure retirement is not short-term market volatility, but inflation. Consider this: Even if inflation stays at the historical level of 3 percent, the cost of almost everything will double in 24 years. That means if you are living on $80,000 in 2011, by 2035, you’ll need $160,000 to maintain your standard of living. Accordingly, as we plan for retirements to span greater than three decades, it’s clear that portfolios comprised solely of bonds and cash will not protect against inflation. Today, the increased length of retirement requires an allocation to global equities for growth potential and diversification.
Yet, investors may not be as reluctant to invest in equities as they report. According to Strategic Insight, year-to-date cash contributions through April to equity and hybrid funds have surpassed inflows to fixed income funds for the first time since the financial crisis. Equity funds netted $110 billion through April, mixed funds $30 billion and bond funds $100 billion as investors acknowledge higher equity allocations to meet their long-term financial objectives.”
While 70 percent of the respondents said they have taken steps to improve their financial situation by saving more or reallocating their investments, the majority have moved their money to more conservative investments. This move to safety creates a new risk that they might fall short on achieving their retirement goals.
For most investors, the biggest threat to a financially secure retirement is not short-term market volatility, but inflation. Consider this: Even if inflation stays at the historical level of 3 percent, the cost of almost everything will double in 24 years. That means if you are living on $80,000 in 2011, by 2035, you’ll need $160,000 to maintain your standard of living. Accordingly, as we plan for retirements to span greater than three decades, it’s clear that portfolios comprised solely of bonds and cash will not protect against inflation. Today, the increased length of retirement requires an allocation to global equities for growth potential and diversification.
Yet, investors may not be as reluctant to invest in equities as they report. According to Strategic Insight, year-to-date cash contributions through April to equity and hybrid funds have surpassed inflows to fixed income funds for the first time since the financial crisis. Equity funds netted $110 billion through April, mixed funds $30 billion and bond funds $100 billion as investors acknowledge higher equity allocations to meet their long-term financial objectives.”
Monday, July 18, 2011
401(k) Plans Hit the Big 3-0
It’s been three decades since the 401(k) arrived on the retirement saving scene. And to celebrate the tax-deferred account’s milestone, many U.S. companies that eliminated their 401(k) matching contributions during the Great Recession are beginning to restore this valuable benefit.
According to the consulting firm Towers Watson, during the recent recession, almost one in five U.S. companies with at least 1,000 workers suspended 401(k) matching contributions. Now, many of those companies are reinstating the perk – albeit often at a reduced level. Today, the once standard 3% match is considered generous. In addition to offering smaller matches, some companies are linking their contributions to corporate profits or requiring employees to reach a particular dollar level in their account before any matching occurs.
With traditional pension plans going the way of the drive-in movie and concerns mounting over the long-term health of Social Security, 401(k) accounts are a critical leg to the retirement stool. According to the Employee Benefit Research Institute (EBRI), 79 percent of eligible workers (36 percent of all workers) say they participate in retirement savings plan with their current employer. Furthermore, 28 percent of participants report that they have increased the percentage of their salary that they contribute to the plan in the past year, and just 4 percent report they decreased the percentage. EBRI also found that workers who currently participate in this type of plan are more than twice as likely as those who do not to report retirement savings and investments of at least $50,000 (52 percent vs. 23 percent).
While 401(k) participation levels have certainly increased since the plan’s introduction and held steady even throughout the recent financial crisis, the industry can do a better job with education. In fact, EBRI found less than half of workers (42 percent) report they and/or their spouse have tried to calculate how much money they will need to save to secure a comfortable retirement. Disappointingly, this percentage is lower than the 53 percent recorded in 2000 and the 47 percent in 2008.
According to the consulting firm Towers Watson, during the recent recession, almost one in five U.S. companies with at least 1,000 workers suspended 401(k) matching contributions. Now, many of those companies are reinstating the perk – albeit often at a reduced level. Today, the once standard 3% match is considered generous. In addition to offering smaller matches, some companies are linking their contributions to corporate profits or requiring employees to reach a particular dollar level in their account before any matching occurs.
With traditional pension plans going the way of the drive-in movie and concerns mounting over the long-term health of Social Security, 401(k) accounts are a critical leg to the retirement stool. According to the Employee Benefit Research Institute (EBRI), 79 percent of eligible workers (36 percent of all workers) say they participate in retirement savings plan with their current employer. Furthermore, 28 percent of participants report that they have increased the percentage of their salary that they contribute to the plan in the past year, and just 4 percent report they decreased the percentage. EBRI also found that workers who currently participate in this type of plan are more than twice as likely as those who do not to report retirement savings and investments of at least $50,000 (52 percent vs. 23 percent).
While 401(k) participation levels have certainly increased since the plan’s introduction and held steady even throughout the recent financial crisis, the industry can do a better job with education. In fact, EBRI found less than half of workers (42 percent) report they and/or their spouse have tried to calculate how much money they will need to save to secure a comfortable retirement. Disappointingly, this percentage is lower than the 53 percent recorded in 2000 and the 47 percent in 2008.
Monday, July 11, 2011
Dodd-Frank Debated
In a recent news article, “Old Fears Resurface as Lawmakers Confront Basel III, Dodd-Frank Changes,” Donna Borak reported that U.S. lawmakers at a House Financial Services Committee recently addressed whether requirements of the Dodd-Frank Act, combined with tougher international capital and liquidity rules are driving financial institutions overseas.
The article offered dueling perspectives. Rep. Shelley Moore Capito, R-W.Va., told top regulatory officials, "I think failing to examine the aggregate cost of compliance with Dodd-Frank could lead to job losses and, in the worst case, a downgrade of the United States as a financial center
Conversely, Lael Brainard, Undersecretary of the Treasury for International Affairs stated, “There are some who would argue that the United States is moving too fast on financial reform, that we should slow it down, wait to see what other countries implement. I don't agree. By moving first and leading from a position of strength, we are elevating the world's standards to ours."
Borak also quotes Brainard as stressing that in passing Dodd-Frank, that “policymakers were not choosing between stability and growth, as critics charge” The “real point,” she says, “is that we will have much healthier growth if, in fact, we put in place a safe and sound financial system."
I couldn’t agree more, but am sure that the Dodd-Frank debate will continue – especially later this month when the SEC presents to Congress its cost benefit analysis of requiring that broker-dealers be subject to the same fiduciary standard of care as investment advisors. That’s something all investors deserve.
The article offered dueling perspectives. Rep. Shelley Moore Capito, R-W.Va., told top regulatory officials, "I think failing to examine the aggregate cost of compliance with Dodd-Frank could lead to job losses and, in the worst case, a downgrade of the United States as a financial center
Conversely, Lael Brainard, Undersecretary of the Treasury for International Affairs stated, “There are some who would argue that the United States is moving too fast on financial reform, that we should slow it down, wait to see what other countries implement. I don't agree. By moving first and leading from a position of strength, we are elevating the world's standards to ours."
Borak also quotes Brainard as stressing that in passing Dodd-Frank, that “policymakers were not choosing between stability and growth, as critics charge” The “real point,” she says, “is that we will have much healthier growth if, in fact, we put in place a safe and sound financial system."
I couldn’t agree more, but am sure that the Dodd-Frank debate will continue – especially later this month when the SEC presents to Congress its cost benefit analysis of requiring that broker-dealers be subject to the same fiduciary standard of care as investment advisors. That’s something all investors deserve.
Tuesday, July 5, 2011
Investing is Boring
I came across an article in the Financial Post that I thought was worth sharing. The article was titled Investing is Boring: If You Want Excitement, Go to Vegas.
The entire article is well worth reading but I particularly liked the following quote: "timing the market is impossible, forecasts are for the gullible, and stock-picking is a mug’s game."
The entire article is well worth reading but I particularly liked the following quote: "timing the market is impossible, forecasts are for the gullible, and stock-picking is a mug’s game."
Recovery? What Recovery?
Soft. Stalled. Uneven. These are the words we’ve read in headlines that describe the market’s recovery. The economy grew at just an 1.8% annual rate in the first quarter of this year, down from 3.1% in the fourth quarter of 2010. Experts agree that two factors critical to any market recovery have been absent in our transitioning market. To get the recovery into high gear, home prices must stop declining and begin their ascent. Second, consumers, the driving engine of our economy, must regain their confidence and begin to spend more freely.
According to Susan M. Wachter, a Wharton real estate professor, we are three to five years away from being back to what might be considered the “new normal” in the commercial and residential real estate markets. She points out that construction is a job-intensive sector, and therefore, the sector that generally leads the job recovery. Without the boost from robust construction activity, she says the overall recovery is “far more vulnerable to other negatives.”
Mark Zandi, chief economist and cofounder of Moody's Economy.com. put a graphic spin on the market’s recovery. He says to have a vibrant recovery and economic expansion, housing has to go from “being a headwind to a tailwind.” Yet, with average housing prices having declined for six consecutive months, we have a ways to go before that happens.
As for consumer confidence, a survey by the Certified Financial Planner Board of Standards found that a majority of Americans are still experiencing negative fallout from the recession. Fifty-five percent say they have delayed a big purchase and 45 percent have dipped into their savings to stay afloat in tough markets.
However, The CFP Board of Standards survey also recorded hope: 83 percent of respondents said their own personal financial situation will remain the same or improve in the coming year. That optimism is a powerful first step in jumpstarting consumer spending and getting the economy moving full steam ahead.
According to Susan M. Wachter, a Wharton real estate professor, we are three to five years away from being back to what might be considered the “new normal” in the commercial and residential real estate markets. She points out that construction is a job-intensive sector, and therefore, the sector that generally leads the job recovery. Without the boost from robust construction activity, she says the overall recovery is “far more vulnerable to other negatives.”
Mark Zandi, chief economist and cofounder of Moody's Economy.com. put a graphic spin on the market’s recovery. He says to have a vibrant recovery and economic expansion, housing has to go from “being a headwind to a tailwind.” Yet, with average housing prices having declined for six consecutive months, we have a ways to go before that happens.
As for consumer confidence, a survey by the Certified Financial Planner Board of Standards found that a majority of Americans are still experiencing negative fallout from the recession. Fifty-five percent say they have delayed a big purchase and 45 percent have dipped into their savings to stay afloat in tough markets.
However, The CFP Board of Standards survey also recorded hope: 83 percent of respondents said their own personal financial situation will remain the same or improve in the coming year. That optimism is a powerful first step in jumpstarting consumer spending and getting the economy moving full steam ahead.
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