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Each quarter the principals at Portfolio Solutions hold a client conference call to discuss the economy, the market and investment strategy. Follow the link above to listen to previous calls.
Each year we analyze four primary drivers of market returns: risk as measured by volatility, expected earnings growth based on expected long-term GDP, market implied inflation based on the spread between long-term Treasury Bonds and TIPS, and current cash payouts from interest and dividends on bond and stock indexes. These factors are used in a valuation model to create an estimate for risk premiums over the next 30 years. In a sense, these returns reflect in each asset class what the market is estimating will be a fair payment over T-bills at each level of risk. We use these return estimates to create asset allocations that best fit our clients needs.
Follow the link to www.RickFerri.com. This is the blog site of Portfolio Solutions founder Richard Ferri. It has been active since November 2011.
To view Forbes.com articles by founder Richard Ferri published after October 2010, click the above link or go to http://blogs.forbes.com/rickferri/.
Follow this Forbes link to read Forbes.com articles published prior to October 2010. Some of these articles are also available below.
With index funds and ETFs offering diversification at lower cost, actively managed funds have lost their original purpose. Read the entire article on Forbes.com.
How investment advisors use the wrong benchmarks to make poor performance look good. Read the entire article on Forbes.com.
Tale of four friends shows the value of regular rebalancing. Read the entire article on Forbes.com.
The odds are against picking a winning, actively managed mutual fund and the payouts don't justify the poor odds. Read the entire article on Forbes.com.
The swings back and forth between active managers performing OK and then performing poorly does not mean managers are smart and then become dumb; it means the methods for measuring performance needed fixing. I am happy to write that measurement analysis has changed since the days when everything was measured against the S&P 500. Mutual fund analysis has become more precise; and this is not good news for active managers.
Read the entire article on Forbes.com
The Wilshire US Micro-Cap index was up 47.6% in 2009. You may think that with micro-cap returns like these, micro-cap index fund investors would be jumping for joy. But they're not. Why? Because the returns of all micro-cap index funds were well below these returns. The problem is that there are no true micro-cap index funds or ETFs. They don't exist.
Read the entire article on Forbes.com
There are currently more than 100 investment advisors marketing model ETF portfolios and many more planning to enter the fray. With all these untested models being sold to the public, it begs the question, "Is anyone conducting due diligence on these advisors and their ETF models?" At this time, the answer is no.
Read the entire article on Forbes.com
We all agree that U.S. stocks were not a fun ride in the past decade, but that is not the most important question. Rather, the questions to ask are these: How did you perform over the past decade, and how did a diversified portfolio of index funds perform over the same period? Index fund investors who remained disciplined and stuck to a simple strategy of diversification and rebalancing fared pretty well.
Read the entire article on Forbes.com
"Core and Explore", also known by "Core and Satellite," "Barbell," "Core Plus" and a variety of other witty names suggests that index funds (or ETFs) work best in large and liquid markets and that actively managed funds work best in small and less liquid markets. Accordingly, a combination of index funds and active management generates higher returns than an all index fund portfolio. This theory is nonsense. Mixing index and actively managed funds should be called ''Core and Pay More'' because that is what happens to investors who pursue this approach. Read the Forbes article HERE.
The line-up of newfangled index funds and ETFs that has been launched in recent years is not your traditional low-cost, benchmark-index variety that we all know and love. Rather, these are heavy duty "beat the market" active management strategies, complete with high fees and high turnover. These SPINdexes are quite different than traditional index funds. Read the entire story HERE in Forbes.
Perhaps we should listen to the experts on television or pay an adviser to tell us what will happen to the market next? That would save us a lot of time, but these gurus do not provide reliable answers. They may know more than you about the basics of markets and investing, but they are just as likely to be wrong as they are right. See this Forble's article HERE.
Inflation is probably not a big threat to U.S. investors. The risk is a loss of confidence by our trading partners who hold trillions of dollars in U.S. Treasury bonds. If our trading partners decide not to buy our newly issued bonds, or worse, decide to sell the bonds they currently hold, the supply of U.S. government debt washing around the global financial system will increase exponentially. The only way to make U.S. debt attractive again is for real interest rates to go up substantially to match the level of perceived risk in U.S. obligation. That is the big risk for TIPS investors To read more, follow THIS LINK to Forbes.com
Age plays an important role in determining asset allocation. However, can you determine portfolio asset allocation based solely on a client’s chronological age? The general consensus is yes, the older you get, the less risk you should take. But is this naive model enough? Young people tend to have more similar financial situations and could use age in bonds. Older people have more issues and adjustments to the model are appropriate. Read An Age Old Question by Richard Ferri and Brigham Young professor Craig Israelsen. Published in Financial Planning Magazine.
There are good reasons to change the asset allocation in your portfolio, but a volatile stock market is not one of them. This short paper explains when a change to asset allocation is prudent. It also explains how to change your allocation if you become overly emotional during a down market.
Comparing exchange-traded funds to traditional open-end mutual fund can be complex, especially when it comes to costs. To ETF or Not to ETF is a guide to understanding the pros and cons of investing in one or the other, or both.
A short explanation of a novel index classification methodology. The article explains the difference between benchmark indexes and strategy indexes, and introduces Index Strategy Boxes that map the index product universe by categorizing funds based on the way an underlying index selects securities and weights securities.
Index investing is booming, and it is revolutionizing the way people manage their portfolios. Investors have become overwhelmed and confused with all the different index funds available. This paper examines the burgeoning index fund marketplace, and introduces a new categorization system that will help investors understand how various indexes are constructed and maintained, and if the new methodologies are right for them.
ETFs expenses have been increasing over the years as this once a no-frills low-cost 'market index' product has grown into a full fledged actively managed products based on 'strategy indexes'. The ABCs of ETF – Alpha, Beta and Cost examines the correlation between the complexity of strategy and rising index fund costs.
BUY THE NUMBERS research reports offer periodic highlights and insight into different areas of investment analysis and portfolio management. The purpose of our research is to educate and inform investors rather than to offer specific advice. Three reports are available annually in the fouth quarter.
> Economic Analysis PDF
> Asset Class Valuations PDF
> Asset Class Correlations PDF
The presidential election cycle asserts that major market changes can be predicted based on the U.S. presidential election cycle. We looked at the returns of the S&P 500 index from 1948 to the present to show how the cycle works. We also compare the returns of the Clinton and Bush administrations to show whether the cycle has been accurate over the last six years.
1/1/1999
How to use total market index funds to create tax losses in a personal account while avoiding a wash sale.
7/7/2000
How much should you pay for advice? Many advisors tout the virtues of low mutual fund fees and commissions, but that discussion rarely extends to their own fee. The average advisor charges 1% of assets under management, and that is a bad deal for investors.
10/12/2000
How much should you invest in the stock market? This article explains the asset allocation process step by step. It is a must read for all serious investors.
12/15/2000
History shows that most investors simply cannot handle the risk of an all-stock portfolio, all of the time. Bonds provide stability and safety of income.
11/19/2001
Predicting the market is never easy and never accurate. There are too many variables and too much uncertainty. Nevertheless, we must try to calculate expected returns so that we have a guide to use when planning a portfolio.
The price-to-earnings ratio (P/E) is probably the most often used S&P 500 valuation indicator.Peak earnings P/E uses that highest earnings number in an economic cycle to calculate P/E. Peak earnings allow investors to ‘look through’ economic downturns to the better prospects and higher earnings that lay ahead.
3/25/2002
Business is tough for the active mutual fund companies, especially since index funds are catching on with the public. Who can blame the trustees of active fund companies for trying to spice up the performance of their funds by using an assortment of reporting techniques?
9/1/2000
There is a growing disparity between asset allocations in individual 401(k) accounts and acceptable risk. This could lead to a disaster for employees and employers.
8/7/2001
Dimensional Fund Advisors (DFA) funds should be available to all investors, not just the clients of investment advisors.
