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Why do investors keep buying actively managed funds?

CBS News

An overwhelming body of evidence shows that actively managed mutual funds underperform their appropriate risk-adjusted benchmarks. In addition, little to no evidence points to persistence of performance beyond the randomly expected, which means past performance isn’t prologue. That’s the reason for one of the great puzzles in finance: Why do investors continue with such great…

Can past performance predict future performance?

CBS News

Most investors are well aware of the SEC’s warning that past performance isn’t an indicator of future performance. That warning often leads to questions like: “If past performance isn’t predictive, why do you believe that the past outperformance of value stocks over growth stocks and small stocks over large stocks is predictive?” The answer lies…

Is it OK to keep your assets with one fund family?

CBS News

One of the more frequently asked questions I get is about the need to diversify across mutual fund or exchange-traded fund providers: Is there risk in having all your eggs in one fund family’s basket? This question became even more prevalent after the Bernie Madoff fraud was exposed. We’ll begin to address this issue by…

How the mutual fund graveyard can hurt investors

CBS News

The tendency for mutual fund companies to drop poorly performing funds when calculating historical return data is a major problem for unsuspecting investors, and it’s known as survivorship bias. An investor selecting mutual funds today is choosing from a list that excludes the losers that have been either closed or merged out of existence so…

Is it OK to keep your assets with one fund family?

CBS News

One of the more frequently asked questions I get is about the need to diversify across mutual fund or exchange-traded fund providers: Is there risk in having all your eggs in one fund family’s basket? This question became even more prevalent after the Bernie Madoff fraud was exposed. We’ll begin to address this issue by…

How the mutual fund graveyard can hurt investors

CBS News

The tendency for mutual fund companies to drop poorly performing funds when calculating historical return data is a major problem for unsuspecting investors, and it’s known as survivorship bias. An investor selecting mutual funds today is choosing from a list that excludes the losers that have been either closed or merged out of existence so…

Are You Too Conservative With Your Investments

CBS News

Investors’ behavior can be heavily influenced by their experiences. For example, the financial crash of 1929 and the ensuing Great Depression permanently shattered many investors’ belief in buying stocks. A whole cohort of potential investors stayed away from equities for a very long time, if not permanently. Similarly, the “lost decade” of 2000-2009, when the…

Are you too conservative with your investments?

CBS News

Investors’ behavior can be heavily influenced by their experiences. For example, the financial crash of 1929 and the ensuing Great Depression permanently shattered many investors’ belief in buying stocks. A whole cohort of potential investors stayed away from equities for a very long time, if not permanently. Similarly, the “lost decade” of 2000-2009, when the…

Don’t Be a Member of the Hedge Fund Club

CBS News

2013 was another great year for the global hedge fund industry. Net inflows were almost $64 billion and total assets reaching $2.63 trillion. Unfortunately, investors in hedge funds haven’t fared as well as the purveyors. Thus, we have one of the more puzzling anomalies in finance — the continued growth of an industry that for…

10 “Sure Things” for 2014: First-Quarter Review

CBS News

Now that we’ve got one quarter of 2014 behind us, it’s time to review how some financial pundits’ “sure thing” predictions for this year are turning out. Keep in mind that if they were “sure things,” they should all (or at least most) be coming true. We’ll give a score of +1 for a forecast that’s coming…

Study Puts Another Nail in Active Management’s Coffin

CBS News

An ongoing debate among investors is whether an active or passive strategy is most likely to give you the best results. Twice a year, Standard & Poor’s releases their active vs passive score card (officially called the S&P Indices Versus Active Fund report, or SPIVA for short.) The analysis compares actively managed funds against S&P index benchmarks,…

Asset Allocation Guide: Value vs. growth

CBS News

The asset allocation process is somewhat like a Russian nesting doll. What appears as a sole, simple object actually comprises a great deal. Like each doll, one after the next, a portfolio consists of detailed, intricate workings. We’ve already seen this in earlier articles in our asset allocation series, where we covered some essentials, namely,…

Asset Allocation Guide: Small-cap vs. large-cap

CBS News

We’re getting closer to the finish line in our series of articles concerning asset allocation. So far, we’ve covered how to analyze your ability, willingness and needto take risk — and what do when one or more of those factors conflict. Then we moved to the equity portion of your portfolio, starting with a discussion aboutdomestic vs. international stocks. Then…

Asset Allocation Guide: U.S. vs. International Equity

CBS News

In our ongoing series looking at asset allocation issues, we’ve already covered some essentials, namely, how to analyze your ability, willingness and need to take risk — and what do when one or more of those factors conflict. Figuring out where you fit along the risk spectrum will help you figure how much of your portfolio to put into stocks. Now,…

Asset Allocation Guide: How much risk do you need?

CBS News

The first two posts in our series on asset allocation focused on investors’ ability and willingness to take risk. Today, we turn our attention to the third of our three tests, the need to take risk. The need to take risk is determined by the rate of return required to achieve financial objectives. The greater the rate of return…

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