Your Q3 2017 Report is Here

We’re having a great year. Of course, that will change and the markets will inevitably go down. Our models are up about 6 to 13% for the year.  The world outside USA is strong at 21%. This asset class is overdue – it’s been depressed for quite some time. For the quarter, our models were up from about 2% to 5%. The rest of the world and small stocks were the winning asset classes at 6.2% and 5.7% for the quarter.  Specifically under the heading of rest of the world, Emerging Markets was up around 8%. See our Model summary and trends here. See our detailed Q3 Global Report here. Call us with...

A Slight Tweak made to our Model Portfolio Designs

We’re talking a really small tweak here. When you model these changes going back 17+ years, the impact is minor. So, nothing to write home about. This goes back to changes we made in the last year or so. In the last year we decided, with the apparent future increases expected in interest rates, to reduce our already low exposure to fixed income with moderate term length to those of only short term length. To accomplish that, we switched out a fund. DFA Intermediate Term Extended Quality was replaced with DFA Short Term Extended Quality and we made this change across all 8 model portfolios.  (Note that the 100% equity portfolio has no fixed income, so the change didn’t impact it.) The Short Term fund would fluctuate less in different interest rate environments. It would have slightly less overall return – although in the short “increasing interest rate environment” expected it would perform better than Intermediate Term. So how are we modifying our approach? The volatility in our most aggressive portfolios, since they have a very high percentage of stock – is driven by stock not by the small percentage in bonds. Therefore we will keep the Intermediate Term bonds in the Models with 85%, 77% and 70% equities. The 40%, 47%, 55% and 63% portfolios will retain the Short Term bonds since the intent of the less aggressive portfolios is less volatility. When we make these changes and model the performance results going back to 1/1/1999 – the results are almost identical, though, as expected we get a slightly higher return in the most aggressive models with the...

Scale hurts active managers

Any “active manager” can outperform evidence-based investing as long as they are lucky enough to have larger amounts invested in securities or asset classes that are currently out-performing vs. under-performing. Easier said than done!  And you only know if you were successful when all the dust has settled. But it has been done. The article points out that as more people find out about this skilled (actually lucky) manager, that they all want to pile on. But the winning stops when it gets too big, or as the article is titled “scale works against active skill”.  (Or when the luck runs out, whichever occurs first.) Here’s the article….  Swedroe: Scale Works Against Active...

Beware the Names of Mutual Funds

Retail mutual funds are all about sales and marketing and often not much about sound investing. Most of them are continually changing their holdings causing high turnover and expenses. They are under-diversified. They have a high failure rate. If the fund company doesn’t market them enough and the fund has poor returns (often), they will die. The retail fund companies need to sale and market the funds – so they come up with names for the funds that help to sell them. Look over a list. Once you realize it’s all hype, it’s actually funny and maddening at the same time to review the names. The retail mutual funds that do get good returns – well they *did* get good returns and more often than not through lucky guesses. Often investors choose not by name but by recent recent fund performance. Unfortunately good performance is often followed with bad performance. Many investors go through their lives “chasing performance”.  The cycle of jumping on a band wagon, getting disenchanted and then looking for the next bandwagon. The mutual fund that I love to hate the most are “Stable Value Funds”. They are found in many 401k funds. They do tend to be stable. So that attracts people scared of the market. You have no idea how to invest and the word “stable” is very attractive. That’s the problem. They will get perhaps a 1-2% annualized return, while those in a highly diversified global portfolio will be get 7-9% over time. The salespersons selling the 401k plans, and those selling the stable value funds are dooming the employees to a very bad return of their hard-earned dollars...