Tag Archives: mutual funds


The Unexpected Impact of Commissions

The recent enhancement to our tax loss harvesting service prompted a few readers to privately ask if it’s possible for us to use Dimensional Fund Advisors’ (DFA) mutual funds rather than ETFs to implement our service. Prior to our launch in December 2011, we considered both Vanguard and DFA products as they offer what we believe are the best net of fee returns in the industry. Before we launched our service we met with DFA sales reps and learned that on average DFA funds generate the same return as Vanguard on a net of management fees basis. In other words DFA funds earn a higher gross return, but their much higher management fees end up negating that advantage. We went […]

Investors’ Most Serious Mistake

Without doubt, the most serious mistake individual investors make is trying to time the market. Neither individual nor professional investors are able to make consistently accurate calls on the direction of market prices. In fact, I have never known anyone who knows anyone who has consistently made accurate directional bets on either equity or bond prices. When individual investors try to time the market they are much more likely to buy and sell at the worst times. Emotionally, investors suffer great pain when pessimism is rampant and stock prices fall.  They are more likely to buy when everyone is optimistic and prices are near or at their peak. Behavioral considerations cause investors all too often to shoot themselves in the […]

Five Ways ETFs Surpass Index Funds

We often get the question from clients: What is the difference between an index fund and an ETF? Even people who understand ETFs don’t understand the difference between these two kinds of investment products. We believe ETFs are index funds, evolved. To understand why ETFs represent such an advance over index funds, you have to look a little deeper than the most basic explanation of the difference between them. Financial advisors will tell you that an ETF is different from an index fund because it trades like a stock, throughout the day. Index funds, which are a kind of mutual fund, can only be purchased or sold at the end of the day after market close. Most ETFs, like most […]

The Case Against Maxing Out Your 401(k)

2012 IPOs: High Expectations, No Assurances

Most every personal finance blog I have ever read recommends maxing out your 401(k) contribution. They tell you to “just do it” – contribute as much as you can, as early as you can. I couldn’t disagree more. Forced savings I believe most bloggers (and many financial planners and low-quality investment advisors) recommend maximizing 401(k) contributions as a way to enforce a savings discipline. They believe that without automatic deductions, people won’t save at all. Our readership tends to be more disciplined and intelligent than the average personal finance blog readers, so I don’t think they need such a brute force recommendation. For our clients and readers, we emphasize transparency, rational decision-making and the use of mathematical tools. We recognize […]

Lessons from 2011 And Ideas For Investing In 2012

The first week of the New Year was marked by plenty of stories that talked about the outlook for the capital markets in 2012. Investors should ignore most of them. If you need evidence of why you should ignore most of them, look back to the turn of 2011, when nine out of 10 stock market strategists polled by Barron’s predicted S&P gains of 7-17%. Yikes. Glad you didn’t shift all of your money into stocks based on those predictions. The S&P ended the year almost exactly flat. If you are looking for some thoughtful pieces on how to invest the money we hope you will make this year, check out these three pieces: Business Insider’s Henry Blodget is picking […]

Morningstar’s New Ranking System: Worthwhile?

Morningstar debuted its new mutual fund ratings systems this week. Everyone’s known for some time that the company’s widely used star system for ratings doesn’t work to predict future results any better than simply using funds’ expense ratios. Morningstar itself acknowledged the fact that expense ratios are a better predictor of performance. Even after that evidence, however, the Chicago-based company continued to use the stars, which are a signature of the company’s brand. Mutual funds continued to use the stars to advertise. And harried investors, unfortunately, still make many investing decisions based on them. As The Wall Street Journal reported when it wrote about the new system, We still get calls that say, ‘Hey, why haven’t you gotten me out […]

Why Investors Should Care About The Fiduciary Standard

Since taking office, Securities and Exchange Commission Chairman Mary Schapiro has repeatedly stated her commitment to raising the standard of conduct that applies to brokers when they give investment advice.  The goal is to ensure that the “financial advisors” employed by brokerages (including Wall Street firms such as Merrill Lynch and Morgan Stanley Smith Barney, insurers such as Allstate, and many other smaller independent firms around the country) meet the same basic fiduciary standard other investment advisors are held to when they provide advisory services. The fiduciary duty, in short, is a duty to act in the best interests of customers.  Although progress has been made, this common sense proposal still faces an uphill battle thanks to opposition from a […]

Why Disclosures Don’t Work

Last month, in a provocative op-ed in The New York Times, David Swensen, Yale University’s chief investment officer, lashed out at mutual funds. He said, in short, that mutual funds invest poorly and have fees that investors don’t understand, and that some of the brokers and advisors who sell mutual funds use “pointless buying and selling to increase and justify their all-too-rich compensation.” The Investment Company Institute, which represents mutual funds in Washington, D.C., struck back, suggesting Mr. Swensen had been led astray by his “hubris.” The ICI says the mutual fund industry already offers information and disclosures to investors. “Funds have reported their fees for decades and have published prominently displayed fee tables with a wealth of cost information […]

Friday Reads: Yale’s David Swensen Says Mutual Funds Are For Fish, And Stirs The Waters

Last Sunday, David Swensen wrote an op-ed piece in The New York Times titled, mildly, “The Mutual Fund Merry-Go-Round.” Mr. Swensen pointed out, as he often does, that investors tend to buy and sell at the worst times (we’re witnessing that during these days of turmoil in the market, as investors bail out at a low point). He also makes the case  that the mutual fund industry encourages investors to buy and sell – and that the churn enriches the industry and devastates investors’ returns. (In this post we offer advice on rebalancing based on Swensen’s ideas.) The content caught fire on the Internet this week, as other publications and blogs picked up on Mr. Swensen’s scathing criticism of mutual […]

10 Signs of a Bad Investment Advisor, Part II

On Wednesday, we ran part one of this list of 10 signs you’re dealing with a bad financial advisor, including #1: The advisor does not focus specifically on investment advice and #2: The advisor does not speak openly about investment returns. This is the second part of our list, items 6-10. To develop this list, I talked to a handful of people, including Linda Leitz, a fee-only financial advisor; Ron Rhoades, professor and financial planning program chair, Alfred State College; some of the brains here at Wealthfront, a company trying to upend the current system of money management, who are passionate about transparency; and Kristi Kuechler, former president of the Institute for Private Investors, a membership group of high-net-worth investors. […]