Open Access. Powered by Scholars. Published by Universities.®
Articles 1 - 14 of 14
Full-Text Articles in Business
Target Date Funds And Dollar Cost Averaging, Steven D. Dolvin
Target Date Funds And Dollar Cost Averaging, Steven D. Dolvin
All Chapters
Target Date Funds simplify the investment process for investors, as such funds oversee changing asset allocations through time. A secondary benefit is that with these "set it and forget it" funds, investors are less likely to try to time the market. This is good since such activity generally hurts (rather than helps) most investors. In fact, staying the course allows investors to benefit from downside market volatility, as continued investment enables investors to buy more shares at lower prices, so-called dollar cost averaging. See article here, WSJ.
Target Date Funds: Benefits And Disadvantages, Steven D. Dolvin
Target Date Funds: Benefits And Disadvantages, Steven D. Dolvin
All Chapters
Target date (i.e., lifecycle) funds are increasing in popularity, particularly among unsophisticated investors. These funds provide key benefits, as they automatically rebalance through time and also generally limit return chasing. Given the dollar cost averaging effect, the result may also be a higher (dollar-weighted) average return. On the downside, the target date funds may choose underlying funds in each category that benefit the fund family more than the investor. However, for most investors, the benefits would generally outweigh the potential disadvantages. See article here, WSJ.
All-Time Market Highs And Market Timing, Steven D. Dolvin
All-Time Market Highs And Market Timing, Steven D. Dolvin
All Chapters
With the market at all-time highs, many investors are left wondering if stocks are still attractive investments. Based on PE ratios, the market's current level of 17.5 if slightly above the historical average, but not excessively so. Thus, if corporate profits remain strong, valuations could remain stable (so says some analysts). See article and video here, Fidelity. The video also discusses the difficulty of market timing, which is a good reminder for most investors.
Fees Matter, Steven D. Dolvin
Fees Matter, Steven D. Dolvin
All Chapters
A 1% annual fee doesn't sound like much, but when compounded, fees paid to advisors and managers can have a significant impact on an investor's ending portfolio value. For example, consider two investors who each invest $200,000 and earn 8%/year (before fees) for 30 years. The first investor uses an ETF that charges 0.04%/year in fees, while the second investor uses a mutual fund charging 1.25%/year. The first investor ends with roughly $2 million, while the second nets about $1.4 million. The difference is purely driven by fees -- this is a huge cost. (See article here, Wall Street …
The Benefit Of Financial Advisors, Steven D. Dolvin
The Benefit Of Financial Advisors, Steven D. Dolvin
All Chapters
Many individual investors believe that the primary role of a financial advisor is to "pick stocks." However, research shows that not only are active managers not able to outperform the market consistently, but that the security selection piece is really not the most important determinant of portfolio return. The key issue is asset allocation. A recent report (see article here, InvestmentNews) suggests that financial advisors can add value, but primarily from activities unrelated to security selection: determining asset allocation, helping clients avoid behavioral errors, facilitating rebalancing, reducing fees, and managing taxes and withdrawals.
Timing Matters -- Dollar Weighted Returns., Steven D. Dolvin
Timing Matters -- Dollar Weighted Returns., Steven D. Dolvin
All Chapters
While a mutual fund manager may make good decisions that result in a positive return, if investors time cash flows incorrectly, they will end up with lower (even negative) returns. This illustrates the difference between time weighted and dollar weighted returns. Unfortunately, the average investor succumbs to human nature, buying high and selling low, instead of the opposite. See a good summary article here, WSJ.
Retirement Planning -- Start Early, Steven D. Dolvin
Retirement Planning -- Start Early, Steven D. Dolvin
All Chapters
Many people are not prepared for retirement. Older workers do not have enough money saved, and younger workers are not starting soon enough. See some survey results here, WSJ. You should also take the quiz to see where you stand.
Pray For A Bear Market?, Steven D. Dolvin
Pray For A Bear Market?, Steven D. Dolvin
All Chapters
Most investors save for retirement using company sponsored 401(k) plans -- making investments into the account every month. This is a form of dollar cost averaging. For this type of investment, a bear market might be the best situation, as it will enable investors to buy more shares at lower prices. Since we want to "buy low and sell high," this downward volatility might actually help us. This is counter to what many people would think. See a related article here, Wall Street Journal.
History Lesson: Momentum, Steven D. Dolvin
History Lesson: Momentum, Steven D. Dolvin
All Chapters
We often talk about buying low and selling high, but many individual investors often do the opposite. Particularly in retail accounts and 401(k) plans, investors are often "late to the party," waiting until the market hits a high to reenter. This behavioral bias results in momentum that may drive the market higher, but how long is the key question. Further, investors would be better suited taking a more disciplined periodic investment approach. With the market just hitting a high, this issue is currently at play. (See article here, WSJ.)
Circuit Breakers In Response To Flash Crash, Steven D. Dolvin
Circuit Breakers In Response To Flash Crash, Steven D. Dolvin
All Chapters
Following the "Flash Crash," the exchanges implemented single stock circuit breakers (in addition to the market-wide constraints that already existed). These new circuit breakers are already under review, with planned changes set to go into effect in April. See article here, Bloomberg.
Low Volatility Etfs, Steven D. Dolvin
Low Volatility Etfs, Steven D. Dolvin
All Chapters
A recent trend is the development of low volatility funds, including both ETFs and mutual. These funds invest in a subset of a specified index, selecting only those stocks with low price volatility (which may be identified by a low beta). There is not sufficient history to gauge the performance of such funds, but two issues are worth noting. First, given the impact of volatility on compounded returns (i.e., geometric averages are lower than arithmetic averages), low volatility funds should have an advantage, particularly in otherwise volatile markets. Second, value funds may outperform over long periods (albeit not every period), …
Investor's Pain = Government's Gain, Steven D. Dolvin
Investor's Pain = Government's Gain, Steven D. Dolvin
All Chapters
In the wake of the Crash of 2008, the government stepped in to bail out multiple institutions, including AIG. Following the economic recovery (albeit a moderate one), the government was able to exit its position, netting a $17.7 billion gain. So, while many people opposed the bailout, it actually served as a transfer from investors (generally considered the wealthy) to the government. See article here, LA Times.
Negative Bond Yields, Steven D. Dolvin
Negative Bond Yields, Steven D. Dolvin
All Chapters
During the Crash of 2008, a "flight to quality" drove yields to unprecedented low levels. In fact, many Treasuries were being issued with negative yields, meaning investors were paying the government to safely hold their money. Recently, with the crisis in Europe, German bonds have exhibited similar negative yields.
Even The Best Investors Can't Time The Market, Steven D. Dolvin
Even The Best Investors Can't Time The Market, Steven D. Dolvin
All Chapters
Warren Buffett is considered to be one of the greatest investors ever; however, even he is not perfect. In fact, his company (Berkshire Hathaway) is named after one of his failed investments. More recently, his timing on the purchase of GM stock has not worked so well. Fortunately, his holding period is generally very long, thus it could turn out to be a favorable investment over the long-term. See article here, Bloomberg.