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Articles 1 - 30 of 163
Full-Text Articles in Business
Asset Allocation, Risk Tolerance And Shortfall Risk, Steven D. Dolvin
Asset Allocation, Risk Tolerance And Shortfall Risk, Steven D. Dolvin
All Chapters
Asset allocation is the biggest driver of portfolio performance, particularly over the long-term. Moreover, it also is reflective of an investor's risk tolerance. The recent financial crisis has negatively impacted investment psychology, particularly among younger investors. As a result, the so-called "Generation-Y" has over half of their assets held in cash -- a "non-earning" asset. While this is safe, there is a risk of loss in value, as cash does not even hold up with inflation. In the long-term, such an allocation means a lower retirement balance--i.e., shortfall risk. Thus, these investors have essentially traded one type of risk for …
Short Interest At High Levels, Steven D. Dolvin
Short Interest At High Levels, Steven D. Dolvin
All Chapters
Short interest has been high even though the market has recovered significantly. In fact, in the wake of the recovery, short sellers have increased their positions. If they are correct, we could see a market pullback. Their short positions, however, create a large "sideline" demand, which has actually made market moves more positive in the wake of neutral news (due to short covering). See article here, Yahoo/Bloomberg.
China Looks To Add Credit Default Swaps, Steven D. Dolvin
China Looks To Add Credit Default Swaps, Steven D. Dolvin
All Chapters
Credit Default Swaps (CDSs) enable investors to hedge the risk of bond (or other credit securities) default. Like any derivative, they essentially allow investors to transfer risk -- from hedgers to speculators (or even between hedgers or speculators with different exposures). See article here, Reuters.
Income And Spending, Steven D. Dolvin
Income And Spending, Steven D. Dolvin
All Chapters
Normally higher incomes lead to higher spending, but recent increases in income seem to be headed into savings. This creates a mixed picture for consumer stocks. See article here, LA Times.
Conflict Of Interest In 401(K) Funds, Steven D. Dolvin
Conflict Of Interest In 401(K) Funds, Steven D. Dolvin
All Chapters
Companies often hire third party administrators (TPAs) to manage their respective 401(k) plans. Some companies simply provide documentation and advice; however, other TPAs actually offer their own proprietary (in-house) funds as investment alternatives. New research () shows that these funds often carry higher fees and have lower returns, illustrating the impact of a conflict of interest. This is particularly pronounced for banks and insurance companies acting as TPAs.
The Rise Of The Robo-Advisor, Steven D. Dolvin
The Rise Of The Robo-Advisor, Steven D. Dolvin
All Chapters
In response to high fees and varying levels of quality/service across traditional human advisors, new firms are transitioning to a fully automated framework. These so-called "Robo-Advisors" provide fully automated allocation and management strategies. This approach significantly reduces costs and standardizes risk-return matching strategies. See article here, CFA Institute.
Nasdaq To Acquire Ise, Steven D. Dolvin
Nasdaq To Acquire Ise, Steven D. Dolvin
All Chapters
Nasdaq is set to acquire the International Securities Exchange (ISE). The combined firm will manage six exchanges, representing 38 percent of US options trading. This will surpass the CBOE, which manages about 27 percent of the option trading market. See article here, Bloomberg.
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.
Correlation Concerns, Steven D. Dolvin
Correlation Concerns, Steven D. Dolvin
All Chapters
Modern Portfolio Theory (MPT) is based on the notion that diversification creates better (a.k.a., more efficient) portfolios. The benefit of the diversification stems from less than perfect correlations between asset classes. However, during times of extreme stress, and even in recent years with market integration, correlation values have increased. This calls into question whether diversification will bring the full benefit that it is expected to provide. See article here, Bloomberg.
Credit Default Swaps Signal Warning, Steven D. Dolvin
Credit Default Swaps Signal Warning, Steven D. Dolvin
All Chapters
Credit Default Swaps allow investors to hedge the risk of default on underlying debt, essentially acting as put options. Recently, CDS prices on the debt of banks such as Goldman Sachs and Deutsche Bank have increased in price, signaling a larger possibility of default. Many investors view CDS prices as a barometer of faith, thereby suggesting that bank stocks are poised for further declines. See article here, WSJ.
Negative Interest Rates, Steven D. Dolvin
Negative Interest Rates, Steven D. Dolvin
All Chapters
Sweden's central bank has followed other major countries and further reduced its interest rate -- making it even more negative. With negative interest rates, banks that store money with the central bank must pay to do so (rather than earning interest as would normally be the case). The goal is to induce banks to hold less money (thereby lending more and increasing economic activity). See article here, The Telegraph.
Short Covering In Oil Drives Prices, Steven D. Dolvin
Short Covering In Oil Drives Prices, Steven D. Dolvin
All Chapters
Suppliers reported an increase in crude oil inventories, yet contrary to supply and demand fundamentals, prices rose. Much of this is attributed to short sellers covering their positions at what is expected to be the low point in prices. See article here, Reuters.
Yield Curve Irrelevant?, Steven D. Dolvin
Yield Curve Irrelevant?, Steven D. Dolvin
All Chapters
When longer term interest rates fall below shorter term interest rates (a so-called inverted yield curve), economists generally warn of an impending recession. However, with short term rates so low, the usefulness of this indicator may be fading. See article here, Bloomberg.
Mutual Fund Fees Continue To Fall, Steven D. Dolvin
Mutual Fund Fees Continue To Fall, Steven D. Dolvin
All Chapters
Passive funds have historically outperformed active funds, and much of this difference is likely driven by the lower fees charged by passive funds. A discusses the impact on both investors and the industry.
David Bowie: Finance Genius?, Steven D. Dolvin
David Bowie: Finance Genius?, Steven D. Dolvin
All Chapters
Famous musician David Bowie just passed away. While most people remember him for his music, he is also famous in the finance area. Bowie was among the first to offer an asset-backed security, which in his case was based on future royalties from his songs. In recognition, this type of asset is often referred to as a "Bowie-bond." See article here, Bloomberg.
China Suspends Circuit Breakers, Steven D. Dolvin
China Suspends Circuit Breakers, Steven D. Dolvin
All Chapters
Circuit breakers are designed to slow down (or even halt) panicked selling. However, Chinese authorities recently suspended their newly implemented circuit breakers, as they seemed to be increasing panic (as opposed to reducing it). See article here, Finance Asia.
Mutual Fund Fees, Steven D. Dolvin
Mutual Fund Fees, Steven D. Dolvin
All Chapters
As we all know, fees impact net returns. For mutual funds, aside from any load, the two primary fees charged are management fees and 12b-1 fees. The management fees are easy to understand. The 12b-1 fees, however, are not. They are designed to cover distribution costs, but this is a broad term. In reality, much of this fee is used to pay brokers/advisors for directing client business to the funds. As a recent article (Investment News) suggests, the SEC may begin to limit such payouts.
Are Etfs Good Or Bad?, Steven D. Dolvin
Are Etfs Good Or Bad?, Steven D. Dolvin
All Chapters
Like many questions, the right answer is probably, "it depends." Whether ETFs are the best investment vehicle for a particular person likely depends on their goals and needs. However, with trillions of dollars being held by ETFs, their size has necessitated a broader discussion of their merits. This is particularly true in light of recent pricing issues where ETFs traded well below their NAV (such as in August of this year, as well as during the "flash crash" in May 2010). See a good summary article here: WSJ.
Are Junk Bonds Signaling Trouble Ahead?, Steven D. Dolvin
Are Junk Bonds Signaling Trouble Ahead?, Steven D. Dolvin
All Chapters
High-yield (or so-called junk) bonds are set to experience their first annual loss since the recent credit crisis. Because of the higher risk involved with these borrowers, they tend to be the first to experience trouble. Thus, many investors believe that they represent a leading indicator for overall market performance. If this is true, it could indicate trouble to come. See article here: WSJ.
Lower Minimum Investment, Steven D. Dolvin
Lower Minimum Investment, Steven D. Dolvin
All Chapters
Charles Schwab cut the initial minimum investment from $2,500 to $100 for most of the mutual funds on its Mutual Fund OneSource platform, which charges no transaction fees. At the same time, it cut the minimum for subsequent investments from $500 to $1. See article here, Financial Advisor Magazine.
Nyse To Stop "Stop Orders", Steven D. Dolvin
Nyse To Stop "Stop Orders", Steven D. Dolvin
All Chapters
On August 24, many stocks fell by large percentages, only to recover shortly thereafter. Investors with standing stop-loss orders likely didn't fair well. And, in fact, many are blaming these orders for the volatility. The NYSE plans to eliminate stop orders, but brokerage firms can still facilitate these for their customers, as long as the final order is sent at market. See article here, Bloomberg.
Consumer Confidence Keeps Rising, Steven D. Dolvin
Consumer Confidence Keeps Rising, Steven D. Dolvin
All Chapters
According to a recent article from US News, consumer confidence is at an 8-year high. It will be interesting to see how this impacts the economy and markets in light of the negative impacts of international problems, particularly in China.
Circuit Breakers, Steven D. Dolvin
Circuit Breakers, Steven D. Dolvin
All Chapters
The U.S. has had market-wide circuit breakers in place since the late 1980s, and individual stock circuit breakers were put in place more recently. Given the increasing volatility in Chinese markets, they are now following suit. See article here, Reuters.
Margin Loans, Steven D. Dolvin
Margin Loans, Steven D. Dolvin
All Chapters
Traditionally, margin loans were used by investors to allow them to buy additional shares of stock. Recently, however, many investors have used such loans as a simple way to borrow money for purchases outside their investment portfolio. Even so, they are still subject to margin calls should the value of the securities pledged as collateral fall. See article here, WSJ.
Early Recession Signs, Steven D. Dolvin
Early Recession Signs, Steven D. Dolvin
All Chapters
In economics, leading indicators are believed to give a forecast of the direction of the economy. In a recent survey, the CFA Institute asked its members which early warning signs (or leading indicators) they follow.
Behavioral Biases, Steven D. Dolvin
Behavioral Biases, Steven D. Dolvin
All Chapters
The CFA Institute recently conducted a member survey regarding which behavioral biases are most impactful.
Interest Rate Positioning, Steven D. Dolvin
Interest Rate Positioning, Steven D. Dolvin
All Chapters
Municipal bonds are a special type of bond that are particularly attractive to wealthy investors due to the tax benefits they provide. However, like other bonds, their prices will drop if interest rates rise. With many experts expecting the Fed to raise rates, bond managers are increasing cash holdings to position themselves for the impact of the rate increase. See article here, Reuters.
Financial Advisor Fee Structure, Steven D. Dolvin
Financial Advisor Fee Structure, Steven D. Dolvin
All Chapters
Historically, most advisors earned their income based on commissions; however, to reduce churning and to better align interests with clients, most advisors have moved to a fee based platform, with many charging an annual fee of 1% of assets. Given the compounded impact of this cost over time, as well as the lack of value added, we may see another change, as some advisors are moving to a fee for service model. See article here, WSJ.
Triple Crown -- Does It Matter For The Market?, Steven D. Dolvin
Triple Crown -- Does It Matter For The Market?, Steven D. Dolvin
All Chapters
For the first time in 37 years, a horse (American Pharoah) has won the Triple Crown. The previous ten times this has happened, the stock market has lost an average of 9% over the remainder of the year. This adds to the expanding debate of Behavioral Finance vs. Market Efficiency.
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.