Learning Center

Choosing Between Roth and Traditional IRAs

Date22 Aug 2016

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Among the most important decisions investors make is their choice of location for assets within the various alternatives available for retirement (tax-advantaged) accounts. Allocating between a traditional IRA (a pretax, tax-deferred account) and a Roth IRA (a post-tax, tax-free account) can have a pronounced impact on retirement outcomes, given the $14 trillion in tax-advantaged retirement...

Low Vol Benefits Fading

Date22 Aug 2016

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Low-volatility strategies have quickly become the darling of many investors, thanks largely to trauma caused by the bear market that arose from the 2008-2009 financial crisis combined with academic research showing that the low-volatility anomaly exists in equity markets around the globe. Earlier this week, we took a detailed look at a 2016 study from...

Investors Should Re-Examine Annuity Aversion

Date22 Aug 2016

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Numerous academic studies advocate for the partial-to-full annuitization of financial assets. Yet despite the evidence, a majority of investors remain reluctant to annuitize for both behavioral and financial reasons. The reluctance to purchase annuities has been called the “annuity puzzle.” I’ll try to shed some light on why this puzzle exists, as well as offer...

Getting To The Cause Of Quality

Date15 Aug 2016

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Among the hot “smart beta” strategies into which investors are pouring assets is quality. For example, the iShares Edge MSCI USA Quality Factor ETF (QUAL | A-84), which is only about three years old, already has $2.7 billion in assets. Before you consider investing in these increasingly popular strategies, however, it’s worth understanding the sources...

Arbitrage Capital Increases Market Efficiency

Date15 Aug 2016

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The hypothesis of an efficient market is based on the concept that informed, rational traders would arbitrage away any temporary deviations from “correct” prices. Thus, price efficiency depends upon the actions of arbitrageurs and the availability of arbitrage capital. When arbitrage capital is plentiful, anomalies should be quickly eliminated. However, if capital is scarce or...

Investors Like Lotteries

Date15 Aug 2016

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There’s substantial evidence from the field of behavioral finance that individual investors have a strong preference for investments that exhibit the same characteristics as lottery tickets. Two of these characteristics are high kurtosis (or fat tails) and positive skewness, meaning values to the right of (or more than) the mean are fewer but farther from...

How to Make the Most of Working with a Financial Advisor

Date15 Aug 2016

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As someone who has long made a living as a financial advisor, I have an inherent bias toward retaining one. I even have one myself, because I believe personal finance is more personal than it is finance. However, paradoxically, I fear that the vast majority of those who retain the services of a financial advisor...

The Costs of Socially Responsible Investing

Date15 Aug 2016

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Socially responsible investing (SRI) aligns ethical and financial concerns for investors. SRI has gradually developed over time to include the consideration of firms’ environmental, social and governance (ESG) performance. Of note is that, while SRI has evolved, the original practice of negative screening for the stocks of companies involved in harmful or controversial activities (so-called...

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