The evidence showing that most individual investors significantly underperform the market is compelling. A study done by Dalbar, a leading financial services market research firm, found that, during the 20 years from 1991 through 2010, the average stock fund investor earned returns of only 3.83% per year, while the S&P 500 returned 9.14%.
The ramifications of this study are startling. It’s very easy to capture the returns of the market. All you have to do is purchase index funds that track the returns you are seeking to replicate. You will pay low transaction fees, but your returns should be pretty much in line with the indexes.
Earlier this week we ran a piece on the difference between Tactical Asset Allocation and passive investing. In this guest post, Michael A. Gayed of Pension Partners, a Tactical asset manager, weighs in.
As we approach summer, I can’t help but think about how people drive. After all, Americans are expected to be on the road to go on vacation as the weather gets warmer. Continue reading →
Prof. Burton Gordon Malkiel. Photo by J.D. Levine/Yale (photo courtesy of Princeton University)
Burton G. Malkiel, the Princeton professor who brought Efficient Market Theory to the mass market in his classic A Random Walk Down Wall Street has taken up the defense of buy and hold investing, and the idea of diversification more broadly.
None of it’s convinced Malkiel. In a strongly worded defense on the Wall Street Journal’s opinion page, adapted from his introduction to the upcoming 10th edition of Random Walk, he remains as convinced as ever that the average investor should own a diversified portfolio made up of cost-effective index funds and contribute to it regularly and rebalance periodically to take advantage of the benefits of dollar cost averaging. Continue reading →
Individual investors don’t like to rebalance. According to Congressional testimony given by Dallas Salisbury, CEO of the Employee Benefits Research Institute and one of the nation’s leading experts on retirement and savings, more than 3/4 of all 401 (k) holders never make a change to their asset allocation or rebalance. Not once.
Work goes into setting your asset allocation and designing a portfolio that fits your risk tolerance. If that erodes as winners grow and the slow-pokes shrink, it’s certain that your final portfolio won’t look much like your design over time. Continue reading →
The second quarter was a bad one for stock investors. The Dow Jones Industrial Average was down 10%. Any big movement — even a dismal slide — does bring one opportunity: the chance to sell some investment high, buy others low. In other words, reblance. In a CBS MoneyWatch segment this morning, Jill Schelssinger, calls this the silver lining of the market’s bad, bad quarter. (Below.) Continue reading →