Tag Archives: Vanguard

Are fund ratings biased against index funds?

I just read a very important study by Vanguard called Mutual Fund Ratings and Future Performance. The title would seems to suggest that this study is going to look at whether mutual fund ratings such as Morningstar’s star ratings are a reasonable prediction of future performance.  The study does tackle this issue, but it also addresses an issue that is, I believe, even more important and that most investors are totally unaware of:

empirical evidence has supported the notion that a low-cost index fund is difficult to beat consistently over time. Yet, despite both the theory and the evidence, most mutual fund performance ratings have given index funds an “average” rating.

Continue reading

Investing for Income or Total Return?

I recently wrote an article for Advisor Perspectives that examines the tradeoffs between investing for total return vs. income investing, in which one emphasizes assets that generate dividends and interest payments.  In theory, if the markets are reasonably efficient, investors should not care whether they live on income generated by their portfolios or they sell assets to provide their income.

My article starts by looking at a study by Vanguard that compares income investing to total return investing.  The Vanguard study concludes that a total return approach makes more sense.  I find that the study’s results unfairly penalize income investing strategies and ignore certain important ‘real world’ effects.

I do not find that income investing is necessarily superior, but I do conclude that there is not reason for investors who are inclined towards an income-focused approach should be discouraged.

Your thoughts?

Jack Bogle’s Growth Outlook for Stocks and Bonds

Vanguard founder and investing icon John Bogle doesn’t believe we’re in a bond bubble, but he does think bonds will produce only modest returns for quite some time. Still he says investors generally belong in the conventional stock and bond markets — not reaching into more exotic categories for yield.

In this interview (video below) with Morningstar at the recently concluded Bogleheads reunion outside Philadelphia, he runs through a common sense approach to estimating what kind of yields investors can expect over the next five to ten years from those conventional categories. Continue reading

Struggling to Rebalance

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

John Bogle on Morningstar and Costly Funds

John C. Bogle is without a doubt one of the most listened-to experts on mutual funds in the world. And he should be.  Having created the massive Vanguard fund complex and written eight books on the topic, the depth of his knowledge is unmatched.

Bogle was maybe the first, and has consistently remained for decades, a staunch advocate for low cost mutual fund investing.  Friday in the Wall Street Journal, he weighed in on Morningstar’s recent findings that low cost is the best predictor of a mutual fund’s outperformance, better than its own star system. Continue reading

The Rise of The Female Investor

Women are taking a more active role in investing, and there’s evidence that may be to the good.

Earlier this year, for the first time ever, more U.S. women were employed than men. That’s unfortunately not because of huge gains for women, but rather enormous job losses for men. Continue reading