What Can We Learn from A Supermodel about International Investing?

Blog_PP_MarchThis blog is from the April issue of Portfolio Perspectives.
 
What happens when supermodels are unhappy with the dollar? They demand payment in euros, or at least that was the case in August, 2007, when Gisele Bündchen reportedly demanded Procter & Gamble pay her in euros for promoting Pantene hair products.1 Unfortunately, she capitulated near the bottom, as many investors do when they try to time the market.
 
The U.S. dollar reached its low against the euro and the yuan in early 2008. Since then, it has staged an impressive rally, although it’s taken a bit of a breather recently. There is reason to believe the dollar will remain strong, at least over the next year or two, as interest rates are likely to increase in the U.S. and remain low in places like Japan and Europe for the foreseeable future. But then again, exchange rates often take unpredictable paths. Just ask Gisele. Continue reading

Who’s Driving?

This article is featured in the spring edition of our 360 Insights Quarterly Client Newsletter.
 
The stock market has been very volatile lately, which is a polite way of saying that stock prices have declined. What should we do?
 
Good advice remains the same: Maintain a diversified portfolio and focus on your life goals — retirement savings, education of children and grandchildren, and bequests to family and charities. Following good advice is not easy, however, because thoughts and feelings prod us to dump our stocks because their prices have declined.
Continue reading

March Madness and Investing…How Good are Your Predictions?

Blog_March_MadnessThis blog was originally published in March 2015 and has been updated.
 
Each year around this time an estimated 50 million of us around the country carve out a few minutes of our day to complete a bracket trying to predict which one of the 64 NCAA Men’s College Basketball teams will win the tournament this year. Guessing which team will win can be a lot of fun, but it’s awfully hard to do!
 
With top seeded teams losing in droves, as seems to happen every year, it quickly becomes apparent just what a fool’s errand predicting can be. After Thursday’s 16 games (March 17), only 25,704 out of the 13 million brackets on ESPN.com were still intact, amounting to just 0.2% of entries. Continue reading

What I Learned From a Random Walk

Blog_360_PanchThis article is featured in the spring edition of our 360 Insights Quarterly Client Newsletter.
 
Like many of us, I used to think that investing was all about picking winning stocks and avoiding losers. If I did my research and made smart decisions, I could easily beat the market. But then I had an experience that completely changed how I thought about investing and set me on a career path focused on helping people use the long-term power of markets to achieve their most important financial and life goals.
 
I was taking an advanced Investment Management class at Santa Clara University, a class where a very small portion of the University’s endowment was distributed to us to invest. We split up into 20 teams, and each team strategized and eventually presented their investment ideas to the class, trying to convince classmates that their approach was the best. Continue reading

It’s About Time

Source: Morningstar Direct 2016. 65/35 Index Mix:  2% Cash, 16% ST US Fixed Income, 17% Global Bonds, 15% US Large, 12% US Value, 8% US Small, 4% US REITs, 14% Intl Large Value, 7% Intl Small, 5% Emerging Markets Value; rebalanced monthly. Index representation as follows: U.S. Large Cap (S&P 500 Index), U.S. Value Stocks (Russell 1000 Value Index), U.S. Small Company Stocks (Russell 2000 Index), U.S. Real Estate Market (Dow Jones U.S. Select REIT Index), International Developed Value (MSCI World Ex USA Value Index (net div.)), International Small (MSCI World Ex USA Small (net div.)), Emerging Markets (MSCI Emerging Markets Index (net div)), Global Bonds (Citi WGBI  1-5Yr Hdg USD), US Bonds (BofA ML Corp & Govt 1-3 Yr TR).   Past performance is not a guarantee of future results. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Treasury notes are guaranteed as to repayment of principal and interest by the U.S. government. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Fixed income investments are subject to interest rate and credit risk. Emerging markets involve additional risks, including, but not limited to, currency fluctuation, political instability, foreign taxes, and different methods of accounting and financial reporting. Real estate securities funds are subject to changes in economic conditions, credit risk and interest rate fluctuations. All investments involve risk, including the loss of principal and cannot be guaranteed against loss by a bank, custodian, or any other financial institution. Diversification neither assures a profit nor guarantees against loss in a declining market. The risks associated with investing in stocks and overweighting small company and value stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal.

Source: Morningstar Direct 2016. 65/35 Index Mix: 2% Cash, 16% ST US Fixed Income, 17% Global Bonds, 15% US Large, 12% US Value, 8% US Small, 4% US REITs, 14% Intl Large Value, 7% Intl Small, 5% Emerging Markets Value; rebalanced monthly. Index representation as follows: U.S. Large Cap (S&P 500 Index), U.S. Value Stocks (Russell 1000 Value Index), U.S. Small Company Stocks (Russell 2000 Index), U.S. Real Estate Market (Dow Jones U.S. Select REIT Index), International Developed Value (MSCI World Ex USA Value Index (net div.)), International Small (MSCI World Ex USA Small (net div.)), Emerging Markets (MSCI Emerging Markets Index (net div)), Global Bonds (Citi WGBI 1-5Yr Hdg USD), US Bonds (BofA ML Corp & Govt 1-3 Yr TR).
 
Past performance is not a guarantee of future results. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. Treasury notes are guaranteed as to repayment of principal and interest by the U.S. government. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. Fixed income investments are subject to interest rate and credit risk. Emerging markets involve additional risks, including, but not limited to, currency fluctuation, political instability, foreign taxes, and different methods of accounting and financial reporting. Real estate securities funds are subject to changes in economic conditions, credit risk and interest rate fluctuations. All investments involve risk, including the loss of principal and cannot be guaranteed against loss by a bank, custodian, or any other financial institution. Diversification neither assures a profit nor guarantees against loss in a declining market. The risks associated with investing in stocks and overweighting small company and value stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal.

This article will be featured in the spring edition of our 360 Insights Quarterly Client Newsletter.
 
Whenever markets take a dip, it’s natural to question performance. Is my portfolio behaving differently than it should? Is this downturn worse than the last one? Is it different this time? Continue reading

A Closer Look at the Value Premium

Source: Morningstar Direct 2016, DFA Returns 2.0 2016; US Value Premium is defined as the return on the US Value Asset Class minus the return on the US Growth Asset Class. The US Value Asset Class is the Fama/French US Large Value Index (ex utilities) Index from 1/1/1972 – 12/31/1978 and the Russell 1000 Value TR USD from 1/1/1979-12/31/2015. The US Growth Asset Class is the Fama/French US Large Growth Index (ex utilities) Index from 1/1/1972 – 12/31/1978 and the Russell 1000 Growth TR USD from 1/1/1979-12/31/2015.

Source: Morningstar Direct 2016, DFA Returns 2.0 2016; US Value Premium is defined as the return on the US Value Asset Class minus the return on the US Growth Asset Class. The US Value Asset Class is the Fama/French US Large Value Index (ex utilities) Index from 1/1/1972 – 12/31/1978 and the Russell 1000 Value TR USD from 1/1/1979-12/31/2015. The US Growth Asset Class is the Fama/French US Large Growth Index (ex utilities) Index from 1/1/1972 – 12/31/1978 and the Russell 1000 Growth TR USD from 1/1/1979-12/31/2015.

This blog is the fourth in a four-part series on factors of return. Here are links to the first three blogs: Evaluating Factors of Expected Return, A Closer Look at the Market Premium and A Closer Look at the Small Premium.
 
A review of the historical results of the value premium may help provide advisors context for client conversations about performance. (The value premium is the incremental return of stocks of companies with low relative price over the return of stocks of companies with high relative price.) Continue reading

Put Science on Your Side

Blog_360_LaureatesThis article will be featured in the spring edition of our 360 Insights Quarterly Client Newsletter.
 
When you hear the word “science” you might immediately think of test tubes, lab coats and your favorite — or least favorite — subject in school. But the kind of science we’re talking about has nothing to do with microscopes and everything to do with financial research and analysis — all intended to decrease guesswork and speculation while increasing understanding, confidence and, potentially, returns for your portfolio. Welcome to financial science. Continue reading