You pay attention when the founder of the Vanguard Group, Jack Bogle speaks. As the father of the index fund it would be hard not to include Mr. Bogle’s bust on the Mount Rushmore of financial legends. Therefore, when Bogle speaks, I listen. As do thousands of his groupies known as "Bogleheads." “There no longer can be any doubt that the creation of the first index mutual fund was the most successful innovation—especially for investors—in modern financial history,” writes Bogle here, “The question we need to ask ourselves now is: What happens if it becomes too successful for its own … [Read more...]

In recent years pension funds have paid more and more in fees to private equity funds, but it turns out that the returns generated by the funds don't seem to justify the high cost. Bloomberg's Stephen Gandel reports: The returns provide little justification for that. New York City said in its report that its private equity portfolio since inception in the late 1990s had returned about 3 percentage points less a year — 10.3 percent compared with 13.1 percent — than if that money had been invested in public markets. Private equity firms, which often show returns that exceed public markets, say … [Read more...]

You don’t need to worry about year-end distributions with individual stocks. But with mutual funds you absolutely need to worry. It’s why at Young Research we favor individual stocks in both our Retirement Compounders and Maximizers investment strategies. Here’s a primer on year-end distributions courtesy of Fidelity. Pay particular attention to tax strategies for mutual funds, or avoid it all together by owning stocks. Fidelity writes: Mutual Funds and Taxes Distributions from mutual funds occur for several different reasons and are subject to differing tax rates. Many mutual … [Read more...]

Active bond managers are beating their passive peers by protecting portfolios from rising interest rates. Asjylyn Loder reports for The Wall Street Journal: Higher-priced portfolios pieced together by active money managers are handily beating the cheaper index-tracking competition, largely because they are doing a better job protecting their portfolios from rising interest rates. Investors have bulked up on passively managed portfolios since the financial crisis amid a steady drumbeat of evidence showing that most managers can’t beat the market, especially after fees. But fixed-income … [Read more...]

I have been warning investors of the dangers of indexing for some time. With correlations among assets down near all-time lows, it is only a matter of time before something has to give. Now what seemed like a safe bet has become a volatile up-and-down roller-coaster ride for investors. The Editorial Board of The Wall Street Journal writes: Stocks bounced back Wednesday, but before that the tech-heavy Nasdaq had slumped 12% since its August peak. Falling FAANG stocks—Facebook , Apple, Amazon, Netflix and Google parent Alphabet—have swung the S&P 500 into a correction zone. Netflix tumbled … [Read more...]

Barron’s had a solid write-up on gold over the weekend. “Gold has been a traditional hedge against financial and economic crises, playing that role during the 2008-09 meltdown. Gold rallied 17% from the collapse of Lehman Brothers on Sept. 15, 2008, until the stock market bottomed on March 9, 2009—a period during which the S&P 500 fell more than 40%,” explains Andrew Bary. But what is worth noting is the recent change in the mandate of the Vanguard Precious Metals and Mining fund away from precious-metal mining at perhaps the worst time. This is yet another example of how mutual funds … [Read more...]

My quick answer is no. Because everywhere I turn there’s yet another ETF being formed and an article espousing their benefits. And with Wall Street firms plastering their names on all sorts of ETFs, the landscape has become littered with products that would feel more at home on the Vegas Strip. Investors be warned: Passive investing basically guarantees benchmark returns. Make sure your portfolio doesn’t rely too much on the wrong measuring stick. As Robert Powell reports in USA Today, it's also a good idea to avoid newly launched ETFs: Well-known, long-established indices are better … [Read more...]

Jason Zweig, writing at The Wall Street Journal, details some inexplicable behavior by mutual fund managers, including generating massive tax bills for owners. You should try to avoid funds doing things like this. He writes: Mutual funds made one hot mess out of August. On Aug. 10, Fidelity Investments conducted stock splits on some of its biggest funds, cutting their per-share prices by a factor of 10 while giving investors 10 times as many shares -- a gesture that leaves shareholders exactly where they were before. On Aug. 22, Harbor Capital Advisors, which runs the $20 billion Harbor … [Read more...]

One of the problems facing long-term, patient investors using mutual funds and ETFs is that many of their fellow investors are traders. It’s why we favor individual stocks where you call the shots. Asjylyn Loder reports in The Wall Street Journal on the volatile nature of fund flows, writing: BlackRock said Monday it received $20 billion in net inflows in the second quarter. While the sum is enormous, it was down from more than $100 billion a year ago. BlackRock is the world’s largest asset manager and a bellwether of low-cost index-based investing. BlackRock isn’t alone: For the first six … [Read more...]