The S&P 500 sold off sharply yesterday breaking through a key technical level (its 200-day moving average) and falling back into correction territory—a decline of 10% or more from its prior high. Ten percent corrections are not uncommon. We see about one 10% correction per year. On average, corrections last for about four months. This correction is about two and half months old. Stocks were lower on an intra-day basis during the initial stages of the correction in February, but yesterday was the lowest closing price this year. More interesting than the performance of the overall market, … [Read more...]

To the uninitiated, investing can seem daunting. There are thousands of stocks, bonds, and mutual funds to choose from, and probably just as many opinions on which you should buy and which you should avoid. Even the most diligent novice can become overwhelmed by the number of decisions that must be made. To get started, I have long advised a risk-first approach. That means a focus on fixed income. For most investors, it’s a little hard to know where to even begin. So where do you begin? Tops on my list is your fixed income component. Most investors fail to maintain an adequate mix of fixed … [Read more...]

Originally posted on August 22, 2016. The abuse of expected returns assumptions at public pension funds in America is something I have regularly raised a red flag about. Take a look here at The Economist's comparison of American public pension fund rules with those for private funds and foreign public funds. The opportunity to use inflated future return expectations leads public pensions in America to make less than realistic assumptions about future liabilities, thereby threatening the system itself by making risk more attractive than it should be. Private-sector pension funds in America … [Read more...]

In my series this week about retirees working through retirement I told you first that 79% of retirees expect to keep working in retirement, but many find out that they cannot. Then I told you that 73% of Americans 50 and over are planning to delay retirement altogether. Now I'm turning the focus away from America's Baby Boomers, previously the nation's largest generation, to Millennials who are now America's largest generational cohort. Millennials are people born between 1981 and 1991 (though definitions vary). They are well educated, but thanks to a variety of factors, they are getting a … [Read more...]

BlackRock, the world's largest asset manager, is making a big bet on quantitative investing. BlackRock’s quant group has shown strong results, so Larry Fink, the firm’s CEO, wants to double down on the group. That may sound like a good idea, but when you are the world’s biggest asset manager, and you start shifting hundreds of billions, if not trillions, into quantitative strategies, don’t the profits start to erode? Indeed they do. The FT has more. With increasingly efficient markets and an arms race between traditional and quantitative investors to be the first to spot even transitory … [Read more...]

Almost thirty years ago in 1989, I advised my readers on the ten worst bets for the year. Topping the list was overpriced real estate in New England, New York, and California followed by Japanese stocks and real estate. My long-time followers may recall how real estate prices fared after that projection.  Housing prices cracked in all three regions and entered a severe downturn. Anybody levered and long in residential real estate took it in the neck. According to the Case-Shiller real estate indices for Boston, New York, and L.A., the peak to trough decline in prices ranged from 15% to … [Read more...]

What risks are lurking in your portfolio? Calm markets have made many investors complacent. Are you one of them? Far too many portfolios that come across my desk are heavily invested in risky assets (yes, the S&P 500 counts) with no counterbalancing assets to tame volatility. Look at my chart below to gain an appreciation of just how helpful counterbalancing assets can be in your portfolio. Here you are looking at the performance of intermediate-term government bonds (dark blue) in years when the S&P 500 (bright blue) lost value. Since 1950, government bonds have been up in 13 of … [Read more...]

A new report from the National Institute on Retirement Security shows that around 66% of working age Millennials have nothing saved for retirement. That's not good, but also not terribly surprising since so many of them have had a delayed start in the work force, have massive student loans, and rents are at some of the highest levels ever. On CNNMoney, Katie Lobosco details the report, writing: About one-third are saving for retirement. Most have less than $20,000 but some have much more. The average account balance is $67,891, according to the report. If they are saving, it's likely … [Read more...]

This morning The Wall Street Journal tells the story of Harvey Hajiyan, a financial adviser who has been making big bets in the market on margin. In speaking to the Journal, Hajiyan said a phrase that should be a warning bell to any investor "all the strategists agreed." Any time everyone is in agreement on something, you should pick your head up and take note. Someone isn't pricing in risk properly, and if you're just coasting along with the crowd, that someone is you. Use Mr. Hajiyan's tale as a reminder of what happens when investors put greed too far ahead of fear. The Journal's Michael … [Read more...]

When financial advisors take it too far to embellish their credentials, it’s the investor who typically pays the price no matter how well-intentioned an advisor may be. In this case you have advisors giving speeches outside of Harvard and West Point with no affiliation to the institutions what so ever and taking credit as being invited guests. The huckster putting these gigs together is Clint Arthur, a former taxi driver and butter salesman who, according to columnist Jason Zweig, “trains businesspeople—including, so far, about three dozen financial advisers—in media skills.” “In order … [Read more...]