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72% of Americans Believe That The Recession Is Still On (Financial Advisors Magazine)
Americans aren’t happy with the economy, despite continuous signs of improvement. In fact, 72% of Americans “believe that the recession is still on,” according to the 2014 American Values Survey.
Only 7% of American believe that they are in “excellent financial health themselves,” and approximately one-third surveyed said that “they or someone else in their household had to cut back on food in the last year to save money.”
Additionally, almost half of respondents said that they once believed in the American dream, but not anymore.
Boston University professor Zvi Bodie suggests that “stocks become riskier the longer one owns them.” That’s a huge challenge to Jeremy Siegel’s assertion that stocks are the best long-term asset class choice. And these two opposing view points naturally have different implications because one argues that equity allocations should increase over time, while the other suggests they should decrease.
David Blanchett, Michael Finke and Wade Pfau at Advisor Perspectives ran a Monte Carlo simulation to test out whether investors should follow Bodie or Siegel’s advice. A Monte Carlo simulation is a testing method involving random variables and numbers simulations in determining the probabilities of outcomes.
” If you look at the historical data for developed countries, stocks have been less risky for long-run investors. And that’s not just some of the time, but pretty much all of the time,” Blachett notes notes. “We’re left with the very unsatisfying conclusion that stocks are the best asset class choice for long-run goals, even for risk-averse investors. Although unsatisfying for many economists and others who believe that it should be risk tolerance, not time horizon, that determines portfolio recommendations, it is best to at least understand how time diversification impacts optimal portfolios if future investments continue to behave as they have in the past.”
Although there are certainly problems with the Monte Carlo simulation, “the empirical evidence supports an increasing allocation to equities with longer time horizons,” according to Blanchett. “Our results lend greater credence to the time-segmentation strategies preferred by many advisors for designing retirement-income portfolios.”
“In such a strategy, short-term spending is covered by maturing bonds and with long-term spending is funded by a growth-focused equity portfolio, with the idea that this will prevent the need to sell stocks after market downturns”, he adds.
Since the world is officially globally collected, world-stock funds “make so much sense,” according to Russel Kinnel. “American Funds is one firm that has gathered a lot of assets in world stock but there are plenty of smaller world-stock funds,” he adds. He compiled a list of six smaller world-stock funds.
One fund he mentions is the “Gold-rated” Oakmark Global (OAKGX), which is a small portfolio of 43 stocks run by Clyde McGregor and Rob Taylor. What’s interesting about their portfolio is “how much is outside of the eurozone,” according to Kinnel. They prefer the US, Japan, and Switzerland, and hold Oracle, Toyota Motor and Credit Suisse. Although — as with most focused portfolios — Oakmark Global saw some difficult years like 2011’s 12% loss, they have an incredible 10-year return.
Another fund mentioned is the Harding Loevner Global Equity (HLMGX), which is run by two managers who have had three decades of investing experience. They “ply a focused blue-chip growth strategy that leads them to well-known names lik Schlumberger, Nike, and Nestle,” according to Kinnel. They own “at least something” in most industries, but focus on health care and tech. This fund “made its name by holding up well in down markets like 2008.”
Instead Of Judging Clients, Advisors Should Actually Listen To Them (Financial Planning)
Advisors sometimes jump to conclusions based on what their clients are saying. But Lisa Kirchenbauer, the president of Omega Wealth Management, suggests that advisors should check their emotions. “Be aware of your reactions to clients’ stories. Just because a client’s experience triggers an emotion in you doesn’t mean it will be the same emotion, or even one remotely similar, to the one the client felt,” she recommends to her firm.
She also recommends that advisors evaluate their own personal biases, which can overshadow the clients’ values and goals. For example, Kirchenbauer was working with a woman who was adamant about buying a beach house despite the unpredictable real estate market. While Kirchenbauer — a financial advisor — viewed the house as a (poor) financial investment, the woman was more interested in having a place for her family to gather.
And lastly, Kirchenbauer recommends paying attention to body language. “Many planners reflexively cross their arms or cross their legs into a T, which may send an off-putting message to clients,” she notes.
The “active share” metric represents “the percentage of a portfolio that varies from a fund’s benchmark index” and derives from “comparing the fund’s security weightings to those of a benchmark.” It’s advertised as a measure of the “fit of various benchmarks as well as a measure of consistency in a fund’s investment strategy.”
However, there are problems with the metric. “First of all, you need to monitor the fund’s and the benchmark’s portfolio in real time in order to assess consistency, a feat not easily accomplished by retail investors or their brokers. Additionally, stock-by-stock analysis is required, a laborious procedure when the benchmark holds hundreds or thousands of issues,” writes Brad Zigler.
And on top of that, most fund sponsors don’t even release active share readings. So it’s hard to get a hold of them.
Other metrics are worth looking at, however. Zigler recommends R-squared (or the coefficient that represents the percentage of a fund’s movements “explained” by movements in its benchmark; more actively managed funds have lower r-squared values); Active Expense (the “true cost” of active management found by allocating fund expenses between the active and passive components); and others.
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