Ever since the global financial crisis, the real interest rates of developed economies have remained in negative territory. Nominal interest rates hover near zero, and inflation rates, although quite low for historical standards, have remained positive (in most countries, at least on average). What’s more, negative nominal interest rates have even been observed in some…
I don’t want to rehash all the reasons for my view that investors should avoid actively managed funds, expensive, complex investment products and “alternative investments” like hedge funds and private equity. If you find these investments suitable, you have every right to buy them. Special issues with 401(k) plan participants Employees with 401(k) plans, however,…
There has been a lot of research recently that investigates the link between stock returns and higher moments of the return distribution, specifically the skewness of returns. This link, unfortunately, is frequently ignored by more standard measures of market risk and volatility. Skewness, if you’ll recall, measures the asymmetry of a distribution. In terms of…
Ask someone how they invest, and you’ll probably get a pretty standard answer involving stocks, bonds and maybe some real estate or cash. But rarely will people mention something that is even more important: their investments in human capital. They don’t talk about it because human capital investments can look a lot like any other…
With the recent spate of positive economic news, highlighted by the strong jobs numbers for both October and November, all signs point toward the Federal Reserve raising the federal funds target rate 25 basis points from 0–0.25 percent to 0.25–0.50 percent. Based on federal funds futures, the market is assigning a roughly 76 percent probability…
When we talk about the chances of something bad happening, people tend to fall into three general groups. The Numbers Don’t Matter No matter the odds, this group dismisses the statistics. People insist they can trust their gut. I suspect this group buys lottery tickets every week. The Odds Look Great This group focuses on…
Liquidity is valuable to investors. Therefore, investors demand higher expected returns for less liquid stocks. The liquidity of an asset market refers to the ability of investors to buy and sell significant quantities of that asset, quickly, at low cost and without a major price concession. Thus, liquidity risk can be thought of as the…
Do you remember the scene from It’s A Wonderful Life—only the best holiday movie ever—when George and Mary Bailey are cruising out of Bedford Falls on their well-earned honeymoon, only to notice a literal run on the banks (including the Bailey Savings and Loan, which George reluctantly operates)? Well, as Mark Twain is attributed as…
It seems like almost every week a new study appears to debunk the myth of active management. This week was no exception. Robin Powell, a U.K.-based journalist and financial blogger, discussed a recent study that covered 561 U.K.-based stock funds between 1998 and 2008. The study’s findings were consistent with similar research done on funds…
Jane Bryant Quinn, a highly regarded and nationally syndicated columnist, once called much of the output of Wall Street and the trade publications that cover financial markets “investment porn.” She summed it up this way: “Americans are indulging themselves in investment porn. Shameless stories about performance tickle our prurient financial interest.” The roller-coaster swing of…
Brian Haywood So the Fed has finally decided to raise interest rates, ending months of rampant speculation. Director of Fixed Income Brian Haywood covers the why, what and how of the Fed’s rate hike, plus what you should do about it. Short answer? Nothing. What You Need to Know About the Fed’s Move to Raise…
Some of us really like the status quo. Even when we have a better alternative, many of us are content to keep on doing what we’re doing. I think about this every time my wife and I swap cars. Depending on who is running what errands that day, we’ll switch between our big car and…
Are you a value investor or a growth investor? Could your preference be influenced by a biological predisposition partially ingrained from birth? Is it possible that your choice of investment could be explained by your personal experiences, both early on and later in life? The field of behavioral finance advances psychology-based theories to explain investor…
It seems like almost every week a new study appears to debunk the myth of active management. This week was no exception. Robin Powell, a U.K.-based journalist and financial blogger, discussed a recent study that covered 561 U.K.-based stock funds between 1998 and 2008. The study’s findings were consistent with similar research done on funds…
In my hometown of Baltimore, there’s an oft-heard saying that seems especially applicable when, like now, the seasons are changing: “If you don’t like the weather today, just wait until tomorrow.” For whatever meteorological reason, it’s not uncommon for an absolutely miserable Monday to turn into a gorgeous Tuesday. Temperatures have been known to swing…