Q: What are mortgage-backed securities? A: Investors of mortgage-backed securities (MBS) own an undivided interest in a pool of mortgages that serves as the underlying asset for the security, and these investors then receive a share of the resulting cash flows. A nationwide network of lenders — such as mortgage bankers, savings-and-loan associations and commercial…
As kids head back to school, adults spanning several generations set their sites on getting their financial house back in order. What are the most important financial planning considerations in three major demographics—Millennials, Generation X and Empty Nesters? Millennials: First things first – Before making any big financial commitments, like buying a house, figure out…
The financial crisis of 2008 has led to another surge in demand for funds using a tactical asset allocation (TAA) investment strategy. Morningstar currently classifies about 332 funds as tactical asset allocation funds. That’s up from just eight in 2007. The objective of TAA, which originally gained popularity in the 1980s, is to provide better-than-benchmark…
My daughter started her senior year of high school this fall. With college fast approaching, I’ve had some fun discussions with her and family friends about future professions. One thing keeps coming up: It’s the 21st century, and our daughters may still earn less than men for doing the same work. When my daughter graduates…
Choosing good investments is a necessary condition for successful investing. But it’s also important to engage in good behavior once those investments have been selected. The most recent issue of AQR Capital Management’s quarterly newsletter for clients provides great insight into both the bad behaviors investors tend to engage in, as well as positive practices…
A number of academic papers have demonstrated within the last few years that low-volatility stocks have provided greater returns than higher-volatility stocks. As I’ve mentioned before, these findings run counter to economic theory, which predicts that higher expected risk is compensated with a higher expected return. The result is what’s known as the low-volatility anomaly….
Q: Can you capture higher returns on a municipal portfolio by lowering its credit quality? A: Investors generally demand a higher yield when purchasing lower-credit-quality municipal bonds due to their greater risk. The assumption is the greater the risk, the greater the expected return. However, evidence has shown that investors have not realized higher risk-adjusted…
Q: What are the characteristics of preferred stocks? A: Preferred stocks can be viewed as a hybrid of stocks and bonds. Preferred shareholders receive preference over common equity holders (hence the term “preferred”) for dividend payouts and in the event of a Chapter 11 bankruptcy filing. However, all debt holders would be paid before any…
On Aug. 25, the S&P 500 index closed above 2,000 for the first time — finishing at 2,000.24. It had taken the index more than 16 years to double from its first close above 1,000 on Feb. 2, 1998, when it finished at 1,001.27. That 16-year span is more than five times as long as…
Proponents of evidence-based investing, myself included, doubted whether this day would ever come. Investors are now actually paying attention to the overwhelming data supporting evidence-based investing and are fleeing active management. Some of the recent developments reinforcing this growing trend are: Index funds are mainstream John Rekenthaler is the vice president of research for Morningstar….
Momentum is a well-established, empirical fact. Its premium is evident in more than 87 years of domestic market data, in more than 20 years of out-of-sample evidence beginning from the time of its original discovery, in statistics from 40 other countries, and in the performance of more than a dozen different asset classes. In fact,…
Last week, I wrote in-depth about some of the problems with hedge funds, especially in terms of how they’re viewed and how they affect financial markets as a whole. I thought I’d begin this week with a closer look at the performance of private equity, another nonpublicly traded investment. The term “private equity” is used…
Q: What are the characteristics of preferred stocks? A: Preferred stocks can be viewed as a hybrid of stocks and bonds. Preferred shareholders receive preference over common equity holders (hence the term “preferred”) for dividend payouts and in the event of a Chapter 11 bankruptcy filing. However, all debt holders would be paid before any…
On Aug. 25, the S&P 500 index closed above 2,000 for the first time — finishing at 2,000.24. It had taken the index more than 16 years to double from its first close above 1,000 on Feb. 2, 1998, when it finished at 1,001.27. That 16-year span is more than five times as long as…
Just about anything that comes with the “alternative” label is automatically enticing to plenty of people. Alternative rock spoke to so many music fans that it became more or less mainstream in the 1990s. On a smaller scale, consider the people you know living alternative lifestyles, like the cousin in the nudist colony or your…