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Active vs. Passive—The View from Up North

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by Mark Hebner and IFA Contributors
Thursday, October 17, 2013

A few weeks ago, we published our semi-annual summary of the Standard and Poor’s Index Versus Active (SPIVA®) Scorecard. There were no surprises. Over the last five years, passive beat active in the four major asset classes of domestic equities, foreign equities, ...Read More

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  • IFA’s Perspective on the 2013 Nobel Prize in Economics

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    by Mark Hebner and IFA Contributors — Thursday, October 17, 2013

                   Since we already devoted a full article to Eugene Fama, the first winner of the prize that we will discuss in this article is Robert J. Shiller of Yale University who had previously garnered a ...Read More

  • Much Ado about Nothing

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    by Mark Hebner and IFA Contributors — Wednesday, October 16, 2013

    As we noted in our review of the third quarter, the market essentially shrugged off the government shutdown that began on midnight of September 30th. The far bigger issue appeared to be the looming October 17th deadline for raising the debt ceiling limit. There were a lot of ...Read More

  • SBBI: The Almanac of Returns Data

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    by Ian Liew — Wednesday, October 16, 2013

    Stocks, Bonds, Bills, and Inflation (SBBI) is often characterized as the Almanac of returns data. This magisterial work originally produced by Roger Ibbotson and Rex Sinquefield is considered the go to place when information is needed on the expected returns and risks of a ...Read More

  • Interesting Times in the Mutual Fund World

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    by Mark Hebner and IFA Contributors — Monday, October 14, 2013

    Morningstar, Inc. just released its reported estimated U.S. mutual fund asset flows for September 2013. The results are summarized in this press release. Below, we will explain why we found it more interesting than prior reports. First, among all the mutual fund families, ...Read More

  • Eugene Fama Wins the 2013 Nobel Prize in Economics

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    by Mark Hebner and IFA Contributors — Monday, October 14, 2013

    At Index Fund Advisors, we were absolutely thrilled to hear the announcement by the Royal Swedish Academy of Sciences that the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2013 is being awarded to Eugene F. Fama (University of Chicago), Lars Peter ...Read More

  • Time Diversification: A Bizarre Discovery? Not to Us!

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    by Mark Hebner and IFA Contributors — Thursday, October 10, 2013

    Time diversification of risk refers to the idea of a risky portfolio becoming less risky when held over a long investment period. For example, for IFA's Index Portfolio 100 on glide path, the range of rolling 12-month returns over the last 50 years spans from -49.4% to ...Read More

  • The Endowment Model: Beating a Dead Horse

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    by Mark Hebner and IFA Contributors — Wednesday, October 9, 2013

    “Those institutions [state pension plans and endowments of state universities] are placing risky bets on private equity and similar funds, to some degree at the taxpayer’s expense. They are relying on consultants who, on average, add no value and no prospect of ...Read More

  • The Active vs. Passive Debate Plays Out in the L.A. Times

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    by Mark Hebner and IFA Contributors — Wednesday, October 9, 2013

    Over the weekend, this article by Tom Petruno caught our attention. Overall, we commend him for penning a good summary of the current status of the ongoing battle between active and passive for the minds (and wallets) of investors, but there are a few points with which we take ...Read More

  • Winning the Loser's Game: Timeless Strategies for Successful Investing

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    by Mark Hebner and IFA Contributors — Wednesday, October 9, 2013

    Now in its sixth edition, this book by Charles D. Ellis is undoubtedly one of the true classics in the genre of sensible investing. It is right up there with Burton Malkiel’s A Random Walk Down Wall Street and William Bernstein’s The Four Pillars of Investing. The ...Read More

  • 3Q/2013: The Quarter in Review

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    by Mark Hebner and IFA Contributors — Monday, October 7, 2013

    In the third quarter of 2013, risk was nicely rewarded for all classes of equities except REITs, and fixed income staged a small comeback from a difficult second quarter. Once again, there was a lot of discussion surrounding future Fed policy, particularly as it relates to the ...Read More

  • You Can't Take It with You—So Why Not Make Life Easier for Your Heirs?

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    by Mark Hebner and IFA Contributors — Friday, October 4, 2013

    Among the many arguments in favor of indexing, we recently encountered one that we have not yet put into writing, although IFA’s advisors discuss it frequently with their clients and prospects. To put it simply, if someone is following a complex strategy of stock picking, ...Read More

  • All the Way from India Comes a Voice of Reason

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    by Mark Hebner and IFA Contributors — Friday, October 4, 2013

    At Index Fund Advisors, one of the things that we like to keep an eye on is the emergence of indexing in other countries. As the second most populous of the four “BRIC” countries (Brazil, Russia, India, and China), India is expected to become a leading economy of the ...Read More

  • Passive vs. Active — The Scorecard as of 6/30/2013

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    by Mark Hebner and IFA Contributors — Monday, September 30, 2013

    At Index Fund Advisors, one of our favorite pieces of research is the semi-annual Standard and Poor’s Index Versus Active Funds (SPIVA®) Scorecard put out by S&P Dow Jones Indices. The distinguishing characteristic of this report is that it is free of survivorship ...Read More

  • When Getting a Return on Your Investment Requires Someone to Die

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    by Mark Hebner and IFA Contributors — Friday, September 27, 2013

    In our weekly perusal of press releases from the Securities and Exchange Commission (SEC), we came across this macabre story of a father and son team (both named Benjamin Staples) that used terminally ill people to defraud bond issuers to the tune of $6.5 million. Just how were ...Read More

  • From Rags to Riches to Rags

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    by Mark Hebner and IFA Contributors — Thursday, September 26, 2013

    “What is a Financial Advisor? That is a term that means almost nothing. It is somebody who might be a financial planner, or it could be a broker who is really a salesperson. The vast majority of so-called advisors—around 85 percent—are not fiduciaries.” ...Read More

  • Thinking About a Private Placement? Think Again! [VIDEO]

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    by Mark Hebner and IFA Contributors — Wednesday, September 25, 2013

    So says the Financial Industry Regulatory Authority (FINRA) in a recent press release and investor alert. A private placement is an offering of a company’s securities that is not registered with the Securities and Exchange Commission (SEC) and is not offered to the public ...Read More

  • So Just How Much Should You Be Spending in Retirement?

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    by Mark Hebner and IFA Contributors — Tuesday, September 24, 2013

    A couple of months ago, we published an article addressing the question of how much you should be saving for retirement. Today, we will examine the other side of the coin, once again utilizing research provided by Dimensional Fund Advisors—this time by Peng Chen, the CEO ...Read More

  • American Funds: When Silence is Golden

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    by Mark Hebner and IFA Contributors — Tuesday, September 24, 2013

    The corporate parent of American Funds, the Capital Group Companies, recently broke its silence to defend its long-held practice of active management. As we noted in a prior article, they have been suffering the consequences of a long-term migration of investors from active to ...Read More

  • Yet another 401(k) Lawsuit

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    by Mark Hebner and IFA Contributors — Thursday, September 19, 2013

    A few months ago, we published this article discussing lawsuits filed against financial services companies (Cigna and Ameriprise Financial) by their own employees for breaching their fiduciary duties by offering high-cost 401(k) fund options. Recently, we learned of one that ...Read More

  • When a Great Economist Attempted to Time the Market – A Cautionary Tale [VIDEO]

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    by Mark Hebner and IFA Contributors — Wednesday, September 18, 2013

    One of our favorite sources of investing-related videos is sensibleinvesting.tv which is operated and financed by Barnett Ravenscroft Wealth Management based in Birmingham, England. We find them to be both highly informative and entertaining as well. One of their recent videos ...Read More

  • Mutual Fund Distributions

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    by Mark Hebner — Tuesday, September 17, 2013

    Once you are invested and relaxed, an understanding of distributions of dividends and capital gains is important for taxable ...Read More

  • Mark Hebner and IFA Contributors

    The Value of a Passive Advisor [VIDEO]

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    by Mark Hebner and IFA Contributors — Tuesday, September 17, 2013

    By now, you realize the benefits of an indexing strategy, and more importantly, the expensive false promises of active management.  So the next logical question is, “Why should I seek the help of an advisor when I can just create a portfolio of indexes on my own using ...Read More

  • Dimensional Fund Advisors

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    by Mark Hebner — Sunday, September 15, 2013

    Dimensional Fund Advisors (DFA) makes their low cost, institutional index funds available to individual investors through DFA approved registered financial ...Read More

  • A Practical Example of Direct Profitability

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    by Mark Hebner and IFA Contributors — Friday, September 13, 2013

    In recent weeks, we have published two articles (here and here) on direct profitability and its potential use as a dimension of expected returns. Since these articles were somewhat abstract in nature and focused on very generalized results, we wanted to switch gears in this ...Read More

  • Capacity Adjusted Risk

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    by Mark Hebner — Friday, September 13, 2013

    Capacity adjusted risk is an entirely new way for investors to look at the uncertainty of their ...Read More

  • The Investment Meter

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    by Mark Hebner — Thursday, September 12, 2013

    The investment meter is a device that shows the scores of the five dimensions as percentages of the maximum possible for each ...Read More

  • Mark Hebner

    Risk Capacity

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    by Mark Hebner — Wednesday, September 11, 2013

    Each person has a unique Risk Capacity™.  The question is, how do we measure this capacity and find the right "bull" for you to ...Read More

  • Private Equity and Venture Capital

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    by Mark Hebner — Wednesday, September 11, 2013

    Some investors may wonder if they would be better off in private equity or venture capital, two asset classes that have nowhere near the amount of quality data that we have with public ...Read More

  • An Analysis of the Returns of XYZ Capital Management

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    by Mark Hebner — Wednesday, September 11, 2013

    XYZ Capital Management (XYZ) has chosen the S&P 500 Index as its benchmark. We argue that this is incorrect given that XYZ describes itself as a “value-oriented” manager, and several examples of companies that XYZ has invested in could be categorized as ...Read More

  • How IFA Keeps You Up to Date on Your Portfolio [VIDEO]

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    by Mark Hebner — Tuesday, September 3, 2013

    As an investment fiduciary, Index Fund Advisors has an obligation to always act in the best interests of our clients. This would include regular monitoring of their portfolios for rebalancing and tax loss harvesting opportunities, while regularly adjusting the risk level of the ...Read More

  • Mark Hebner

    Homemade Dividends [VIDEO]

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    by Mark Hebner — Tuesday, September 3, 2013

    At Index Fund Advisors, we often encounter investors who religiously adhere to the commandment, “Thou shalt not invade thy principal.” Whether the investor is a retiree who is living out of his portfolio or a foundation that is spending its endowment, the notion that ...Read More

  • Long-Term History Characterizes Risk and Return

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    by Mark Hebner — Friday, August 30, 2013

    Looking over the long term, David Booth, one of the two co-founders of Dimensional Fund Advisors, reviews the history of the stock market and highlights the importance of time, not timing, in the achieving long term investment ...Read More

  • Taking Stock in Pot? Beware!

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    by IFA Contributors — Thursday, August 29, 2013

    With medical marijuana now legal in twenty states and recreational marijuana approved in two states, some people may sniff an investment opportunity. Not so fast says the Financial Industry Regulatory Authority (FINRA), which issued this press release warning investors of ...Read More

  • A Deeper Dive into the Value Factor

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    by Mark Hebner — Thursday, August 29, 2013

    The third risk factor in the Fama/French model is the amount of exposure to low priced stocks, which is measured by a book-to-market (BtM) value ...Read More

  • Historical Databases and Studies

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    by Mark Hebner — Tuesday, August 27, 2013

    The premier source of historical data used by the academic and corporate community comes from the Center for Research in Security Prices ...Read More

  • The New and Improved IFA Index Portfolios [VIDEO]

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    by Mark Hebner — Monday, August 26, 2013

    IFA established the original IFA Index Portfolios back in 2000, based on the DFA Matrix book and several peer-reviewed academic papers describing what I deem to be "Modern Portfolio Theory." We recently collected several such papers and summarized them with one paragraph and ...Read More

  • Direct Profitability—an Added Dimension of Small Cap and Value Investing

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    by Mark Hebner and IFA Contributors — Thursday, August 22, 2013

    In a prior article, we introduced a new measure of expected future profitability (current direct profitability1) and discussed the possible modification of the Fama/French three factor asset pricing model to incorporate this fourth factor. In this article, utilizing research2 ...Read More

  • The Broccoli and Pizza Portfolio

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    by Jim Parker — Wednesday, August 21, 2013

    For some of us, it’s hard to give up on the idea that investing should be exciting. Picking stocks can be fun, after all, and there’s nothing like getting your timing right and bragging about it later with friends. For all the accumulated wisdom about asset ...Read More

  • Kudos to Time Magazine

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    by Mark Hebner and IFA Contributors — Tuesday, August 20, 2013

    The major Wall Street firms provide a large source of revenue for the few companies that dominate the news media. This is why we found it so refreshing to read this article (“America Can’t Afford Wall Street’s Terrible Investment Advice”) by Christopher ...Read More

  • Discipline is Difficult [VIDEO]

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    by Weston Wellington — Thursday, August 15, 2013

    We're going to talk about discipline in the investment arena. I want to make the case that discipline is a challenge for almost all ...Read More

  • The Failure of Manager Pickers

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    by Mark Hebner — Wednesday, August 7, 2013

    Like stock and time picking, manager picking is usually a worthless endeavor; however, there are still investors out there who believe they can select an all-star manager or financial guru who can beat the ...Read More

  • Diversification is Your Friend [VIDEO]

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    by Weston Wellington — Tuesday, August 6, 2013

    In this session we're going to discuss the topic of ‘diversification.' One leading economist number of years ago said, "diversification is the investor's best ...Read More

  • Mark Hebner and IFA Contributors

    Casinos, Insurance Companies, and Indexers: What Do They Have in Common?

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    by Mark Hebner and IFA Contributors — Tuesday, August 6, 2013

    To many people, the financial markets are nothing more than a giant casino where the odds are stacked against them. Certainly, one can hardly blame them when they repeatedly hear about the computers that now dominate trading or the hedge-fund related insider trading scandals. ...Read More

  • Thoughts on Time Picking

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    by Mark Hebner — Tuesday, August 6, 2013

    There seems to be universal agreement among investment experts that time picking is futile. Even so, it is not unusual for these same experts to actively tout its ...Read More