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3Q/2013: The Quarter in Review

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 ...Read More

Article Library

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

    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

    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

    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

    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

    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]

    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?

    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

    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

    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]

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

    One of our favorite sources of investing-related videos is 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

    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]

    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

    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

    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

    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

    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

    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

    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

    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]

    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]

    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

    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!

    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

    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

    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]

    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

    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

    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

    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]

    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

    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]

    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?

    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

    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

  • Profitability and a Four-Factor Model

    by Mark Hebner and IFA Contributors — Friday, August 2, 2013

    When constructing or evaluating a domestic equity portfolio, Index Fund Advisors has traditionally utilized the three-factor asset pricing model that Professors Eugene Fama and Ken French introduced1 in 1993. This model states that the expected return of a broadly diversified ...Read More

  • Missing the Best and Worst Days

    by Mark Hebner — Friday, August 2, 2013

    Big down days and big up days frequently come right next to each other. This is volatility—and it is why you have to stay in the markets to get the markets’ superior ...Read More

  • When Two Hats Are Not Better than One

    by Mark Hebner and IFA Contributors — Thursday, August 1, 2013

    As a registered investment adviser that is regulated under the Investment Advisers Act of 1940, one of the fiduciary duties that Index Fund Advisors owes to its clients is to seek out best execution for their trades. We fulfill this requirement by placing client assets with ...Read More

  • IFA's Position Statement on Investing

    by Mark Hebner — Wednesday, July 31, 2013

    1. Capitalism earns a profit for its shareholders on average. 2. Companies have a cost of equity capital of about 10% and that cost of capital is paid to the shareholders. 3. Nobody can see the future and future prices are randomly moved by unpredictable news. Bad news results ...Read More

  • The Wisdom of a Smart Crowd

    by Mark Hebner and IFA Contributors — Tuesday, July 30, 2013

    Cogent Research LLC recently completed a survey of 1,700 financial advisers that asked how likely they are to increase or decrease assets with 24 different mutual fund companies, and once again, Dimensional Fund Advisors (DFA) scored the highest. DFA also scored the highest on ...Read More

  • The Separation Theorem

    by Mark Hebner — Sunday, July 28, 2013

    Harry Markowitz was primarily concerned with the diversification of risky assets. James Tobin added the concept of combining risk-free assets, such as cash or bonds, with risky assets, such as ...Read More

  • Advocates of Capitalism

    by Mark Hebner — Saturday, July 27, 2013

    Although not formally his professor, Ludwig von Mises may be considered a mentor of Friedrich von ...Read More

  • When Possessions Are Confused with Investments

    by Mark Hebner — Friday, July 26, 2013

    All too often, we come across stories of broken nest eggs that make us feel truly awful. One such story can be found in this 8-minute documentary on YouTube regarding a former soap opera star who spent about $100,000 on Beanie Babies with the expectation of making sufficient ...Read More