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Book Analysis: Risk and Return: Or How to Live with Wall Street

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by Thomas Brunson
Tuesday, February 10, 2015

“To some men speculation means a way to accumulate money without menial or physical labor- to the inexperienced only!” In Robert Lee Sharp and Wallace H. Matlock’s succinctly sarcastic 1951 book titled Risk and Return: Or How to Live with Wall Street, they ...Read More

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  • The Analysts Underestimate Apple Again

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    by Mark Hebner and IFA Contributors — Monday, February 9, 2015

    On 1/27/2015, Apple released a spectacular earnings report for the first quarter of its 2015 fiscal year. Once again, it smashed through the analysts’ predictions, earning $3.06 per share vs. a consensus estimate of $2.60. Powered by the newly introduced iPhone 6 and 6 ...Read More

  • IFA FinPlan: Adjusting the Privacy and Alerts Settings

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    by Mark Hebner — Friday, February 6, 2015

    To get the most out of IFA FinPlan, we suggest taking a few minutes to adjust your privacy and alerts settings. This process is initiated by clicking on the “settings” link in the upper-right-hand corner of the IFA FinPlan home screen. The “Privacy” tab ...Read More

  • IFA FinPlan: Using the Vault Feature [VIDEO]

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    by Mark Hebner — Thursday, February 5, 2015

    Clients who have signed up for IFA FinPlan have the ability to securely store an unlimited number of files. In this article, we will discuss some of the files that you may want to upload to your vault. Please note that an iOS-enabled device may be used for this ...Read More

  • Some Sage Advice from the Guardian

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    by Mark Hebner and IFA Contributors — Monday, February 2, 2015

    The title of this Guardian article by Kira Brecht (“How Highly Paid Wall Street Guys Could Be a Threat to Your Retirement Money”) perfectly summarizes the situation of today’s individual investors. Brecht begins with the decision of Washington DC entrepreneur ...Read More

  • A Memo that Should Give Brokers Pause

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    by Mark Hebner and IFA Contributors — Friday, January 30, 2015

    Recently, a White House memo dated 1/13/2015 from the Chairman of the Council of Economic Advisers (Jason Furman) came to our attention. Co-authored with fellow Council member Betsey Stevenson, it calls out abusive trading practices that cost retirement savers billions of ...Read More

  • Book Analysis: The Story of a Speculator

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    by Thomas Brunson — Thursday, January 29, 2015

    “Why, if a speculator won every time, soon he would own everything in the world” -Arthur W. Cutten, veteran wheat pit trader In his autobiographical narrative titled the Story of a Speculator, the famous commodity trader Arthur W. Cutten (1870-1936) recollects his ...Read More

  • Understanding Administrative Trustee Services

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    by Mark Hebner and IFA Contributors — Wednesday, January 28, 2015

    If you have a trust, you are probably familiar with the idea of trustee (which could be yourself) who oversees the administration of the trust and has a fiduciary duty to act in the best interests of the beneficiary(s) of the trust. However, you may not be aware that ...Read More

  • Mark Hebner and IFA Contributors

    Is a Donor Advised Fund Right for You?

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    by Mark Hebner and IFA Contributors — Tuesday, January 27, 2015

    A donor advised fund (DAF) is a charitable giving vehicle administered by a public charity created to manage charitable contributions on behalf of organizations, families, or individuals. The giver opens an account in the fund which can be held at a major brokerage firm such as ...Read More

  • Q&A with IFA: Equally-Weighted S&P 500 Index

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    by Mark Hebner and IFA Contributors — Monday, January 26, 2015

    Question: I have heard that an equally-weighted version (as opposed to the standard market cap-weighted version) of the S&P 500 Index achieves a higher return without additional risk. Should I not use this for the U.S. large cap component of my portfolio? Our data on the ...Read More

  • A Look Back at Some Good Articles from 2014

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    by Mark Hebner and IFA Contributors — Friday, January 23, 2015

    At Index Fund Advisors, we consider 2014 to have been a tipping point year in the migration from active to passive management. Here are some of the articles that helped to convince us of this idea. Please enjoy. Will Invest for Food (The Economist, 5/3/2014) This insightful ...Read More

  • Another View of Smart Beta

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    by Mark Hebner and IFA Contributors — Thursday, January 22, 2015

    As we have stated in prior articles such as this one, smart beta is primarily a marketing term that refers to the attempt to capture risk and return factors beyond beta (overall exposure to the market). The best known examples are fundamentally-weighted index funds which also ...Read More

  • It's Now Official: Invest and Relax

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    by Mark Hebner and IFA Contributors — Wednesday, January 21, 2015

    As we say in Step 12 of IFA’s 12-Step Recovery Program for Active Investors, “Invest and Relax.” We just received confirmation of our advice from Assistant Professor Michaela Pagel of Columbia Business School who posted this working paper which is nicely ...Read More

  • High-Tech, High-Touch - IFA Launches New Brand and Website

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    by Natalie Grasso and Mark Hebner — Tuesday, January 20, 2015

    If you are an IFA.com frequent visitor, you’ve probably noticed that something looks different. In fact, a lot has changed – and we are really excited about it. New Logo & Tagline Inspired by our past, our new corporate logo and tagline reflect the evolution of ...Read More

  • The Paper that Formalized the Size Premium

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    by Mark Hebner and IFA Contributors — Friday, January 16, 2015

    At Index Fund Advisors, we implement portfolios for our clients that are tilted towards the compensated risk and return factors of small cap, value, and profitability. In this article, we will review the paper1 published in 1981 that formally identified the size premium, The ...Read More

  • The Small Cap Tilt: Is It Still a Reliable Source of Higher Returns?

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    by Mark Hebner and IFA Contributors — Thursday, January 15, 2015

    There is no arguing the fact that 2014 has been a difficult year for small cap stocks around the world (with the exception of emerging markets) and particularly in the U.S., as shown in the table below: For the U.S., 2014 has been the worst year for small cap ...Read More

  • 2014: Patience Pays Off

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    by Weston Wellington — Wednesday, January 14, 2015

    Forecasters often cite a figure of 8%–10% as a likely outcome for stock market performance in the year ahead, and 2014 was no exception. As sensible as this may sound, it is worth pointing out that over the past 89 years, the S&P 500 Index and its predecessors have ...Read More

  • Let the Compounding Effect Work for You

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    by Venkat Yarlagadda — Wednesday, January 14, 2015

    “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.”  – Albert Einstein “Someone is sitting in the shade today because someone planted a tree a long time ago.” ...Read More

  • The Sharks Are Biting: Wall Street's Structured Products

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    by Mark Hebner and IFA Contributors — Wednesday, January 14, 2015

    “Wall Street is a place where anything that can be sold will be sold”  – Warren Buffett “You are just a buyer of Wall Street’s dreck” – Robert Soros “They [structured products] are horrible investments for retail ...Read More

  • When the Law Takes a Dim View of Cherry-Picking

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    by Mark Hebner and IFA Contributors — Tuesday, January 13, 2015

    As the Securities and Exchange Commission admonishes newly-registered investment advisers on its Website, “As an investment adviser, you are a ‘fiduciary’ to your advisory clients. This means that you have a fundamental obligation to act in the best interests ...Read More

  • FINRA Promises 2015 Will Be a Year of Scrutiny for Brokerage Firms

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    by Mark Hebner and IFA Contributors — Monday, January 12, 2015

    A few days ago, the Financial Industry Regulatory Authority (FINRA) released its 2015 Regulatory and Examination Priorities letter highlighting significant risks and issues that, if not properly addressed, could affect investors and market integrity. Although it comes in a bit ...Read More

  • IFA Index Portfolio 100 vs. the S&P 500 Index [VIDEO]

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    by Mark Hebner and IFA Contributors — Thursday, January 8, 2015

    There is no arguing the fact that compared to U.S. large company stocks, 2014 was a difficult year globally diversified portfolios tilted towards small cap and value stocks. The table below shows the 2014 difference between IFA Index Portfolio 100 (which is the equity component ...Read More

  • What Should Investors Do Now? [VIDEO]

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    by Venkat Yarlagadda — Thursday, January 8, 2015

    Here is a classic video by Weston Wellington at DFA. During the 2008 market downturn some investors may have questioned the wisdom of their investment strategy. Weston address a number of questions and concerns from clients regarding business conditions, the capital markets, ...Read More

  • Book Review: Commanding Heights

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    by Thomas Brunson — Tuesday, January 6, 2015

    There’s little more frustrating than being stuck in a traffic jam, especially when you’re trying to get somewhere important. The same can be said for the way developing and third-world countries anxiously awaited what a changing world economy had in store for their ...Read More

  • IFA FinPlan: A New, Free Technology for IFA Clients [VIDEO]

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    by Mark Hebner — Monday, January 5, 2015

    At Index Fund Advisors, we place an extremely high value on being able to see the whole picture of our client’s finances. This goes far beyond just managing their investable assets. Towards that end, today we proudly announce the expansion of our services, and a ...Read More

  • The Fourth Quarter of 2014 in Review

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    by Mark Hebner and IFA Contributors — Friday, January 2, 2015

    In the fourth quarter of 2014, domestic equities had a strong showing, but foreign equities pulled back for both international developed and emerging markets. One major market-related story was the steep drop in oil prices, which decreased by about 41% for the quarter. Even ...Read More

  • Do You Have a Trust and Will?

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    by Mark Hebner — Thursday, January 1, 2015

    We have often written about the woeful state of retirement readiness in the United States. According to Forbes, “Half of Americans don’t have any of the most basic estate planning documents, including a will, a living will and financial and medical powers of ...Read More

  • Is a Health Savings Account Right for You?

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    by Mark Hebner and IFA Contributors — Thursday, January 1, 2015

    A health savings account (HSA) is a tax-advantaged medical savings account for people who are enrolled in a high-deductible health plan (HDHP). For this purpose, an HDHP must have a minimum deductible of $1,250 for individuals or $2,500 for families. When used for its intended ...Read More

  • A Foundational Paper in Finance

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    by Mark Hebner and IFA Contributors — Wednesday, December 31, 2014

    At Index Fund Advisors, we often talk about the risk factors that explain the returns of diversified portfolios. In this article, we will explore the technique pioneered1 by Nobel Laureate Eugene Fama and James Macbeth for establishing the existence of a risk factor and ...Read More

  • Ponzi Schemes Continue to Proliferate

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    by Venkat Yarlagadda — Monday, December 29, 2014

    I recently discovered a fascinating Website tracks Ponzi Schemes all over the world. It is appropriately named ponzitracker.com, and here is what it says for the first half of 2014: “In the first six months of 2014, at least 37 Ponzi schemes were uncovered, with a total of ...Read More

  • Mark Hebner and IFA Contributors

    Q&A with IFA: Bond Funds vs. Individual Bonds

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    by Mark Hebner and IFA Contributors — Friday, December 26, 2014

    Question: Should the bond portion of my portfolio be in bond funds or in a ladder of individual bonds? Answer: Like many things with respect to investing, a case can be made for either side. Any proposed bond allocation decision is simply a trade-off among the objectives of low ...Read More

  • No Virginia, There Is No Stock Picking Santa Claus

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    by Mark Hebner and IFA Contributors — Wednesday, December 24, 2014

    There is no denying it; we Americans love an underdog, and what better underdog than a 17-year-old high school kid who beats Wall Street at its own game? Or so it seemed according to this fluff piece carried in New York magazine which claimed that the student (whom we ...Read More

  • IFA Introduces a New Interactive Chart on the Predictability of Returns

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    by Mark Hebner and IFA Contributors — Tuesday, December 23, 2014

    Does knowing what happened in the recent past with returns of index funds help you predict the future? We explore that question in the new interactive chart below. It allows you to choose one of four IFA Index Portfolios and one of six time period lengths for a total ...Read More

  • When a Chinese Wall Is Not Something to Toy With

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    by Mark Hebner and IFA Contributors — Monday, December 22, 2014

    In the wake of the dot-com bust of the early 2000s, you may recall how we were promised that going forward there would be a “Chinese wall” or a “firewall” between the research and investment banking departments of the Wall Street investment banks that so ...Read More

  • Americans Continue to Get Failing Grades on Retirement Readiness

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    by Mark Hebner and IFA Contributors — Friday, December 19, 2014

    We have published many articles about the woeful state of financial literacy in America. Just when we thought it could not get any worse, along comes this story from the American College of Financial Services. A little over 1,000 people age 60-75 with at least $100,000 of ...Read More

  • Some Interesting New Data on 401(k) Plans

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    by Mark Hebner and IFA Contributors — Thursday, December 18, 2014

    BrightScope and the Investment Company Institute recently collaborated to produce this report on the current state of 401(k) plans based on BrightScope’s database of over 35,500 plans. As of 6/30/2014, of the $24.0 trillion of U.S. retirement plan assets, 401(k) plans ...Read More

  • A Golden Age for Active Investing? We Think Not!

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    by Mark Hebner and IFA Contributors — Wednesday, December 17, 2014

    Alexander Friedman of GAM Holding AG recently opined on CNBC.com that (to paraphrase Mark Twain) the recent reports of the demise of active managers are greatly exaggerated. Friedman acknowledges the mass migration from active to passive, noting that passive funds now account ...Read More

  • A Respectful Disagreement with St. Jack

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    by Mark Hebner and IFA Contributors — Tuesday, December 16, 2014

    Anyone who has spent a significant amount of time on our Website will know that we have nothing but the highest respect for Jack Bogle, the Father of Indexing for Retail Investors. Recently, however, we saw this Bloomberg article where Bogle said that he would not risk investing ...Read More

  • Mark Hebner and IFA Contributors

    What the Cap Rate from Real Estate Teaches Us about Investing

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    by Mark Hebner and IFA Contributors — Monday, December 15, 2014

    The capitalization rate (or cap rate) on a real estate investment property is defined as its yearly net income divided by its price. For example, suppose we have two apartment buildings, both of which have net rental income of $1 million. The first one (which we will call ...Read More

  • What Can We Read into the Increase in the VIX Index?

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    by Mark Hebner and IFA Contributors — Friday, December 12, 2014

    As noted in this CNBC article, The CBOE Volatility Index (VIX) which is widely interpreted to be an indicator of fear has risen by 40% (actually 57% based on the 12/10/2014 close) over the three trading days ending 12/10/2014. VIX measures the market’s expected short-term ...Read More

  • Living with Volatility, Again

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    by Jim Parker — Thursday, December 11, 2014

    Volatility is back. Just as many people were starting to think markets only ever move in one direction, the pendulum has swung the other way. Anxiety is a completely natural response to these events. Acting on those emotions, though, can end up doing us more harm than good. ...Read More

  • Two Nobel Laureates—Two Views of Smart Beta

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    by Mark Hebner and IFA Contributors — Thursday, December 11, 2014

    Smart beta appears to be all the rage in the investment world right now. According to this Financial Times article citing Morningstar data, there were 673 smart beta exchange-traded products representing just under $400 billion as of 6/30/2014. In one of our recent articles, we ...Read More

  • Even More Bad News for Active Managers

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    by Mark Hebner and IFA Contributors — Wednesday, December 10, 2014

    On the heels of this story that we just published regarding the difficult times faced by active managers of large cap funds comes this piece from Reuters which states, “Stock-picking fund managers are testing their investors’ patience with some of the worst ...Read More

  • Fallen Oil Prices: A Nice Tailwind for the Market

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    by Mark Hebner and IFA Contributors — Thursday, December 4, 2014

    One of the leading market-related stories of 2014 is the drop in oil prices. From the beginning of the year through the end of November, the price per barrel has dropped by about 33%, closing at just under $66. While this may be considered bad news for the energy ...Read More

  • Large Cap Active Managers on Track for Record Low Performance

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    by Mark Hebner and IFA Contributors — Wednesday, December 3, 2014

    As we were enjoying our Thanksgiving Day weekend, this Jason Zweig column in the Wall Street Journal caught our attention.  Zweig quotes Denys Glushkov, a senior researcher at Wharton Research Data Services at the University of Pennsylvania, as saying that only 9.3% of ...Read More

  • An Enormous Waste of Money

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    by Mark Hebner and IFA Contributors — Friday, November 28, 2014

    Just how much do investors spend every year on active management fees in pursuit of the ever-elusive alpha? How does $600 billion (or roughly the GDP of Switzerland) grab you? This unfathomably large number appears in a recent whitepaper from State Street’s Center for ...Read More

  • Ebola Stocks: Avoid them like the Plague!

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    by Mark Hebner and IFA Contributors — Wednesday, November 26, 2014

    So says the U.S. Securities and Exchange Commission (SEC) which recently suspended trading for ten business days in the stocks of four companies that claim to be developing products or services in response to the Ebola outbreak. Also, the SEC issued an Investor Alert warning ...Read More

  • Some Interesting Facts about the Ultra Wealthy

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    by Mark Hebner and IFA Contributors — Tuesday, November 25, 2014

    A few days ago, a client directed our attention to this CNBC article about ultra-high net worth (UHNW) people around the world. According to a report issued by UBS and Wealth-X, individuals worth $30 million more now number 211,275, making up .004% (1 in every 25,000) of the ...Read More

  • Vanguard Studies the Performance of College Endowments

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    by Mark Hebner and IFA Contributors — Monday, November 24, 2014

    Every Year, the National Association of College and University Business Officers (NACUBO) releases its study of the performance of college endowments. From the data in their press release, we created this chart showing that for the ten-year period ending 6/30/2013, endowments of ...Read More

  • Can You Rely on Mean Reversion to Outsmart the Market?

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    by Mark Hebner and IFA Contributors — Friday, November 21, 2014

    Mean reversion is the idea that following a period of above-average returns, there is more likely to be a period of below-average returns and vice versa. It can be applied not just to the overall stock market but to different segments of ...Read More

  • What Some Researchers Learned from Visits to Financial Advisers

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    by Mark Hebner and IFA Contributors — Thursday, November 20, 2014

    “The Market for Financial Advice: An Audit Study” is a working paper from the National Bureau of Economic Research. The three authors set up 284 contrived visits to Boston-area financial advisors in 2008. They sent trained, professional auditors to impersonate ...Read More

  • Currency Trading: How to Be Quickly Parted from Your Money

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    by Mark Hebner and IFA Contributors — Wednesday, November 19, 2014

    Regarding currency trading, you may have recently seen or heard a commercial such as this one which we found highly reminiscent of the brokerage commercials that aired during the 1990s portraying fictitious aggressive traders who had struck it rich through their on-line trading ...Read More

  • Smart Beta: Nothing New Under the Sun

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    by Mark Hebner and IFA Contributors — Tuesday, November 18, 2014

    In our daily perusal of investment-related articles, we came across this article1 from the Financial Times claiming that “smart beta is eating active managers’ lunch.” As we have previously noted, smart beta is just another term for exposure to the dimensions ...Read More

  • The Funded Ratio: An Actuarial Approach to Retirement Spending

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    by Mark Hebner and IFA Contributors — Monday, November 17, 2014

    In a recent Financial Professional Outlook, Russell Investments surveyed 234 financial advisors across 145 investment firms nationwide. According to their results, 60% of advisors said that more than half of their clients are near or in ...Read More

  • Understanding the Different Types of Retirement Plan Fiduciaries

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    by Mark Hebner and IFA Contributors — Friday, November 14, 2014

    The Employee Retirement Income Security Act (ERISA) defines the roles and responsibilities of various fiduciaries for defined contribution retirement plans. In this article, we will attempt to clarify what some people consider to be a confusing ...Read More