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Will "Go-Anywhere Funds" Get You to Your Destination?

49,943
by Mark Hebner
Monday, April 14, 2014

When discussing the issue of style drift with prospective clients, we commonly hear an objection that goes something like, “Why should I care where my fund manager chooses to invest, as long as he is picking the asset class and securities with the highest ...Read More

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  • When Mythology Is Confused with Reality

    7,096
    by Mark Hebner and IFA Contributors — Friday, April 11, 2014

    In the investment industry, the term “white paper” carries a lot of currency. As for what distinguishes an ordinary article from a full-fledged white paper, it is usually just a matter of length or the number of charts included. It is important to bear in mind that ...Read More

  • Morningstar Takes a Closer Look at Survivorship Bias

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    by Mark Hebner and IFA Contributors — Wednesday, April 9, 2014

    One of the problems with commonly cited mutual fund returns data is that it ignores the issue of survivorship bias, the tendency for mutual funds with poor performance to be merged into other funds or shut down. Specifically, if we look at the ten-year average returns of all ...Read More

  • The Gadfly from Yale Continues to Buzz the 401(k) Industry

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    by Mark Hebner and IFA Contributors — Tuesday, April 8, 2014

    Last year, we wrote about the exploits of Professor Ian Ayres of Yale Law School. You may recall him as the fellow who sent letters to 6,000 plan sponsors whom he identified as having especially high expenses. Essentially, he gave them an ultimatum to improve their plan or else ...Read More

  • Seven Ways to Fool Yourself

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    by Jim Parker — Tuesday, April 8, 2014

    The philosopher Ludwig Wittgenstein once said that nothing is as difficult for people as not deceiving themselves. But while most self-delusions are relatively costless, those relating to investment can come with a hefty price tag. We delude ourselves for a number of reasons, ...Read More

  • The First Quarter of 2014 in Review

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    by Mark Hebner and IFA Contributors — Friday, April 4, 2014

    In the first quarter of 2014, risk was rewarded, but not to the extent to which we may have become accustomed to in 2013. With the exception of emerging markets and emerging markets value, all of the specific IFA indexes had a positive return. The strongest showing came from ...Read More

  • How Concerned Should You Be about a "Rigged" Stock Market?

    5,912
    by Mark Hebner and IFA Contributors — Wednesday, April 2, 2014

    Unless you have been hiding under a rock the past few days, you have doubtlessly heard about Michael Lewis’s new book, Flash Boys: A Wall Street Revolt. Perhaps you saw the Sixty Minutes interview of Lewis along with the primary protagonist of the book, Brad Katsuyama, or ...Read More

  • The 4% Retirement Spending Rule: Is It Still Relevant?

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    by Mark Hebner and IFA Contributors — Monday, March 31, 2014

    The 4% retirement spending rule was developed 20 years ago by William P. Bengen, a financial planner who published his results in the Journal of Financial Planning. Essentially, the 4% rule says that retirees who begin with spending 4% of their portfolio and increase their ...Read More

  • International Diversification vs. Home Bias

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

    In a recent article on the concept of advisor's alpha, Vanguard emphasized the importance of advisor’s putting their clients into portfolios that they are unlikely to trade under varying market conditions. One of the important factors affecting client’s tendencies to ...Read More

  • Confessions of an Active Manager

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

    Recently, one of our fans in India sent us a fascinating article by his fellow countryman, Mehrab Irani who has had the responsibility of managing active mutual funds for a large fund family. As we have noted in prior articles, indexing in India is still in an emerging stage, ...Read More

  • How Smart is Your Beta?

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    by Mark Hebner and IFA Contributors — Sunday, March 23, 2014

    At Index Fund Advisors, we are always keeping an ear out for new terminology that appears in the investment marketplace. Recently, there has been a lot of talk about “smart beta”. Recall that beta, in its strictest sense, refers to the degree of market exposure or ...Read More

  • A New Low for CNBC

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    by IFA Contributors — Friday, March 21, 2014

    With nothing better to do the other night, I decided to try out CNBC’s new series, Money Talks, a reality show that follows the antics of one Steve Stevens and his company VIP Sports of Las Vegas which describes itself as a consulting firm to sports bettors. A ...Read More

  • Consumer Price Index and Consumption

    4,051
    by Mark Hebner and IFA Contributors — Tuesday, March 18, 2014

    Economists discuss the choices people make with their income as some allocation of consumption and savings. They remind us that we apply our human capital (our skills and time) to earn financial capital (our income or wages) and that we then need to divide that money up into ...Read More

  • The Continuing Wisdom of the Oracle of Omaha

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

    “Games are won by players who focus on the playing field -- not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.” ...Read More

  • Capturing Portfolio Returns: Simple but not Easy

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

    Throughout the IFA Website, you will find long-term historical returns of the IFA Index Portfolios and the asset classes that make up those portfolios. One example is the table of Simulated Passive Investor Experiences shown below for Index Portfolio 60. The highlighted line on ...Read More

  • Pension-Gate Continues: North Carolina is on Notice

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    by Mark Hebner and IFA Contributors — Thursday, March 13, 2014

    Those of you who are long-time followers of ifa.com are probably aware of the attention we have given to the very large problem of mismanagement of public pension plan funds. Thanks to diligent research that has produced reports such as this one from the Maryland Public Policy ...Read More

  • Advisor Alpha: Vanguard Estimates 3% Excess Return from Passive Advisors

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    by Mark Hebner and IFA Contributors — Wednesday, March 12, 2014

    A little more than a month ago, we published this article that introduced the concept of advisor’s alpha as the value added by passive advisors who adhere to the principles of controlling costs, maintaining discipline, and tax awareness. We also noted that Vanguard’s ...Read More

  • The Big Tease Continues

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    by Mark Hebner and IFA Contributors — Tuesday, March 11, 2014

    Take a walk past the financial section of your local newsstand, and you are likely to be greeted with headlines like “Ten Hot Stock Picks for 2014!” or “The Top Ten Mutual Funds to Buy Today!” or getting more directly to the point, “Make Money ...Read More

  • A Brief History of the Efficient Markets Hypothesis

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    by Mark Hebner and IFA Contributors — Monday, March 10, 2014

    In 2008, Nobel laureate Eugene Fama delivered a brief lecture to the American Finance Association. The entire 30-minute video is included above, and it is well worth an investment of your time. Fama was introduced by his son-in-law and colleague, John Cochrane, who explained ...Read More

  • When It Pays to Be Patient

    6,434
    by Mark Hebner and IFA Contributors — Tuesday, February 25, 2014

    One of the reasons that Index Fund Advisors advises the use of Dimensional funds is their patient and opportunistic approach to trading which differentiates them from traditional index fund providers. All too often, managers of traditional index funds require immediacy in their ...Read More

  • The Gambler's Fallacy and the Misuse of the Law of Large Numbers

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

    If you have ever spent any time in a casino, it is likely that you have seen supposedly random events that appeared to be non-random. Perhaps the roulette wheel came up red seven times in a row, for example. If your reaction was to place a large bet on ...Read More

  • The Tax Treatment of Investment Management Fees

    9,012
    by Mark Hebner and IFA Contributors — Thursday, February 20, 2014

    Around this time of the year, we are frequently asked about the tax deductibility of investment management fees. The answer, like most things related to the tax code, is not a simple one. In general, when paid out of a taxable account, investment management fees are a ...Read More

  • The SAC Insider Trading Scandal—Yet Another Domino Falls

    6,694
    by Mark Hebner and IFA Contributors — Thursday, February 6, 2014

    Mathew Martoma, a former SAC Capital Advisors portfolio manager, was convicted today of helping his company earn more than a quarter billion dollars illegally through trades based on material, non-public information about the testing of a potentially promising drug for ...Read More

  • The Golden Ticket Trap

    6,212
    by Jim Parker — Thursday, February 6, 2014

    In a popular children’s story, the young hero pins all his hopes on finding one of a handful of “golden tickets” hidden among millions of candy bars. It seems many people approach investing the same way. The notion that the path to long-term wealth lies in ...Read More

  • Are Investors Irrational When It Comes to American Funds?

    6,382
    by Mark Hebner and IFA Contributors — Monday, February 3, 2014

    A recent edition of the Rekenthaler Report from Morningstar would have us believe that American Funds have suffered investor withdrawals due to a guilt-by-association with active management which has increasingly come under fire from both academia and from key players in the ...Read More

  • 2013: A Record Year for Indexing

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    by Mark Hebner and IFA Contributors — Friday, January 31, 2014

    At Index Fund Advisors, we are always delighted to see articles such as this one from Bloomberg.com which shows the unabated march of indexing across the investment universe. For 2013, investors poured in a record $115 billion into index mutual funds, almost double the previous ...Read More

  • Q4/2013: Quarterly Market Review Summary

    7,361
    by Mark Hebner and IFA Contributors — Thursday, January 30, 2014

    Overall, it was a very good quarter for equities, the one exception being real estate investment trusts (REITs) which were down 1%. U.S. bonds were down slightly, but Global bonds showed a gain of 0.44%.   The quarter began with the shutdown of the U.S. government which ...Read More

  • The Alleged Inefficiency of Emerging Markets and Other Baloney

    6,466
    by Mark Hebner and IFA Contributors — Wednesday, January 29, 2014

    At Index Fund Advisors, we often hear from people all over the world who express an interest in the investment principles that we espouse. This pleases us greatly, as we have always felt that the benefits of index investing should not be limited to American investors. Recently, ...Read More

  • SEC Issues Risk Alert on Alternative Investments

    5,475
    by Mark Hebner and IFA Contributors — Tuesday, January 28, 2014

    At Index Fund Advisors, we have never advised our clients to engage with alternative investments such as hedge funds, private equity funds, or funds of private funds. A recent alert from the Securities and Exchange Commission (SEC) reinforces our stance. The alert addresses the ...Read More

  • Advisor Alpha: The View from Vanguard

    7,577
    by Mark Hebner and IFA Contributors — Monday, January 27, 2014

    At Index Fund Advisors, we have repeatedly cautioned investors to avoid getting ensnared in the never-ending pursuit of alpha by either picking stocks or hiring an active manager to pick stocks on their behalf. Nevertheless, by engaging in a few prudent practices such as ...Read More

  • Morningstar's Fund Managers of the Year

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    by Mark Hebner and IFA Contributors — Wednesday, January 22, 2014

    Can you hear it? That is the sound of millions of index fund investors yawning in response to Morningstar’s announcement of its Fund Managers of the Year for 2013. That recent performance weighs very heavily in the awarding of this distinction is evidenced by the fact that ...Read More

  • Comments on Barron's Dimensional Fund Advisors Profile [VIDEO]

    15,385
    by Mary Brunson and Mark Hebner — Friday, January 17, 2014

    "Active management is a zero-sum game, and that's before costs. That's not opinion, that's math." --Eugene Fama, 2013 Nobel Prize in Economics, Professor of Finance, Chicago Booth, as quoted in Barron's, "A New Dimension", January 4, 2014   Market Dimensions Eugene ...Read More

  • A Fascinating PBS Frontline Documentary

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    by Mark Hebner and IFA Contributors — Thursday, January 16, 2014

    For the past year, we have been following the story of billionaire Steven Cohen’s SAC Capital, particularly its unprecedented indictment followed by a guilty plea and a record $1.8 billion ...Read More

  • 2013: Another Dismal Year for Hedge Funds

    6,037
    by Mark Hebner and IFA Contributors — Saturday, January 11, 2014

    “We active folks have done a horrible job of beating the benchmarks.” So says Bob Doll of Nuveen Investments who was recently interviewed by Jeff Macke of Yahoo! Finance’s Breakout. For 2013, there is one group of active managers for whom this was especially ...Read More

  • Asset Location

    14,752
    by Mark Hebner — Friday, January 10, 2014

    An additional way that a passive advisor can add value is not just asset allocation but asset location. Specifically, for a client that has a mixture of taxable accounts, traditional IRAs, and Roth IRAs, it is often helpful to construct a single portfolio consisting of multiple ...Read More

  • Liquidity: Is It a Risk Factor?

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    by Mark Hebner and IFA Contributors — Thursday, January 9, 2014

    According to Investopedia, liquidity is defined as the degree to which an asset can be bought or sold in the market without affecting the asset’s price. If you have ever attempted to sell a large block of a thinly traded stock, then you know what liquidity (or rather ...Read More

  • Surprise! No Selloff in 2013

    10,116
    by Weston Wellington — Wednesday, January 8, 2014

    The unusually strong performance of US stocks in 2013 was a welcome surprise for investors who are following a simple buy-and-hold strategy and a source of exasperation for many professionals caught flatfooted by the steady rise in share prices. It was the best year for the ...Read More

  • Barron's Article on Dimensional Fund Advisors

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    by Mark Hebner and IFA Contributors — Monday, January 6, 2014

    Beverly Goodman of Barron’s was accorded the high honor of being the first reporter to attend one of DFA’s Financial Advisor Colleges. The article that she wrote about her experience, A Different Dimension, shows that it was time well spent. Having the opportunity to ...Read More

  • The 2013 4th Quarter and Year-End Review

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    by Mark Hebner and IFA Contributors — Thursday, January 2, 2014

    In the fourth quarter of 2013, risk was rewarded for all classes of equities except REITs, and fixed income remained essentially flat. Once again, there was a lot of discussion surrounding future Fed policy, particularly as it relates to the eventual tapering down of the ...Read More

  • Mark Hebner

    Selecting Investments Part 1

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    by Mark Hebner — Thursday, January 2, 2014

    As a fiduciary for its clients, IFA only receives compensation from its clients and is therefore unbiased in its choice of ...Read More

  • Selecting Investments Part 2

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    by Mark Hebner — Thursday, January 2, 2014

    IFA has known the DFA leadership since 1999 and they have remained committed to fostering a culture of learning, teamwork, innovation, and dedication to always doing what’s right for ...Read More

  • Probability In Motion

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    by Mark Hebner — Wednesday, January 1, 2014

    "The probable is what usually happens." - Aristotle Say "HELLO" to Francis, IFA’s newest probability machine, named after Francis Galton, an English mathematician who was an expert in many scientific fields. (Click here to play the video of Francis in action) ...Read More

  • Standard Deviation

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    by Mark Hebner — Wednesday, January 1, 2014

    In the field of finance, standard deviation represents the risk associated with a security (stocks or bonds), or the risk of a portfolio of securities (including actively managed mutual funds, index mutual funds, or ...Read More

  • Tactical Asset Allocation: The Market-Timing Wolf in Sheep's Clothing

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    by IFA Contributors — Wednesday, January 1, 2014

    Borrowing the definition from a recent Vanguard study, "Tactical asset allocation (TAA) is a dynamic strategy that actively adjusts a portfolio's strategic asset allocation (SAA) based on short-term market forecasts. Its objective is to systematically exploit inefficiencies or ...Read More

  • President Index Funds Advisors

    The Resilience of Capitalism

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    by Mark Hebner — Wednesday, January 1, 2014

    As of the end of 2013, the S&P 500 Index has not only fully recovered from the 51% drop that began in late 2007 and lasted through March of 2009, it has actually gained 37% beyond the high point in 2007, equating to an annualized return of 5.3%. We ...Read More

  • A Retrospective on 2013 Predictions

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    by Mark Hebner and IFA Contributors — Tuesday, December 31, 2013

    “Prediction is very difficult, especially if it’s about the future.” -Nils Bohr   “Stocks are about to plunge, Wells Fargo warns.” According to strategist Gina Martin Adams, the S&P 500 should now be at 1,440, which would be a 16% drop from ...Read More

  • A Difficult Year for Gold and Silver

    6,154
    by Mark Hebner and IFA Contributors — Thursday, December 26, 2013

    Although we haven't seen too many of them lately, it is easy to recall the advertisements and doomsday books touting gold and silver as investments that inundated ...Read More

  • A Banner Year for Dimensional Fund Advisors

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    by Mark Hebner and IFA Contributors — Monday, December 23, 2013

    According to Morningstar’s most recent monthly U.S. Open-End Asset Flows Update, 2013 is shaping up to be DFA’s strongest year ever in terms of net cash flows. As of November 30th, DFA’s one-year inflows were $21.2 billion, of which $2.6 billion came from ...Read More

  • The Myth of Fund Ratings

    7,243
    by Anonymous — Monday, December 23, 2013

    At least 80% of actively managed funds underperform the S&P 500 in any 10 year period—and there are indexes that perform better than the S&P 500. If risk-adjusted returns are taken into account, funds lose out even ...Read More

  • Many Happy Returns

    6,186
    by Jim Parker — Monday, December 23, 2013

    It’s that time of the year when the talking heads of television and the prognosticators of print issue their sage outlooks for the coming 12 months. While this crystal ball gazing is always entertaining, it becomes even more so a year later. In journalism, this is known as ...Read More

  • Weston Wellington Talks Nobel Laureates

    5,881
    by Mark Hebner — Monday, December 23, 2013

    IFA.tv Show 17-Weston Wellington Talks Nobel Laureates MH: Hi, I am Mark Hebner, President of Index fund Advisors and welcome to IFA.tv! Today I am here with Weston Wellington-Vice President over at Dimensional Fund Advisors…and Weston has been making several appearances ...Read More

  • Merton Miller

    Two Contrasting Views of Stock Markets

    6,029
    by Merton H. Miller and Charles W. Upton — Friday, December 20, 2013

    The casino view sees the stock market as largely a place where investors place bets on the near future prices of stocks rather than on the numbers on a roulette wheel or the spots on a pack of ...Read More

  • Reality Show for Investors: "Survivor"

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    by Weston Wellington — Friday, December 20, 2013

    Anyone studying the long-run history of American business cannot help but observe how many of the prominent firms of one era fail to make it to the next. Free-market economies are characterized not only by intense competition but also by disruptive change. Sometimes a ...Read More

  • The Net Investment Income Tax of the Affordable Care Act

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

    At the beginning of 2013, the 3.8% Net Investment Income Tax of Obamacare went into effect. It applies to individuals, estates and trusts that have investment income above certain threshold amounts shown in the table below. Filing Status Threshold Amount (Modified Adjusted Gross ...Read More

  • PIMCO: Just How Consistent is Consistent?

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

    In Bill Gross’s December 2013 Investment Outlook letter, he joined the ranks of Warren Buffett and Peter Lynch in giving a solid endorsement to indexing while reminiscing about his younger days when Jack Bogle introduced the first index fund available to retail investors: ...Read More

  • Roth IRA Conversions

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

    For younger investors who expect to be in a higher tax bracket in their retirement years, a Roth IRA can be a very attractive proposition for their retirement savings because the growth is not just tax-deferred but tax-free. In a recent article, we examined the differences ...Read More