Vanguard's Jack Bogle championed passive investing, where investors aim to track the performance of a major index like the S&P 500. A new white paper from Brian R. Wimmer, Sandeep S. Chhabra and Daniel W. Wallick at Vanguard looked at 1,540 actively managed U.S. domestic equity mutual funds that were available to investors in 1998 and studied their performance over the next 15 years.The authors found that of the 1,540 funds, 55%, or 842, survived the 15-year period; 700 funds were merged or liquidated; and 18%, or 275 funds, "survived and outperformed their style benchmarks."
"Furthermore, our analysis illustrated that nearly all the funds that beat their benchmarks over that 15-year period suffered at least five individual years of underperformance," they write. "Our findings strongly suggest that investors should refrain from using short-term performance as the primary criterion for divesting (or investing in) an active mutual fund."
Instead, they argue that investors should only consider active management if they are willing to weather "numerous and potentially extended periods during which their fund will lag its benchmark."
2 Bubble-Like Developments In The Markets (Dr. Ed's Blog)
Even though Janet Yellen said she doesn't "see a risk to financial stability," Ed Yardeni of Dr. Ed's Blog sees two bubble-like developments in markets.
1. Emerging market debt - Analysts are expecting another record year of bond issuance. "Tapering chatter during the summer nearly burst the bubble in emerging market debt. Since the 9/18 decision not to taper, more air has been pumped into it." 2. Corporate bonds - Some companies are using proceeds from bond sales to repurchase shares. This "artificially inflates earnings per share," according to Yardeni. "That's a bubble-like development if stock prices are getting a significant lift from debt-financed share buybacks rather than actual earnings growth."
Advisors Should Use This Tactic To Maximize A Deployed Soldiers Income (The Wall Street Journal)
Advisors can help maximize a deployed soldier's income by depositing it in the Department of Defense's Savings Deposit Program (SDP), Dylan Ross a financial-planning counselor told Kelly Kearsley of The Wall Street Journal. The soldier's income would be tax free and the SDP guarantees a 10% annual interest rate. "The key is to frontload these accounts so that you can get as much of that 10% interest as you can," Ross said.
Female Advisors Are In A Better Position For Future Success (FA Mag)
A new study from PriceMetrix has found that female financial advisors have a better shot at future success than male advisors. "Bigger clients and more consistent pricing, not to mention a higher proportion of female clients, are significant advantages," says Doug Trott, president of PriceMetrix told FA Mag.
The survey found that the typical female advisor has 56 high-net-worth households (i.e with $250,000 or more in assets) and 72 smaller households. The average household has $178,000 in investment assets. In comparison, male advisors have 51 high-net-worth households, and 78 smaller ones. The average household has $152,000 in investment assets.
Here's What Has Been Driving The Stock Market Since 1960 (Deutsche Bank)
The S&P 500 is up 26% so far this year and has been driven up by multiple expansion. Deutsche Bank has a chart that shows what has driven S&P 500 returns since 1960.
Company Financial Reports. Standard and Poor's, Deutsche Bank