I mean that quite literally. Volatility causes a drag effect on investment returns. And although modern portfolio theory teaches that investments with expected higher returns generally have higher volatility, volatility itself always negatively impacts returns. This is not a theory but a mathematical fact that can easily be demonstrated. Let’s take a hypothetical example. You’ve…
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In today’s blog we explore the world of leveraged ETFs. For those of you who are not familiar with ETFs (Exchange-Traded Funds), they are mutual funds that are bought and sold like stocks. The majority of ETFs are passively managed and based on some index, allowing the investor to purchase a single fund that represents…
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By now everyone has heard of Bernie Madoff and his $50 billion (with a ‘B!’) investment scam. Unfortunately, although his scam was by far the biggest ever uncovered, he was hardly alone. There’s Roberto Heckscher, who allegedly bilked $50 million from mostly elderly investors over a thirty-year period. And, more recently, Kenneth Starr, a New…
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A recent article by Jason Zweig in the Wall Street Journal, based on an analysis of data from the Federal Reserve’s Survey of Consumer Finances by Sherman Hanna of Ohio State University, noted that 25% of U.S. households currently use a financial planner, up from 21% in the late 1990s. The bad news is that…
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That’s right! Buying high and selling low! Sound backwards? You may be surprised to discover that’s actually what most retail investors do. The chart below from the Leuthold Group, an institutional research firm, compares the timing of inflows and outflows to/from US equity mutual funds to the price of the S&P 500. Since most retail…
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