Perhaps no financial product is more controversial than annuities. At best, an annuity is an insurance offering that provides a guaranteed stream of income that you cannot outlive. At worst, it is a high-cost way to earn subpar investment returns.
With both stock and bond market valuations at lofty levels, many investors are starting to wonder if they will be able to continue to earn the types of returns they have enjoyed over the past nine years. Continued gains in the stock market would push valuations to potentially dangerous levels, and bond yields aren’t that far north of zero currently.
As of this writing, cybercurrency Bitcoin has appreciated in value in excess of 1,500 percent so far this year. That makes it one of the best performing investments ever, even when considering tulip bulbs in 1636, stock in the South Sea Company in 1720, and internet stocks in the late 1990s. Most of the academic studies written on financial markets start with a few basic premises: investors are rational, they want to maximize returns, and they want to minimize risk. Is it possible that the move in Bitcoin is a rational response to new data that has emerged over the course of the past year? Probably not. Bitcoin remains largely the same from a structural standpoint today as it did a year ago.
Today, socially responsible investing, or SRI, accounts for around 25 percent of all managed assets in the U.S. The percentage is even higher in Europe and is rising fast in parts of Asia. SRI investing can take many forms, but the most popular is negative screening. That means excluding companies that participate in undesirable activities, such as the manufacture of tobacco products, weapons or fossil fuels. However…
Most of us have seen the recent headlines about the stock market hitting new highs. By some measures, stocks now trade at valuation levels only seen twice before: in 1929 and in 1999. If you recall, the aftermath of those periods was not terribly profitable for investors.
Several years ago, I worked with an investment adviser who did not like to show investment performance to his clients. In fact, he never even calculated returns for his managed accounts. He really had no idea or interest in how he was performing, and certainly did not want his clients questioning him about their returns.
Back in 1970, Edwin Starr released a recording of the song “War.” The notable lyrics, “war/what is it good for/ absolutely nothing,” have been quoted often in the 40 years since. However, contrary to Starr’s lines, it turns out there may be one thing that war is indeed good for: the stock market.
Last year was a year of surprises. Sure the Chicago Cubs won the World Series for the first time in 108 years, Brad Pitt and Angelina Jolie announced that they are dissolving their marriage, but I’m talking about more interesting topics, like those that impacted the capital markets.
I come to praise active management, not to bury it. Active management has been much maligned recently, including in this column, because of the increasing dominance of index investing over active stock picking.
Indeed, according to estimates from Morningstar, actively managed U.S. stock funds have seen outflows of over $185 billion so far this year. By comparison, U.S. stock market index funds have attracted almost $125 billion in new assets. What’s driving this disparity?
The index fund recently celebrated its 40th birthday. The Vanguard 500 Index Fund, the very first indexed mutual fund, began on Aug. 31, 1976. That might not seem like such a big deal, but consider that during a typical 10-year period, roughly half of all stock mutual funds close their doors. Merely surviving for 40 years is quite a feat, but the fact that the Vanguard 500 Index Fund is now among the largest mutual funds in the world makes it all the more impressive.
In fact, of the 25 largest mutual funds, all but 10 are index funds. Of the 10 non-index funds on the list, only six are actively managed.