4 July 2015
  • Featured Posts
    Benchmark For Success
    Don Bennyhoff
    Senior Investment Analyst for Vanguard Investment Strategy Group

    In an earlier blog, I wrote about the importance of having a formal investment plan or investment policy statement (IPS) and its role as a blueprint for financial success. But how should success be measured? Too often, clients compare the relative performance of their portfolios to a curious mix of reference points, often to their (and their advisors’) detriment. Ever hear something like this during a meeting with a client: The S&P 500 was up 10% last year, so why was my portfolio up only 6%? Frustrating, right? While we know the easy answer is that the client’s portfolio isn’t the S&P 500 Index, the question does raise a potentially more challenging point. What should clients use as a benchmark for success?

  • Featured Posts
    Economy
    China: From Economic Growth to Financial Liberalization
    Roger Aliaga-Diaz
    Principal and Senior Economist of Vanguard's Investment Strategy Group
    As of May 29, 2015, the 12-month return of Shanghai A-shares was a phenomenal 125%. On the other hand, real GDP growth in China continues to march toward lower levels, with policymakers setting a 7% target for this year, after it missed the 7.5% target for 2014. So how should investors weigh these seemingly conflicting data points in their global equity allocations? Which of the two data points matters the most for portfolios?
    401k
    Timing Is Everything
    Colleen Jaconetti
    Senior Investment Analyst of Vanguard's Investment Strategy Group
    Generally speaking, you’re eligible to receive 100% of your Social Security benefit at your full retirement age (FRA)—currently between ages 66 and 67 depending on your birth year; however, you can start receiving benefits as early as 62 and as late as 70.
    Investments
    A Skeptic’s View of Extraordinary Claims
    Chris Philips
    Senior Investment Analyst of Vanguard's Investment Strategy Group
    Late last year, Josh Barrickman, head of bond indexing at Vanguard, blogged about the smart beta movement in fixed income. Josh challenged the notion that a company or country could flood the market with debt, which would invariably harm market-cap-focused investors. You’ve probably heard it before: “Why would anyone want to invest in the most indebted companies or countries? It’s just throwing good money after bad.” While this premise may seem logical and intuitive on the surface, as with many things we see or hear, a bit of logic and perspective can diffuse superficial arguments.
    IRS
    Truffles And Taxes
    Jim Rowley
    Senior Investment Analyst of Vanguard Investment Strategy Group
    If it were up to me, chocolate would be considered one of the major food groups, with truffles a particularly important staple dish.Fortunately, they are also a good metaphor for explaining the tax treatment of ETFs and mutual funds. Just as a good truffle has two layers of sustenance,mutual funds and ETFs share two layers of taxation.
    Investments
    Sailing Into The Wind
    Don Bennyhoff
    Senior Investment Analyst for Vanguard Investment Strategy Group
    I grew up in a sailing family, and the first thing we were taught was that the wind was both an ally and an adversary. Like investing, having the wind at your back is both a comfortable and an expeditious way to get from point A to point B. On the other hand, sometimes you encounter ahead wind. This point of sail is referred to as beating into the wind, and it’s every bit as uncomfortable a journey as it sounds.
    Investments
    Sprechen Sie Savings?
    Andy Clarke
    Corporate Communications at Vanguard
    The United States tries to help people save for retirement. We have tax incentives. We have private-sector innovations such as workplace retirement plans that automatically enroll us and increase our savings rates over time.
    401k
    Retirement Readiness Begins in Kindergarten
    Shannon Nutter-Wiersbitzky
    Principal in Vanguard Planning and Development
    Recently I found myself in a very rare position, home at 10:00 am on a weekday, sick with the flu. Unable to muster the energy to do much else, I was stretched across the couch with the television on. In between the morning talk and game shows, I noticed something. More than half of the commercials were advertising some kind of financial instrument. There were ads for credit cards, payday loans, and reverse mortgages. While I wish everyone could see through the promise of quick money without consequence, I’m all too aware that this isn’t the case.
    Investments
    Why All the Negativity?
    Joe Davis
    Vanguard's Chief Economist
    Since nominal yields going out 6 years or more are currently negative in several developed markets in Europe, many investors have been asking if investing in bonds with negative yields means they are “locking in” a loss. It is a very good question, and our response may be surprising tosome. The simple answer is no. Why? Because we can’t forget to add currency into the equation.
    Investments
    Blueprint For Success
    Don Bennyhoff
    Senior Investment Analyst for Vanguard Investment Strategy Group
    Would you ever build a structure without using a blueprint?Well, you might, if you were building a garden shed to protect yard tools from the weather, but not if you were building a house to protect your family. Yet even today, many investors do not take the time to develop a blueprint for their investment success i.e., a written financial plan or investment policy statement.
    Investments
    Who Would Have Guessed?
    Fran Kinniry
    Principal in the Vanguard Investment Strategy Group
    Since the U.S. stock market hit bottom on March 9, 2009, during the Great Financial Crisis (GFC), the S&P 500 Index had risen a stunning 248% as of the first quarter of this year. In little more than six years, the present bull market has broken several records and surpassed history’s larger bull markets, reaching its current third-place rank among the top 10. 
    Investments
    Fairly Analyzing Fair-Value Pricing
    Jim Rowley
    Senior Investment Analyst of Vanguard Investment Strategy Group
    Fair-value pricing has been a continuous topic of conversation with advisors since before I posted the original version of this blog in February 2013. This version has been refreshed with updated figures, but the Star Wars references remain the same.
    Economy
    New Year, New Money
    Biola Babawale
    Economist in Vanguard Investment Strategy Group
    There are few things that destroy an economy as thoroughly as deflation. When prices are expected to fall,spending is delayed. As spending is delayed, prices fall further. In a heavily indebted economy, the real cost of debt goes up. It’s a corrosive spiral that’s presently threatening one of the world’s largest economies, the euro area.
    Investments
    Practical Tips for Raising Money-Smart Kids
    John Woerth
    Vanguard's Spokesperson
    As I’ve revealed in a past blog, I’m an inveterate reader—from newspaper and magazine articles to blogs and books. Recently and quite serendipitously, I’ve come across a number of stories on kids and money, and as a father of two, my interest was piqued.
    Business
    From Java to (Advisors’) Alpha
    Martha King
    Managing Director and Head of U.S. Financial Intermediaries
    A lot can happen over a cup of coffee. A long to-do list may suddenly look manageable. A business partnership may grow from discussing an idea to drawing up a contract. And in the mind of a client, a financial advisor may evolve from simply a purveyor of investment ideas to a trusted behavioral coach.
    Economy
    Cheap Oil Driving Monetary Policy?
    Joe Davis
    Vanguard's Chief Economist
    Just as the Federal Reserve was bracing markets for its first interest rate hike since 2006 to head off any pickup in inflation, along came the drop in the price of oil.
    Investments
    An Investing “FAIL”?
    Chris Philips
    Senior Investment Analyst of Vanguard's Investment Strategy Group
    Pop culture and investing rarely cross paths. After all, pop culture is hip, exciting, and flashy. Conversely, we’ve seen that successful investing is generally anything but. Nevertheless, the last decade or so has seen the rise of an internet meme that may be applicable to the investing world—“FAIL.”
    Investments
    A GPS Update for Portfolios
    Chris Philips
    Senior Investment Analyst of Vanguard's Investment Strategy Group
    Recently I went through the process of purchasing a map update for my GPS (yes, I realize there are phone apps that provide GPS directions … a discussion of my technology choices is not the focus of this particular blog!). As I was exploring the various options, I found that I could purchase global maps, regional maps, North American maps, or U.S.-only maps (as well as several variants of those basic options). Not seeing the overwhelming pros of purchasing street maps of Europe at this time, I elected to purchase only the maps of the U.S. and Canada and save some money in the process. In other words, there really wasn’t a need to diversify!
    Investments
    Why Smart Beta Can’t Win the Indexing Race
    Josh Barrickman
    Head of Fixed Income Indexing Americas
    Whenever I explain indexing to friends and family, I always fall back on my favorite analogy: the car race.Imagine a race where one car represents the market and is set up in a certain way—with tires, fuel, suspension, and so on—all meeting precise specifications.The indexer is in another car, and its job is to finish in a dead heat with the market car. Naturally the indexer will tune its car—or portfolio—to match the specs of the market car as closely as possible. All else being equal, this should result in the desired outcome. To extend the analogy further, active managers would tweak their cars to try to give themselves an edge in winning the race against the market car. That’s straightforward, right?
    Investments
    “The Search for Yield” Trilogy
    Jim Rowley
    Senior Investment Analyst of Vanguard Investment Strategy Group
    I am a fan of movie trilogies, and my favorites include those that involve Luke Skywalker and Jason Bourne. Trilogies interest me because, while they consist of separate movies, they still share an over arching story line. That’s not dissimilar from three separate investment strategies that share an overarching goal of generating income. Those strategies—overweighting corporate bonds, substituting dividend-paying stocks for bonds, and executing a duration tilt—are what could be referred to as The Search for Yield trilogy.
    Investments
    The Myth of Being Average
    Chris Philips
    Senior Investment Analyst of Vanguard's Investment Strategy Group
    In my previous blog, “The“MythBusters” approach to indexing: Inefficient markets” I tackled the question of whether some areas of the global market are less efficient than others. In this iteration, I turn my attention to another common myth: Indexing is for “average” investors.
    Economy
    Blast From the Past
    Joe Davis
    Vanguard's Chief Economist
    Being comfortable with uncertainty, being prepared, and not being overconfident are essential life skills.It is no coincidence that these skills serve as strong in vestment principles and help us look at the markets and economy with a healthy dose of realism. Heading into 2014, I emphasized the importance of humility in predicting the future, so in light of the New Year, I would like to offer a resolution: Invest with purpose. Forecasters (including us) will set expectations about what lies ahead, and it is important to keep your portfolio immune from assuming that one forecast will be right at the expense of reaching your goals on time. By definition, we will never be completely “right”—but if we are careful and responsible, we will probably be very close.
    Investments
    With ETFs, Time to Go Back to Basics
    David Park
    CEO of Austin Capital Trust
    AT FIRST GLANCE, building a broad-based,diversified portfolio with exchange-traded funds might look like a challenge.  With more than 1,600 different products available at the click of a button, analysis paralysis can strike quickly.  But there is a simpler way.  Concentrating on funds that track broad market indexes can do a lot to clear the noise for the ETF markets and marketing.
    Investments
    The 4% Spending Rule, 20 Years Later
    Maria Bruno
    Senior Investment Analyst of Vanguard Investment Strategy Group
    Hardly, a week goes by without seeing some type of headline news discussing the viability of the venerable 4% spending rule. Indeed a simple internet search will yield more than 5 million results! It’s no wonder that retirees may be more confused now than ever.
    Investments
    The Key to Happiness
    Andy Clarke
    Corporate Communications at Vanguard
    Every December, my department holds a white elephant gift exchange. We place wrapped gifts on a table and take a number. When our number is called, we can select a gift or “steal” a gift that someone else has already claimed.
    Trusts
    The Rise of Family Office Industry
    David Park
    CEO of Austin Capital Trust
    The Family Office Industry is expanding with an impressive pace with a new family office opening every month.  Just as impressive is the growth of the wealth management industry servicing the family office.  The impact of the growth is evidenced all around us by their investments in apartment buildings, franchises, and venture capital. Family Offices have become an important source of capital for the small and medium-sized businesses and investments that fuel our economy, an especially important factor given the slowdown in lending by traditional commercial banks.
    Real Estate
    China Won’t Export Housing Crisis
    Joe Davis
    Vanguard's Chief Economist
    In the Chinese city of Ordos, empty skyscrapers loom over largely empty roads, empty town plazas, and empty schools. It’s China’s best-known ghost town. The empty buildings in Ordos and other places—started as part of an ambitious government plan to build hundreds of new cities—are monuments to inefficient allocation of capital.