28 January 2015
  • Featured Posts
    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.

  • Featured Posts
    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.
    Investments
    Busting a Bond Index Myth: Or (Don’t) Call Me HAL
    Josh Barrickman
    Head of Fixed Income Indexing Americas
    My team manages Vanguard Total Bond Market Index Funds.If you’re imagining that we let computers do the work, think again. While technology is an important tool, the bond index team is powered by the collective talent and experience of 16 people doing business the old-fashioned way—often by telephone.
    Investments
    Diversification … I Get That!
    Jim Rowley
    Senior Investment Analyst of Vanguard Investment Strategy Group
    A couple of months have passed since I shared some things that I just don’t get about bond indexes. During that time, my many conversations with advisors have reminded me of something about bond indexes that I do get—diversification.
    Investments
    Let’s Be Explicit: Explaining ETF Premiums and Discounts
    Brandon Clark
    Senior Manager at Vanguard Equity Investment Group
    Two recurring question I get on the trading desk from advisors are “Why is ETF A trading at a premium?” and “Why is ETF B selling at a discount?” A deeper dive into the costs of ETF transactions can help answer these questions.
    Investments
    Discipline in a Sea of Noise
    Greg Davis
    Principal and Global Head of Vanguard Fixed Income Group
    When people hear that I work for Vanguard, they often ask me for advice on how they should invest their money. Fortunately for me, the advice is easy to deliver because for nearly 40 years our recommendations have remained simple and consistent: Know your investment goals, invest with balance and diversification, minimize costs, and maintain long-term discipline and focus.
    Investments
    The “MythBusters” Approach to Indexing: Inefficient Markets
    Chris Philips
    Senior Investment Analyst of Vanguard's Investment Strategy Group
    MythBusters is one of those cable shows that I find myself gravitating toward whenever I’m channel surfing. It’s just one of those shows that I find wildly entertaining. I know, I know . . . nerd alert! But that’s what you get when you ask an investment guy to “show a bit of personality.” In any event, for those who are less familiar, each episode follows a similar structure: A common myth is presented and then the hosts apply scientific method and experiments to test its validity. Watching an episode recently got me thinking about certain investing myths that never seem to die. In particular, there are a number of myths surrounding indexing that could really benefit from the debunking process. So I decided to dedicate a series of blogs to tackling these indexing myths and hopefully set the record straight.
    Fiduciary
    Great Demand for 3(38) Fiduciaries
    David Park
    CEO of Austin Capital Trust
    As retirement plan regulations continue to tighten, more small plan sponsors like the idea of working with a 3(38) manager who takes full discretion with investments.By hiring a 3(38) manager, the adviser to the plan still has a key role.The alliance frees the adviser to concentrate more on client services including participant education and client relationship. 
    IRS
    ‘New Comparability’ Allocation & Testing: Rules & Procedures
    Daniel Zajac
    Consultant at Austin Capital Retirement Plan Services, LLC
    “New Comparability” testing is an IRS approved method for testing non-elective profit sharing contributions made to a defined contribution retirement plan (or a defined contribution plan used in concert with a defined benefit (i.e. cash balance) plan) which allows for non-discrimination testing to be performed with regard to the benefit rather than the contribution. Because it tests benefits in a defined contribution plan, it is also known as cross-testing.
    Investments
    Longevity Insurance in Your Retirement Account?
    Steve Utkus
    Principal and Director of Vanguard's Center For Retirement Research
    The U.S. Treasury has issued new regulations encouraging longevity insurance within defined contribution (DC) plans and IRAs. What did Treasury do? And what might it mean? Longevity insurance is an insurance contract you buy early in retirement, say at age 65, and that pays out a monthly income at an advanced age, such as age 80 or 85. The monthly income, importantly, kicks in only if you’re alive at the later age. That fact, plus the fact the income starts decades into the future, means it’s pretty inexpensive insurance to buy. 
    Economy
    Mounting Evidence Suggests That the U.S. Deleveraging Process Is Coming to an End
    Jens Søndergaard
    Economist at Capital Group
    Since 2006, U.S. consumers and businesses have been reducing the debt on their balance sheets. The U.S. deleveraging process is now very advanced and there is evidence to suggest that it may be coming to an end. In fact, early signs suggest consumers and businesses may be moving from a deleveraging phase into a releveraging phase. 
    Investments
    How to Avoid Taking Risks When Trading Your Clients’ Money
    Brandon Clark
    Senior Manager at Vanguard Equity Investment Group
    As head of the ETF Capital Markets Team at Vanguard, I spend a lot of time talking with advisors about ETF liquidity, spreads, and other matters related to obtaining best execution. In this blog post, I’ll share some of the best practices that we promote during these discussions. Our goal is to optimize your trades so you can capture the best possible prices for your clients.
    Investments
    Is Low VIX Merely Calm Before the Storm?
    David Park
    CEO of Austin Capital Trust
    On Wall Street, VIX is shorthand for the CBOE Volatility Index, or "fear gauge," derived from stock option prices. On Tuesday, the VIX hit a 14-month low of 11.38. But just a quick look at news around the world begs the question: Why?
    Pension
    Frozen Defined Benefit Pension Plans – an opportunity that is underserved and neglected
    Charles Leggette
    President of Austin Capital Retirement Plan Services
    In a study I prepared in 2009, I compared the fees for actuarial services performed for a frozen defined benefit pension plan both before and after the freeze. As I suspected, there was little difference, even though the amount of work can be dramatically less with a frozen plan.Examining 20 frozen plans near a fairly large heartland city, the fees spiked in the year the plan was frozen, and then over the next two years settled back to roughly pre-freeze levels. This situation opens the door for advisors to have a discussion with these Plan Sponsors. So how can one find Plans that are frozen?  Easy: it’s an IRS Form 5500 item that’s a selection item in most good 5500 data mining systems. 
    401k
    Receiving Rollovers from another Qualified [?] Plan – a sticky issue simplified by IRS
    Charles Leggette
    President of Austin Capital Retirement Plan Services
    The IRS has issued a revenue ruling providing simplified safe harbor due diligence procedures that a plan administrator may use to determine the validity of a rollover contribution.
    401k
    Congress has Raised the Profile of Multiple Employer Plans
    David Park
    CEO of Austin Capital Trust
    A concerted effort in Washington to get more employers to offer retirement plans has raised the profile of multiple employer plans. A multiple employer plan is adopted by two or more unrelated employers that do not want the administrative burdens and fiduciary responsibilities of sponsoring a plan themselves.  MEPs are an excellent tool to expand coverage, particularly in the small end of the market, but uncertainty about the application of pension and tax rules to MEPs and participating employers has hurt growth of pooled programs.    
    401k
    Examine 2013 Retirement Plan Metrics Now!
    Charles Leggette
    President of Austin Capital Retirement Plan Services
    Plan Advisors: you are remiss if you do not examine December 31, 2013 metrics NOW   It’s February, and your client’s have finished their W 2 1099 K 1 tax reporting and year end accruals for their accounting departments and CPAs. Theyknow what kind of year they just experienced. 
    401k
    MyRA Proposal Has Promise If Private Sector Is Involved
    Charles Leggette
    President of Austin Capital Retirement Plan Services
    The retirement savings program for lower-income workers that President Barack Obama announced during his State of the Union speech is a good start.Called “myRA,” the plan is certainly better than nothing. But it is only the first of a series of steps we must take to alleviate this country’s retirement savings crisis.