New 401k plan design features (auto-enrollment, auto-escalation, and riskier default investment options) are based on the knowledge that, in general, investors and retirement savers do not make very good financial decisions. Reams of academic research support this conclusion.
If you rely on the media, and particularly the local media, for your coverage of the stock market, you will find that the Dow Jones Industrial Average (DJIA) is the most oft-quoted measure of how the stock market performed on a given day. And yet most stock market professionals - portfolio managers, analysts, strategists and the like - will refer to the S&P 500 Index instead of the DJIA as their preferred yardstick of market performance. Why is this?
One of the investment universes that Five Seasons Financial Planning monitors in an ongoing search for value to exploit for the benefit of client portfolios is that of closed-end mutual funds. At this time of year, when tax-loss selling is prevalent, there are often compelling values to be found, and this year is no different. Since you may be somewhat less familiar with the concept of closed-end mutual funds than with other types of mutual funds, here's a quick primer:
If recent conversations with clients are any indication, a primary worry out there is how to plan for, or guard against, the "inevitability" of higher interest rates, a.k.a. falling bond prices. Most of these discussions arise from genuine concerns about the future performance of fixed-income investments given this backdrop. Some arise from a touch of performance-chasing, i.e. "Stocks have done so well in the last few years, so why not allocate more of our portfolio to them at the expense of our bond allocation, which has been languishing?".
With this year's tax filing extension due date just behind us, tax season was an even more painful experience than usual for many mutual fund investors. Many mutual fund companies have been distributing much higher capital gains to shareholders in recent years, resulting in higher related tax bills.
With financial markets quietly grinding higher in recent months, I've been able to complete one of my major projects for the year, which was to investigate so-called "smart beta" mutual funds.
Some stocks are deemed to be "value" stocks, while others are labeled "growth" stocks. The "value" label is most commonly given to stocks with low prices relative to the company's earnings or sales revenue or cash flow or accounting book value.