Short excerpts from articles I found interesting. I may not agree with the author and the following material is not intended as investment advice.
- “I want to draw attention to a change we’ve observed in S&P 500 returns—specifically, the difference in performance between an equal-weighted basket of stocks and one that’s market cap-weighted. For the longer-term period, equal-weighting outperformed. But more recently, market cap-weighting has pulled ahead. This is the case for the one-year, three-year and five-year periods. So why is this? Simply put, the phenomenally large FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) have made the S&P 500 top heavy. Today, these five stocks represent a highly concentrated 12 percent of the S&P 500, nearly double from their share just five years ago. Apple alone represents 4 percent of the large-cap index.”
- “Market cap-weighted also means more money is disproportionately being reallocated to top winners such as Apple and Amazon, and so it becomes a self-fulling prophecy. This leaves you with too much exposure to companies that would be hardest hit in the event of a market downturn, and too little exposure to names and sectors that might rotate to the top in the next cycle.”
- “The major market indices finished mixed this week. The Dow Jones Industrial Average lost 0.89 percent. The S&P 500 Stock Index rose 0.01 percent, while the Nasdaq Composite climbed 1.32 percent. The Russell 2000 small capitalization index gained 0.68 percent this week…
- “...Reliable, conflict-free advice. That’s what you usually want when you hire a skilled pro to help build and manage your financial portfolio. But there’s no guarantee you’ll get it. Some investment advisors, motivated by commissions, bonuses, or other financial incentives, steer clients into products that aren’t in their best interests, resulting in some $17 billion in lost retirement savings per year, according to a 2017 report by the White House’s Council of Economic Advisers. So where does that leave investors?
- “…The first step is to understand that there is a divide in the investment-advisory industry’s standard of service. Some advisors adhere to a fiduciary standard, and others to a suitability standard. The fiduciary standard requires an advisor to put clients’ interests first, generally meaning to disclose and avoid any conflicts of interest. Under a suitability standard, advisors have to believe that an investment is a perfectly fine choice for a client, but don’t have to disclose conflicts or that there are cheaper, more tax-efficient or otherwise more competitive products available. Brokers and insurance agents are supposed to adhere to this standard…The only advisors legally held to a fiduciary standard are registered investment advisors, or RIAs. Often referred to simply as “independent” advisors, these are practices made up of an individual or a group of advisors.”
- “…Morningstar’s chief behavioral scientist Stephen Wendell thinks the real challenge for retirement planning is behavioral. He is of the opinion that a combination of small changes—increasing savings over time and comparing one’s savings rates to their peers, for instance—is more effective than a “shock and awe” approach. The latter approach causes people to freeze up.”
- “Ariel Investments president Melody Hobson describes the mutual fund and exchange-traded fund (ETF) giants as doing “a very good job” of selling passive investments at a low cost. At the same time, she believes the commoditization of index investing is creating inefficiencies for active investors, like her firm, to exploit.”
- “During a panel discussion about blockchain held for the media, Morningstar analyst Jim Sinegal noted that since we’re still in the early stages of the technology, it is very possible to be right about cryptocurrencies becoming mainstream and still be wrong about which cryptocurrency will be the eventual winner...”