Market timing can cost you money

Over the past year and for periods of five, 10, 20 and 30 years, the average mutual fund investor has underperformed the markets for both stocks and bonds, according to research firm Dalbar. The Dalbar data leads to the inescapable conclusion that most investors are really terrible at investing. They panic and sell at the wrong moments, hurting their chances of success. The shocking reality is that investors actually made themselves poorer by giving in to their whims. Just look at the Dalbar results for 2018. The inflation rate was 1.93 percent, which means that investors would have had to earn that just amount to tread water. Instead, the average stock fund investor lost 9.42 percent, for a gap of more than 11 percentage points! Consider a few more dismal data points for stock mutual fund investors. Compared with the S&P 500, through Dec. 31, 2018, those investors underperformed by: — 5.88 percentage points, annualized, over 30 years; — 3.46 percentage points, annualized, over 10 years; — 4.35 percentage points, annualized over 5 years. The lesson investors can learn from this research is the value of staying the course and not making any sudden moves. According to Dalbar president Louis

September 4, 2019 No Comments

Why stocks still look cheaper than bonds

Recent U.S. equity market weakness and volatility likely has some investors wondering if they should cut their exposure to stocks in favor of fixed income/bonds. But by at least one metric, such a move could be premature. Stocks remain inexpensive relative to bonds, and while the premium they offer has been steadily dropping for years, the argument in favor of equities doesn’t look likely to reverse soon. Equities are cheaper than bonds when stocks yield more, and that continues to be the case. When you compare the S&P 500’s earnings yield against the yield offered by fixed income investments (i.e., investment-grade corporate bonds), stocks look cheaper than bonds. And if you’re an investor, you want to buy when things are cheap in order to take advantage of more potential upside performance. According to WSJ Market Data Group, the S&P’s current earnings yield is more than 4%. Investment-grade corporate bonds, as measured by the iShares iBoxx $ Investment Grade Corporate Bond ETF yield 3.4%. The view comes after a whirlwind six months for the U.S. stock market, a period that has seen equities hit repeated records before logging the longest correction for major indexes in a decade. The past six months

July 10, 2018 No Comments