More Articles
-
Slick TV ads often make financial planning and wealth management sound simple, but it’s usually not. Managing wealth requires knowing a lot about highly technical topics, like taxes, government regulations, and finance as well as history, psychology and how to communicate with loved ones about sensitive issues. This article highlights some of the knowledge needed to manage wealth and why it’s often so daunting without the help of an independent personal financial advisor who is familiar with your situation.
-
Understanding The Federal Reserve Mandate To End Inflation
The Federal Reserve System, the nation’s central bank, has a dual mandate to pursue maximum employment and maintain price stability. These two priorities are currently treated equally, but that was not always the case. In fact, the Fed’s bias toward maximizing employment was a critical driver of the stagflation that plagued the U.S. in the late 1960s and 1970s. Recognizing the need to balance price stability and maximum employment, in 1977, Congress revised the Federal Reserve Act.
-
Fed Governor Kugler Details Inflation And Economic Outlook
The 12-month inflation rate, as measured by the personal consumption expenditures (PCE) index, was 2.6% in December, down from its peak of 7.1% in June 2022, and the six-month rate for PCE inflation was even lower, at 2%, which is the target rate set by the Federal Reserve.
-
Why Rates May Not Be Cut Until June
The cost of a loan to buy a home, car, college education, and achieve the American Dream is staying the same for now. As expected, Federal Reserve Chairman Jerome Powell said the central bank did not lower loan rates following the Fed’s Wednesday, Jan. 31, 2024, policy meeting.
-
Practical Suggestions For Achieving Your 2024 Resolutions
New Year’s resolutions usually fail because they‘re often too hard to achieve. After six months, only 10% of people who make resolutions achieve them or remain committed to them, , according to a study by Dr. Mark Griffiths, a Chartered Psychologist and Distinguished Professor of Behavioral Addiction at the Nottingham Trent University. What can you do to make financial, medical, or other personal resolutions more likely to be achieved?
-
A Sign Of Progress In Solving U.S. Economic Problems
The Federal Reserve appears to be pulling off a feat most experts did not believe it could: ending its aggressive inflation-fighting campaign of 11 interest rate hikes without tipping the U.S. economy into a recession.
-
Fed Keeps Rates Unchanged; Expects Easing In 2024
To promote transparency and free markets, the Federal Reserve System began publishing the opinions of the 19 U.S. central bankers that decide interest rate policy.
-
Have You Logged Into Your Social Security Account?
Have you logged in to your Social Security account? Creating an online account at SSA.gov is an important first step in understanding your retirement income situation. However, only about 60 million of the 160 million individuals in the U.S. labor force who have Social Security accounts have created a way to access the Social Security Administration’s website.
-
The Great Fake Out Of 2023 Is Poised To Extend Into 2024
All year long, the economy and stock prices have fooled experts and consumers, outperforming expectations month after month.
-
Test Your Financial Planning IQ
The five questions below are a challenge meant to allow you to assess your knowledge of investing, tax and financial planning. If you have been following our news stream, this quiz draws on familiar ground. The answers are below.
- Read More
Planning Briefs
The Most Important Financial News Of 2018
Published Wednesday, February 13, 2019 at: 7:00 AM EST
The most important financial news of 2018 was that Modern Portfolio Theory (MPT), the strategic underpinning of prudent investing, worked. Yet you just don't see front-page headlines saying conventional wisdom worked. Why? Because when what's expected to happen actually occurs, it's not news. Nonetheless, the fact that modern portfolio theory worked, just as academia has expected it would, was the most important financial news of 2018.
Performance of an equal-weighted portfolio of seven assets for the 49 years through 2018 validated the theory pioneered in academic research in 1948 by Harry Markowitz. MPT holds that a broadly diversified portfolio rebalanced periodically is the best way to get equity-like returns with less risk. The Standard & Poor's index of the 500 largest publicly-held companies over the 49-years averaged a 10.21% return annually and a 16.98% standard deviation (risk rating), compared with a 10.23% risk rating and 9.48% return on a broadly diversified portfolio. This big news happened in plain sight — as it does every year — and, as always, it occurred so very slowly that it was easy to overlook. Based on monthly portfolio design research reports we license by Craig Israelsen, Ph.D., who's taught this class annually for three decades, here's what happened.
In January 2019, the Jubilee year of the modern era of investing, the wisdom of MPT was confirmed: A broadly diversified portfolio over the near half-century long period averaged a return annually on par with stocks but with much less risk! The data on these seven indexes representing these asset classes only goes back to 1970, which is why having another year of data supporting the theory is important confirmation that this relatively new theory explaining investing is correct. Despite the stagflation of 1970s, high inflation of the 1980s, boom and tech crash of the 1990s, the credit bubble and financial crisis of 2008, and current uncertainty, a prudent course of moderation and quantitative analysis has worked as expected for another year.
The 9.48% total return on the diversified portfolio is comparable to the return on a 100% large stock portfolio, the best return of the seven assets, but the diversified portfolio's risk was much lower. The third-best return across the seven types of asset classes was the 8.42% annualized return on non-U.S. equities, which was an equity-like return, but its 21.75% standard means it carried more than twice the price risk of the diversified portfolio.
The number of losing years and worst three-year performance also add context for understanding the relative risk of the seven asset classes versus the equal-weighted diversified combination of the seven types of assets. In seven of the 49 years, the diversified portfolio suffered negative returns versus 15 losing years on the top-performing asset class, and the worst three-year loss was 13.37% on the diversified portfolio, much lower than the 37.61% drawdown on the S&P 500.
Although the news that a broadly diversified portfolio from 1970 through 2018 worked just the way conventional wisdom said it would did not make headlines, it was the most important financial news story of 2018.
Past performance is not a guarantee of your future results. Calculations by Craig Israelsen, Ph.D. Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Raw data source: Steele Mutual Fund Expert. Asset class and style data reflects performance of the following indexes:
US Large Cap: S&P 500 Index (TR)
US Mid Cap: S&P Midcap 400 Index (TR)
US Small Cap: S&P Small Cap 600 Index (TR)
Non-US Developed: MSCI EAFE Index NR USD
Emerging: MSCI EM Index GR USD
Real Estate: S&P Global REIT Index TR USD
Natural Resources: S&P North American Natural Resources Index TR
Commodities: Deutsche Bank Liquid Commodity Optimum Yield, Diversified Commodity Index Total Return
US Bonds: Barclays US Aggregate Bond Index TR USD
TIPS: Barclays U.S. Treasury US TIPS Index TR USD
Non-US Bonds: Barclays Global Treasury Index TR
Cash: USTREAS Stat US T-Bill 90 Day TR
© 2024 Advisor Products Inc. All Rights Reserved.