All Posts By

Bob French, CFA

Review: 3 Lesser-Known Charts Revealing a Massive Disconnect in The Market

By | Investing, Active vs. Passive, Weekly Review | No Comments

Most people secretly believe it’s possible to predict what the stock market will do next. If you are just clever enough, and have access to the right information, you will be able to predict where the market is going. But the ugly truth is that we just can’t. No matter how clever you are, or what information you have, the market is still smarter than you. You may get it right – you have a 50/50 shot of guessing the right direction – but that’s just luck. There’s no evidence that active managers can consistently beat the market. And that consistency is the key. Articles like this one, touting things the rest of the market “overlooks” are annoying. If these “overlooked” metrics really had any predictive power, they wouldn’t be overlooked for very long. And the author certainly wouldn’t be writing about them. He would be trading on them. He would be trying to make sure that people didn’t find out about them. The fact that he’s writing about them suggests they’re more valuable to make him look smart than as a long-term trading advantage. This is an example of the gratuitous noise in the financial press. I only grabbed […]

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Review: When are those penny stock spam emails a good idea? Pretty much never.

By | Retirement Risks, Weekly Review, Healthy Aging | No Comments

We all hate spam, but clearly it works – otherwise we wouldn’t get so much of it. It may not cost much to send an email, but there still needs to be a positive return somewhere in the mix. This is true no matter what type of spam you get – winning a contest, weight loss, or stocks – someone is taking them up on the offer. I doubt that many people reading this are in danger of being suckered in by a pump and dump scam, but someone you know might be, especially older friends and relatives. Elderly folks tend to be more trusting and less informed of the latest scams, making them the perfect target for this type of garbage. Investment scams play right into one of retiree’s biggest fears – running out of money. And the spammers have just the answer. Unfortunately, financial exploitation of the elderly is distressingly common. When I moved to Maine, I had to transfer my licenses from Maryland, which required taking a class in Augusta. As far as I know, Maine is the only state that does something like this – everywhere else you just fill out a form and write a […]

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How Good Is the VIX Index at Predicting Market Volatility?

By | Diversified Portfolio | No Comments

The VIX Index is one of those things people mention to sound smart. It’s just obscure enough that most people have heard of it, have some inkling of what it is, and feel like they should understand – but they don’t really get it. In short, the VIX Index is the market’s estimate of what the volatility of the S&P 500 Index will look like over the next month. The VIX has been in the news a decent amount recently. While we aren’t at the record lows we saw a little while ago, the VIX is still pretty low – it’s only at about two-thirds of the index’s long term average. The question I want to explore today is this: Does this actually tell us anything? Should we expect the S&P 500 Index (and by extension, the market) to be more volatile over the next month or so? Let’s take a look at the numbers. Before we test how much trust we should put in the VIX, let’s set up a control. How well does the volatility of the S&P 500 Index over the previous twenty trading days predict the volatility of the S&P 500 Index over the next twenty(1)? […]

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Review: How you can retire by the time you’re 40

By | Goals, Weekly Review | No Comments

A lot of people dream about early retirement, but they think it’s an unattainable dream. The truth is, it’s probably more possible than you think. To get there, you need to have a very clear idea of what you want, a plan for how to get there, and the willingness to work at it. Just saying that you want to retire at forty, fifty, or whatever your target age happens to be isn’t all that useful, though. That’s a wish. You need to have a concrete idea of what your retirement will actually look like. Are you going to keep working either as a volunteer or for pay? Will that work be full or part time? Are you going to sit around relaxing (this might get pretty boring after fifty years…)? The more specific you can be, the easier it will be to to build a plan that will take you from where you are today to your (successful) early retirement – and beyond. That plan is likely to call for higher levels of savings than most people are used to. Not only will you (often) be forgoing a paycheck after your early retirement, you will likely be spending from […]

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Review: This is how much fees are hurting your retirement

By | Retirement Income Funding, Weekly Review | No Comments

Fees are incredibly important. Almost everything in investing is completely unknown, and outside of your control. The markets are going to do what they are going to do. But you do control how much you pay in fees. And you should focus on this very closely, as this recent MarketWatch article makes abundantly clear. But you shouldn’t monomaniacally focus on investment fees. They are part of the entire package when you are evaluating investments. You should care about what you are paying, but you should also care about what you are getting. It doesn’t matter how cheap a fund is if it doesn’t accurately represent its asset class, or it acts differently than you expect. Investment costs vary among different asset classes. You can find S&P 500 ETFs or index funds that cost a handful of basis points (as a point of comparison, iShares S&P 500 ETF – IVV – charges 0.04% per year), but you won’t find a fund that invests in international small cap value companies at that price. You need to look at what provides the most benefit to your portfolio. Sometimes that means paying a little bit more for a better fund. One other point about […]

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Review: Stock strategists see possible 5% correction before this selloff is over

By | Investing, Investment Advice, Active vs. Passive, Weekly Review | No Comments

Technical analysis is always fun to pull apart. This article quotes several analysts predicting a potential 3 to 5 percent drop over a short, but unspecified, term – depending on how some of their indicators move. One of the great things about technical analysis is that it’s usually unverifiable. If we do see a drop (of really any magnitude) they get to claim success and talk about how brilliant they are. If the markets keep going up, then the conditions just weren’t right. Plus, how many people are really going to complain about the markets going up? But let’s take them at their word. I’m sure the folks this article quotes truly believe in what they are saying. So let’s do a quick and dirty analysis to see how common short term moves of this magnitude are. To keep things simple, let’s just look at the daily returns of the S&P 500 Index from 1/4/50 – 8/10/17. Over this period, the average daily move (the absolute value of the daily return) was 0.65 percent and the standard deviation of the daily moves was 0.71 percent. So a week of average daily movement puts us pretty close to the top range […]

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Review: How to gauge your chances of a phased retirement

By | Retirement Risks, Retirement Income Funding, Reliable Income, Retirement Insights, Financial Planning, Weekly Review | No Comments

A lot of people expect to work past “retirement age.” They either figure that they will need the additional income to live, or they just enjoy their work and everything that comes with it. Planning to work in retirement is a dangerous game. Working longer can have a huge impact on your retirement situation – not only will you still have an income, but you also won’t be pulling money from your savings. However, almost half of retirees leave the workforce before they planned to, and of those who retired early, over half left because of a personal or family health issue. That should be terrifying if your retirement income plan hinges on you working into your 70s. If you want to work in retirement, that’s great. But you need to recognize it’s a risk. You may not have that option. You owe it to yourself to look at the situation rationally and understand just how feasible your plan is. While 70 percent of companies say they are “aging friendly,” that doesn’t really mean all that much. Frankly, I’m curious about the third of companies that said they weren’t “aging friendly.” You need to look at what your company and […]

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Review: What if retirement makes you miserable?

By | Goals, Weekly Review | No Comments

Most people romanticize retirement. It’s really easy to do – even aside from the grass always being greener on the other side, you’ve been working towards retirement for the past 30 or 40 years. But that’s actually pretty dangerous. We may spend 40 years building up our savings, but you have a good 20 or 30 years of life left to live after retirement. Having a lot of money doesn’t mean that you will have a good retirement (though it does make everything a lot easier.) You need to think about what will actually make you happy in retirement. What is it that you are going to do all day? Will that actually be fulfilling? Some people really do want to sit on their porch sipping lemonade and reading a book. But most people will get tired of that pretty quick. So many of us have built our identity around what we do. Retirement means that goes away (at least to a large degree). What comes next? This is probably the most important question in the retirement planning process. Without knowing what you want to do in retirement, you can’t plan properly. The best you can do is simply throw […]

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Review: Americans’ retirement benefits slashed by a quarter

By | Retirement Insights, Weekly Review, Insurance | No Comments

Preparing for retirement is hard. Especially as employer contributions have gone down over time. Since 2001, employer retirement benefit spending (pension and 401(k) contributions, as well as retiree health care) have dropped from 9.1 percent of worker pay to 6.8 percent of worker pay in 2015. (This is a 25 percent drop, but it’s not quite as dramatic as the headline makes it out to be since it’s spaced over 15 years.) During that time we’ve seen defined benefit pension plans all but disappear – employer spending on them has dropped to less than 1 percent of worker pay. It’s all on you now. What’s interesting is that health care (read health insurance) spending for current employees has increased more than retirement benefits have decreased. As of 2015, health care spending for current employees represents nearly two-thirds of all benefit spending. This means that you need to take charge of your own retirement planning. You are largely on your own. There’s a lot that goes into preparing for retirement, and it goes (far) beyond just throwing money at your 401(k) and IRA (though there are worse places to start). To find out what issues you should be thinking about, read […]

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