Dimensional Fund Advisors: DFA & Small Cap Stocks

Dimensional Fund Advisors has an investment approach that is structured and simple to monitor. They believe that over time, a well-structured investment approach will add value with a higher reliability and confidence level than one based on instinct and prediction. Dimensional Fund Advisors does not actively pick stocks or passively track commercial indexes but instead structures portfolios along the dimensions of rick and return as identified through financial science.Dimensional is widely acknowledged for their practical application of seminal financial research. Initially their strategies were based on research into the performance of small cap stocks. Later, a more comprehensive look at stock price behavior for the entire universe ofUScompanies has deepened their strategies and set a new standard for performance measure and portfolio design.

via Dimensional Fund Advisors: DFA & Small Cap Stocks.

One-Year Anniversary of the Bear Market – Seeking Alpha

Bear Market – an 18-to-24 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex. — Investor’s Glossary

October 9, 2008 marked the one-year anniversary of the bear market in U.S. equities. This seemed like a good occasion to review the performance of all the portfolios presented in Ben Stein’s and my book, Yes, You Can Supercharge Your Portfolio. The book was published in December 2007 and the portfolios it contains were devised in sunnier times, during the preceding summer. Our goal was to popularize Modern Portfolio Theory among retail investors, and we relied heavily on Geoff Considine’s Quantext Monte Carlo simulator [QPP]. Had we known the stock market would decline almost 50% after constructing the didactic portfolios in the book, we would have titled it Yes, You Can Put Brakes On Your Portfolio’s Descent into Hell.

Here follows a performance update on the portfolios discussed in the book over the market’s decline this past year.

Apple Pie

We called our initial portfolio the “Apple Pie” portfolio [70 percent total U.S. Stock Market (VTSMX), 25 percent MSCI EAFE Index (FSIIX), and 5 percent MSCI Emerging Markets Index (VEIEX)] because it looked like the sort of standard pie-chart portfolio recommended to expense-conscious, indexing investors.

via One-Year Anniversary of the Bear Market – Seeking Alpha.

A Practical Demonstration of the Value of Portfolio Theory – Seeking Alpha

Ben Stein and I wrote Yes, You Can Supercharge Your Portfolio to demonstrate the practical value of Modern Portfolio Theory to a mass audience. It had long struck us that many investors still operate under a pre-Markowitz paradigm, trying to outperform the market by picking hot stocks and five-star mutual funds. In the book, we argue that a better approach is to seek massive diversification among and within asset classes in order to attain the best risk/return tradeoff for a portfolio. We further recommend that portfolios should be checked through forward-looking Monte Carlo simulations, and provide some practical examples. In contrast, merely extrapolating from historical returns to an asset allocation can lead to poorly-performing allocations, as shown in William Bernstein’s The Intelligent Asset Allocator. Forward-looking models can provide more realistic estimates of future risk and return.

via A Practical Demonstration of the Value of Portfolio Theory – Seeking Alpha.

HSA Insurance Premiums Proven To Be Cheaper Than Competitive Offerings

After years of growing separation between Consumer Directed Healthcare and older healthcare insurance plans such as PPOs, a major study found a significant cost difference in 2011.

The respected Kaiser Family Foundation employer survey identified what many experts have been saying: Health Savings Account and Health Reimbursement Account insurance premiums are significantly lower overall than other plans.

The gap in premiums between HSAs and older benefit designs is being described as huge by pundits in the field. The based this conclusion on the findings of the new Kaiser Family Foundation employer survey just released.

According to KFF, HSAs have 18% lower premiums. HRAs are at least 3% lower-priced for the average employer-paid family premium across the U.S.

The average 2011 HRA family premium is reported as $14,909 a year in the U.S. and the average HSA premium is $12,655, compared with $15,363 for non-CDH plans. All three are paid for with different out-of-pocket cost combinations: HSAs have the highest OOP cost but are the fastest-growing, HMOs have the lowest OOP cost but are the least-popular option.

These premium differences are clearly driving adoption. Using the KFF definition, CDHPs are offered to almost 25% of all workers nationwide, and the latest survey finds that 17% of all employees are now in an HSA or HRA. The most telling stat: 84% of all employers now offer only one type of plan.

These same pundits argue this bodes well for total replacement HSA or HRAs going forward.

According to JoAnn M. Laing, chairperson of Information Strategies, Inc. which has surveyed and monitored the HSA sector since its inception, “the promise of HSAs as a vehicle to reduce overall healthcare insurance costs for individuals and employers is being borne out.”

“Our studies have shown that once HSAs (and HRAs) gained traction growth would move on a high level in ensuing years. 2011 proved to be the tipping point.

Healthcare insurance options offered by businesses show that CDHPs are moving up fast on offer rate: 23% across all firms. HMOs are offered at 16% of firms, and “POS” is at 24%. Pure PPOs without any account are still strong, but just fell to a 50% offer rate across all firms. CDHPs have the second-highest offer rate (behind PPOs) in firms with over 200 workers.

via HSA Insurance Premiums Proven To Be Cheaper Than Competitive Offerings.

How The “Advisor Sting” Study Completely Missed The Mark – kitces.com | Nerd’s Eye View

One of the most common ways that financial advisors demonstrate a value proposition to clients is to help clients manage their own behavioral biases and misconceptions; simply put, we help to keep clients from hurting themselves through impulsive, emotionally driven investment decisions. Of course, hopefully most financial planners do more than “just” keep their clients from making bad investment decisions, but it is nonetheless an important starting point. Accordingly, a recent NBER study tried to test this, in what has been characterized as an “advisor sting” study – where the researchers actually went undercover to the offices of advisors, to see what kind of advice would be provided in various scenarios, and unfortunately the results were not terribly favorable to advisors. However, a look under the hood reveals a significant methodological flaw with the NBER study – simply put, they failed to control for whether the people they sought out for advice actually had the training, education, experience, and regulatory standards to even be deemed advisors in the first place, and in fact appear to have sampled extensively from a pool of salespeople with little or no advisory training or focus. As a result, the study might have been better classified as a “salesperson sting” study simply showing that non-advisory salespeople don’t give good advice, regardless of the title they put on their business card. Is that really news to anyone, though?

The inspiration for today’s blog post is a recently released National Bureau of Economic Research (NBER) working paper entitled “The Market for Financial Advice: An Audit Study” by Sendhil Mullainathan, Markus Noeth, and Antoinette Schoar. The stated purpose of the research was noble: to examine the question of whether financial advisors undo, or reinforce, the behavioral biases and misconceptions of their clients? In other words, at the most basic level – do advisors help their clients to make better investment decisions.

via How The “Advisor Sting” Study Completely Missed The Mark – kitces.com | Nerd’s Eye View.

How Much Money Do You See? | Fee-Only Certified Financial Planner based in New Orleans – Upperline Financial Planning

How much of your money do you actually see? In your hands? In your wallet?


If I had to guess, it would be somewhere less than 5% of your total income. You can even include checks that you write in that amount. I’m guessing you write one or two per month. I own my own company, and I’m averaging fewer than 1 check per month.

Our money flows around us invisibly. The money we earn gets directly deposited into the bank. We set up automatic payments for our mortgage, loan payments, insurance, and anything else that we can automate. We swipe our cards and pay for clothes at the department store, groceries, and dining out. I can even pay for coffee at Starbucks now with my phone.And is it any wonder that we feel like we don’t really have the control of our finances that we’d like?Now, I’m not suggesting you switch to cashing your payroll checks at the bank and using envelopes in a drawer to manage your finances. I am suggesting that we do need to take extra steps to have control of our money, since we don’t carry it around in our wallets any longer.

via How Much Money Do You See? | Fee-Only Certified Financial Planner based in New Orleans – Upperline Financial Planning.

Congress Eyes 401(k)s Again

As employment pension plans are being replaced by 401(k)s, we need to be mindful of any potential changes to tax treatment of these widely used retirement vehicles. An interesting article was recently published from Kelly Greene which cautions us that the tax treatments of these plans could be altered by a government which is in desperate need of raising revenue. Here are the 5 questions that are brought up and answered in this article.

1. Why are retirement accounts being scrutinized now?

2. Why would Congress tinker with the retirement plans they already have set up?

3. What proposals to increase tax revenue, or boost retirement savings, are on the table?

4. If Congress alters tax deferrals, will people still put money away?

5. How much do these plans cost the government in lost revenue?

via Congress Eyes 401(k)s Again.

Congress Eyes 401(k)s Again (Wall Street Journal) | LifeHealthPro

Policy-makers are gearing up for the tax-reform effort and wondering if retirement vehicles can’t be streamlined and gain more traction from lower incomes. Now might not seem like the time to tinker, but there is a question whether vehicles now are too confusing for people to use. Congress also is looking to raise revenue. Among the proposals: Automatically enroll workers in IRAs, cap retirement-plan contributions at $20,000 a year or 20% of compensation, replace exclusions and deduction for retirement savings with an 18% tax credit. If Congress does alter tax deferrals, Jack VanDerhei, research director at the Employee Benefit Research Institute, says people will not put money away at the rate they currently do. The group’s 2011 Retirement Confidence Survey found one in four would reduce or eliminate retirement contributions if they could no longer be deducted.

via Congress Eyes 401(k)s Again (Wall Street Journal) | LifeHealthPro.

Congress eyes retirement-plan tax benefits – MarketWatch

SAN FRANCISCO (MarketWatch) — You’d think a legislative bill to fund the nation’s highways and mass-transit systems would have no connection to your retirement savings. But that didn’t stop lawmakers from proposing an amendment to the bill that would have trimmed a valuable retirement-plan benefit.

The proposal would have raised about $4.7 billion over 10 years by changing the rules governing how people who inherit an individual retirement account, or IRA, cash out that account.

Current law lets heirs stretch those payments — and the income-tax hit — over their lifetime, while the proposed amendment would have required heirs to distribute the sum over five years (spouses and some other types of heirs were excluded from the change).

via Congress eyes retirement-plan tax benefits – MarketWatch.

Getting Going: The Student-Debt Playbook – WSJ.com

Are you or your adult children carrying a big load of student debt? Your family may well feel like the federal deficit is sitting on your shoulders.

Total student debt has climbed past $1 trillion, but that’s only part of the story. Among 2010 graduates who took out loans, the average debt at graduation was $25,250, an amount that can feel daunting even if you can afford to pay.

[21getgo2] Rafael Ricoy

In the last Getting Going column, we outlined ways to use debt judiciously. But what options are there for people already saddled with it?

Take heart. Experts say there are a number of ways to reduce, rework or even get rid of your federal loans, depending on your circumstances and what kind of work you’re willing to do. Here are some ideas.

via Getting Going: The Student-Debt Playbook – WSJ.com.