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Portfolio Solutions Blog

August 01, 2010

The investment industry is full of models that are supposed to assist in managing money.  Computer models are written for everything from determining early pre-payments on mortgages to the probability that a high-yield bond will default.

One model that consistently fails is the canned asset allocation approach. This is when an investor takes a multiple choice quiz and the answers they give determine their best asset allocation. I call this the Cosmopolitan magazine investment method because the process reminds me of their monthly tell-all quizzes such as “Ten Questions to...

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July 01, 2010

A reader recently emailed a question about the viability of owning Treasury bonds as a diversifier for equity risk given the high federal deficit.

“I've been questioning whether 40 to 50 percent of my portfolio should be kept in US Treasury funds as a way to reduce portfolio volatility. Are US Treasuries still an appropriate way to reduce volatility given our country's dire financial condition?”

The short answer is yes. US Treasuries should continue to provide risk reduction in a portfolio, although the total return from Treasuries and the risk reduction benefit will...

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June 01, 2010

Index fund evolution has turned into index fund pollution and that’s not good for investors. The intense marketing of expensive index-like products has smeared the good name of traditional low-cost index funds that John Bogle and Vanguard created in 1975. This is exactly what the proprietors of these products wanted.

Unlike traditional index funds that are very low cost and represent broad markets and segments of markets, these polluted funds and ETFs represent high-cost products that are slapped together using any old investment strategies that the creators think will sell. These...

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April 01, 2010

Want to gain exposure to the total U.S. stock market? Don’t buy an index fund or exchange-traded fund that tracks a broad market index because you’ll be missing a small piece. Broad market indexes are frequently confused with total stock market indexes.

There are about 3,650 US stocks that trade on the US stock exchanges. They include large-, mid-, small- and micro-cap companies. The number does not include foreign securities, exchange-traded products or other investment companies. The three most prominent total market indexes that track nearly all constitutes are the Wilshire 5000...

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