Category Archives for Financial Education & News

Confusing Economic Signs

Googling “US economy” recently, I got the following headlines as the top two results: “US Economy Is Doing Better than Americans Think” “Famous Economist Who Predicted 2008 Recession Issues

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What We Talk About When We Talk About Volatility: Magnitude vs Percentage

If you’ve ever listened to public radio’s “Marketplace” with Kai Ryssdal, you may have noticed the songs they play when they “do the numbers.” On days the market is up, it’s “We’re in

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What Does It Take to Take on Risk?

The trade-off between risk and reward is a key part of any investment strategy. But risk means different things to different people. While risk is the key to unlocking greater gains, it can also be a source

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Here’s Why You Should Invest in All the Sectors, Not Just One

Recent history shows the challenge of trying to pick “hot” sectors in advance.Sectors represent groups of companies that make similar products or offer comparable services. From 2014 to 2023, no sector

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Value Can Pop Without a Growth Drop

If Eeyore were a value investor, he would probably be among those who feel that a positive value premium can only come at the cost of a growth stock tumble. This view implies value stocks can post strong

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Rate Sensitivity ≠ Price Predictability

While the market sees an increasing likelihood of Fed rate cuts later this year, the highest probability outcome for the December Fed meeting is a target range of 425–450 basis points—still above the

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Looking to Stick the Landing? Shake Off the Volatility.

The US stock market has been on a winning streak, so some investors may have been jolted when the S&P 500 fell more than 6% from July 31 to August 5. The Cboe VIX Index, a measure of US stock market

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Index Reconstitution Costs Continue to Add Up for Index Strategies

KEY TAKEAWAYSIndex-tracking funds seek to match an index’s performance, which may lead to constraints and implementation costs that hurt returns.Our latest analysis shows there are costs for index-tracking

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Small Value Roars Back

It’s only been a couple months since I was encouraging patience with small cap value based on past examples of quick turnarounds in relative performance. At the risk of sounding like a rooster taking

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Don’t Get Fed Up: Part 2

In a recent edition of Above the Fray, we highlighted evidence showing that markets may move ahead of the Fed because markets are continually processing information that might factor into Fed decisions.

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Don’t Get Fed Up

One of the reasons why Fed watching is an unreliable input into investment decisions is because the Fed’s expected actions are already reflected in market prices. By the time the Fed executes rate changes,

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Gettin’ a Dell

Russell’s annual reconstitution took place last month, and one of the notable additions to the Russell 3000 Index was Dell. Some investors may be confused as to why the stock of a company with a household

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Weighting Whiplash

Index construction rules sometimes remind me of the SNL skit “Washington’s Dream,” where Nate Bargatze explains the rationale for switching to the customary unit system for distance: “How many

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Trading Places

Investors may soon have a new venue for trading stocks with the newly proposed Texas stock exchange. What many investors may not know is this exchange, if approved, would join an already sizable list of

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French Frights

Many investors view government debt as a concern for future market returns. The long- run data suggest country debt-to-GDP has not been correlated with stock market returns. This is likely because debt

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AI Tide May Lift All Boats

With the benefit of hindsight, it’s hard to imagine a company not benefiting from the advent of e-commerce in the late 1990s. In fact, it’s easier to remember the blunders from that era. (Hello, pets.com!)Breakthroughs

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What Do Yield Curve Inversions Really Tell Us?

Since April 1, 2022, the yield on the 2-year US Treasury has exceeded that of the 10-year Treasury. This so-called inverted yield curve shape, where longer-dated bonds yield less than shorter-dated bonds,

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Equity Compensation: Big Opportunities, But Beware the Risks

We all like hearing that we’re good at our jobs. It’s nice when kudos from your employer come bundled with dollar signs, or when a company backs up the cash truck to entice you to join their team.

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Global Diversification Still Requires International Securities

Investors often ask if globally diversified stock portfolios are necessary when the US stock market has many multinational companies or those earning revenues from non-US countries. The data suggest these

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What Goes Up Might Not Come Down

US stock market indices hit all-time highs in recent weeks, leading some investors to wonder whether now is a good time to be in stocks—or do record levels portend an upcoming tumble? The historical

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Reality Meets Expectation for the Mag 7

It is unlikely any stock has an expected return of 100% per year. That seems too high to be the cost of equity capital for a company, and it’s doubtful anyone would sell a stock with an expected return

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Gold Hasn’t Been Effective at Tracking Inflation

Gold is sometimes touted as a tool for protecting wealth from rising prices. But history shows the challenges of using gold to offset the impact of inflation.Since 1970, gold has often experienced large

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Proceed with Caution Focusing on Yield

Investors selecting funds based on dividend yield should be aware that high yield is no assurance of higher expected return. Plotting 10-year annualized returns vs. average dividend yield for US large

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Investigating Patterns Objectively

Shifting my exercise routine to early mornings affords me more workouts on average each week. The tradeoff is nearly an hour’s less sleep each night.1 In effect, my fitness level is negatively correlated

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Draft Picks and Value Stocks

During the National Football League’s recent draft, teams selected from hundreds of prospects to build rosters for the future. It’s my favorite sporting event of the year, mainly because it provides

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Pensions & Investments: Dimensional Co-CIO Talks ETFs and Going Beyond Indexing

During a recent interview with Pensions & Investments (P&I), Dimensional Co-Chief Investment Officer and Global Head of Research Savina Rizova discussed a variety of investment topics, including

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Small Cap, Big Difference

Indices are samplings of the market and may differ substantially among index providers based on differences in construction methodology. Nowhere is that more evident than in US small cap stocks. The spread

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Financial Goals: Your Tickets To Ride

We’ve commented before on the mechanics of accumulating and preserving your wealth by building a low-cost, globally diversified investment portfolio aimed at your personal goals and risk tolerances.

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Looking for the Next Nvidia May Shrink Your Return

The Magnificent 7’s performance in 2023 may leave some investors wondering how to spot the next Nvidia or Apple.1 Specifically, which technology disruptor will see its stock soaring next. Emerging technology–themed

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What’s Baked into Your Credit Exposure?

Corporate bond funds have seen strong inflows to start the year. As investors select funds with credit exposure, they should be aware of what’s baked into a manager’s approach, or not.Baking is not

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