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Investing Blog Roundup: Individual Investors — Not So Dumb After All?

For many years, people in the financial industry have referred to DALBAR’s “Quantitative Analysis of Investor Behavior” studies to show that investors dramatically underperform their own investments due to poor decisions about when they buy and sell mutual funds. (You can read the 2016 edition of the report here, for instance.) The DALBAR reports consistently show large underperformance figures — often in the range of several percentage points per year.

This week, Wade Pfau published an article asserting that DALBAR is simply making a math error in their calculations — an error that makes the average investor’s performance look much worse than it actually is.

Pfau’s article is rather technical, because it’s dealing with a math dispute. But it’s interesting reading. In brief, his argument is that DALBAR doesn’t account for the fact that investors invest over time. For example, for an investor who invests a total of $10,000 over the 20-year period ending 12/31/2016 (i.e., $41.67 per month for 240 months), Pfau writes that, “the DALBAR methodology ignores the dollar-cost averaging component of these systematic investments and instead assumes that the entire $10,000 was invested at the beginning of 1997.”

John Rekenthaler of Morningstar also wrote on the topic this week, sharing Morningstar’s methodology for how they calculate investor returns (and how those differ from investment returns).

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Investing Blog Roundup: Looking for an Edge

One thing I’ve observed over the 9 years I’ve spent writing this blog is that it’s super rare for financial advisors to really embrace simple, passive investing. Overwhelmingly they prefer to try to find some sort of “edge” over a boring total market portfolio. This week Jim Dahle takes a look at why advisors are (in most cases) so reluctant to accept market returns.

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Investing Blog Roundup: Obamacare Repeal and Early Retirement

Since the transfer of power in Washington earlier this year, the potential (likely?) repeal of the Affordable Care Act (Obamacare) has many people worried about how they will get health insurance. Economist Austin Frakt discusses one such group this week: people who have retired (or who are planning to retire) prior to Medicare eligibility.

Unfortunately, there’s no magical financial planning solution here. If Obamacare is a) repealed and b) not immediately replaced with something that guarantees you coverage, then yes, retiring prior to Medicare eligibility would be a big financial risk unless you have coverage through some other source (e.g., your spouse or former employer).

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Investing Blog Roundup: Where Should Middle Class Investors Get Advice?

While it’s true that many financial advisors give advice that’s questionable at best, there are also many financial planners out there who do great work for their clients. Unfortunately, for some investors, those good financial planners aren’t accessible due to minimum portfolio sizes or due to hourly fees that a beginner investor simply can’t afford to pay.

In an interview between Morningstar’s Jeremy Glaser and Christine Benz, Benz lays out the out the four primary options (i.e., places to get advice) for investors with smaller portfolios, explaining the pros and cons of each.

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Investing Blog Roundup: Retirement Savings Contribution Credit

There are a handful of tax-planning topics that get quite a bit of coverage (e.g., Roth conversions, whether to contribute to Roth or tax-deferred accounts, backdoor Roth strategies). Morningstar’s Christine Benz recently took a look at two important topics that don’t get very much attention.

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Investing Blog Roundup: Fiduciary Duty Rule

With the GOP now in control of the executive and legislative branches, the Department of Labor “fiduciary rule” is in peril of being eliminated before it goes into effect. This week Michael Kitces provides an update on what, exactly, is going on with the rule right now. And Jack Bogle makes the case that elimination of the fiduciary rule would be “a step backward for our nation.”

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