Many investors, especially those in retirement, have a rational preference for investments that provide dividends and income at higher rates than a market portfolio of stocks or both stocks and bonds. All else being equal, many retirees prefer to live off the income generated by their portfolio rather than worrying about the timing and pricing of stock or bond sales...

By Dr. David Esch

When selecting investments, one might be tempted to select funds claiming better expected returns. The thought process is that higher average returns over time will result in greater wealth at the end of the investment period...

by Dr. Richard Michaud

For the last twenty-five years, the strategic investing mantra has been that long-term asset allocation risk policy is the single most important investment decision.  Risk policy is usually defined as the stock/bond ratio of the asset allocation.[1]  Many large financial intermediaries as well as financial advisors consider asset allocation risk policy...

by Dr. David Esch

The New Frontier logo is a stylized visualization of a Michaud Efficient Frontier. Composition maps, such as this one, chart the portfolio weights across the frontier, each asset portrayed with a different color on the map. The thickness of each color when the map is sliced vertically represents the portfolio weight of that asset for the efficient portfolio...

by Robert Michaud

Investors often raise concerns when the stock market is near an all-time high.  I’ve discussed previously why it’s not generally a good idea to sell simply because the market attains a new high, since, if anything, historic evidence points to returns going forward from a market high being superior to average market returns.  But the rising 2017 US stock market...

by Dr. Richard Michaud

In a recent article, French (2017) describes an intriguing property of Markowitz (1959) optimization.  He notes that the Markowitz optimizer (nearly) always populates the efficient frontier with a relatively small subset of the securities in the optimization universe.  Is the optimizer telling us something important about the investment value of the...

by Dr. Richard Michaud

It is a common academic mantra, and of many respected investment professionals, that investing in an index fund is best for the majority of investors.  There are two reasons for this view: 1) Experience has shown that active investment strategies charge more and perform less well on average relative to many common index funds; 2) Twentieth century financial...

by Dr. Richard Michaud

Our January commentary (1/3/17) discussed some critiques of index-fund ETFs topical in the investment community.  The argument was that ETFs, because they trade like stocks, tend to encourage investors to trade actively as opposed to traditional mutual fund investing.  But it is always true that anything can be misused however otherwise beneficial.  In our view...

by Dr. David Esch

Widespread investment wisdom dictates that there are two “irrational” tendencies of human behavior that harm investment performance when acted on excessively: greed and fear. In a simple sense, “greedy” investors want maximum participation in rising markets and “fearful” investors want minimum participation in falling markets. Upside and downside capture...

by Robert Michaud

The Dow finally hit 20,000.  I wouldn’t ordinarily put much importance on an arbitrary milestone (see The Dow 20,000...Should We Care?), but the long hover just below this level was extraordinary.  This is not to say that markets need behave in any predictable manner.  Daily movements of the market tend to behave like random walks, and random walks commonly...