Wealth in Words

Socially Responsible Investing (SRI) is an investment style that caters to environmental, social, and corporate governance concerns. A socially responsible investment has two mandates: find companies that promote positive social impact as well as offer opportunity for financial gain. As it turns out, the two are not mutually exclusive. For example, from 1990 through 2013 an investment in the MSCI KLD 400 Social Index would have produced a higher return on your investment than a buy and hold strategy with the S&P 500 Index. Visually, the chart below dispels the myth that investors may sacrifice some potential gains in order to meet their socially-conscious investment objective. Instead, the opposite may be true. That is, socially responsible companies may make better products and earn more money for their shareholders, thereby creating long-term value through a higher share price. As the markets have evolved so too have SRI objectives, driven by shifts in societal and i...

Since their inception in 1993, Exchange Traded Funds  (ETF’s) have increased exponentially in popularity with institutional and retail investors. The advent of ETF’s to the investment landscape is analogous to the introduction of flat-screen TV’s to the home entertainment arena. In other words, in the investment product space ETF’s function like the sleek, flat-screen High Definition TV’s, while their predecessor, the mutual fund, is big and clunky just like an old TV set. Accordingly, record assets have been invested in these products with hardly a sign of slowing down. This relentless demand is being fueled for a few reasons. First, ETF’s cost less than their primitive counterparts, the index fund and mutual fund. The costs to run a fund are ultimately passed onto the investor in the form of an expense ratio and, with mutual funds, additional sales and load fees. Since ETF’s offer a comparable investment strategy to an index fund (that is, both products are built to mirr...

Dollar cost averaging is a simple, yet effective investment strategy. In effect, you as an investor contribute a set amount of money to an account to buy a fixed amount of an investment regardless of share price. For example, you can set aside $100 a month to invest into a particular product, thereby averaging out the cost per transaction given the fixed amount contributed over the lifetime of your investment. Using dollar cost averaging will allow for you to begin to accumulate wealth in the stock market just as setting aside a pre-determined amount each month for savings will create a financial safety cushion. Additionally, dollar cost averaging is an excellent way to eliminate trying to time the market, which in most cases can lead to paralysis by analysis. In other words, creating a systematic process for investing can help automate the saving process and focus your thoughts on long-term results. For those of you who are new to investing, dollar cost averaging is ...

Company 401K plans are popular, accessible retirement savings vehicles for most individual employees. A 401K plan allows for workers to accumulate retirement savings by contributing a portion of each paycheck before taxes are taken out, thereby letting one’s savings grow at a higher, tax-deferred rate. Ultimately, taxes are paid once money is withdrawn from the account. In addition to the tax-deferred benefits, employees usually have an employer match program for the plan. For example, the employer will match up to 50% of the first 6% that the employee contributes to the account. Consider the funds from this employer match a “bonus” that is received each pay period and contributed immediately to savings. Within each 401K account every company will have its own list of pre-selected funds through which an employee can create an asset allocation. If no action is taken by the employee, he or she will most likely be automatically enrolled and begin investing contributions into a Targe...

The Robo-Advisor concept is relatively new to the mainstream investment crowd. The product is applicable across many demographics spanning different age, wealth, income, and financial goal categories. In essence, Robo-Advisors are to the advisory business what ETF’s are to the fund business.* In other words, the product is a disruption to the traditional asset management industry and is worthy of consideration for your investment plan. To begin, a Robo-Advisor is a passive investment management strategy that employs ETF’s to build a portfolio based on Modern Portfolio Theory (MPT). MPT originated from the research of Harry Markowitz. His paper’s premise suggest that investors can tailor a portfolio of investments based on their risk tolerance, therefore implying that assuming some risk is an inevitable part of investing. While risk is inevitable, that risk can be mitigated through diversifying one’s holdings in a portfolio. Markowitz’s work implies that building an efficient portf...

What is an ETF? How is it used? What are its benefits? These are a few of many questions that will need to be explored to adequately understand this popular investment product. ETF is an acronym for Exchange Traded Fund which is an investment product that works similarly to a mutual fund.  However, there are several key differences between these products which ultimately give ETF’s an advantage. As the name implies, ETF’s are listed on an exchange and traded during market hours. This provides instant liquidity and exposure for market participants without having to wait to buy or sell funds based on closing values (i.e. Net Asset Value or NAV) as you would have to do with a mutual fund.  ETF’s also provide an alternative to equity index futures for money managers who desire timely market exposure or hedging ability. ETF’s can offer this exposure since most are “indexed” or created to mirror an existing basket of securities (e.g. S&P 500 Index). In other words, an ETF i...