Stability Still Matters as Investors Embrace Risk Again

By Kent Hargis (Pictured) and Chris Marx After years of chasing safety at all costs, investors are now reaching for opportunities in long-spurned riskier stocks. But they will still want to safeguard their portfolios against painful market swings in the future.

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How Much Hedge Fund Exposure Makes Sense?

Our research suggests that a well-diversified allocation to hedge funds might improve portfolio returns, but their greatest benefit is the risk reduction that comes from their low correlation to stocks. Here’s why.

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What Did You Learn in 2012?

In 2012, investors worried about the future of the euro, the US fiscal cliff and the emerging-market slowdown…yet stocks still climbed higher. What lessons should we learn from 2012? We’d suggest four key takeaways.

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Active Management: Don’t Drop the Pilot

For years, we’ve advised clients to hold diversified portfolios with balanced allocations to stocks, bonds and other assets. Lately, it’s been a hard sell, especially after years of underperformance by active equity managers. But the tide may be turning.

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Are E&Fs Jeopardizing Their Missions?

Many US endowments and foundations (E&Fs) still plan to spend 5% of their assets each year, despite unusually low expected returns. We think few understand how likely it is that this will limit their ability to fulfill their missions in perpetuity.

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How Can Balanced Investors Mitigate Their Equity Risk?

Over the past three decades, bonds have provided balanced investors with the best of both worlds. As 10-year Treasury yields fell from a high of 13.7% in 1980 to less than 2% today, bonds provided both strong returns and a great cushion in times when equities were weak. Bonds are still important, but investors shouldn’t [...]

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Stocks and Bonds: Comparing the Range of Potential Outcomes

Investors fleeing stocks have mostly sought shelter in bonds. That’s understandable, given their relative stability and reliable income. But it’s important to compare long-term expected returns, too.

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The Fundamental Case for the 20,000 Dow

While some people deem stocks expensive relative to 10-year trailing earnings, we take a forward-looking approach. It starts with the premise that the stock market is not a casino and stock prices are not pulled out of thin air: they reflect the intrinsic value of companies’ future earnings.

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Note to Bond King: Check Your Math

The Wall Street Journal published an article on August 1 headlined: “Bill Gross: Equities are Dead.” In fairness to Gross, what he actually wrote in his August “Investment Outlook” was, “the cult of equities is dying.” We agree with most of Gross’s argument—but not with his unsupported forecast of extremely low  stock returns.

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Are Stocks Too Expensive Now?

Not in our view. Although we recognize that the US and global economies continue to be scarred by the credit crunch that began in 2008, we think stock prices already discount the risks.

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