The Possibility of European Deflation

The euro zone has struggled mightily in recent years, with its economy shrinking in both 2012 and 2013. Now it faces a new worry. Inflation in the euro zone has fallen to a 0.4% annualized rate, well below the target of close to 2% set by the European Central Bank (ECB) and close to outright deflation. The dangers of high inflation (a sustained rise in the prices of goods and services throughout the economy) are well known: it reduces the value of people’s savings and can make individuals and businesses reluctant to invest. So shouldn’t deflation (a decline in prices) be beneficial? Not exactly.

Topics: Blog Inflation Europe ECB Deflation

The Problem with “Chasing Performance”

Many investors tend to favor funds that have recently done well. This habit is sometimes called “chasing performance” since these investors are constantly trying to get their portfolio to catch up with the results of the top funds. But is it an effective way to invest? That depends on whether funds that have done well in the past are more likely than other funds to do well in the future. And according to a recent study by Vanguard, that’s not the case.

Topics: Blog Vanguard Performance

How Much Should You Put Into Retirement Accounts?

Taxes can be one of the main drags on the growth of your portfolio. That’s why tax-advantaged accounts such as 401(k) and IRA accounts can be such a boon when you’re saving for retirement. But how much should you put into these accounts as opposed to regular taxable accounts? The answer is “as much as you can” in order to minimize your tax bill, though there are a couple key constraints on how much you “can” allocate to these accounts.

Topics: Blog IRA Taxes Retirement 401K

The Fallout from Argentina’s Default

Last week Argentina defaulted on its debt for the second time in the last decade and a half. That’s not good news for investors who own international bonds, and headlines such as “Argentina’s default could hurt the world” and “Not just Argentina: 11 countries near bankruptcy” suggest that the Argentina’s travails could have a ripple effect around the globe. Despite the ominous headlines, however, the fallout is likely to be minimal.

Topics: Blog Argentina Bonds

The Pros and Cons of MLPs

Most stocks are fundamentally the same kind of investment: they’re shares of ownership in a corporation. There are a few exceptions, however. One is “Master Limited Partnerships” (MLPs), which are popular among many investors because they tend to have very high yields. MLPs trade on stock exchanges just like other stocks, but there are important differences from both a legal perspective and an investment perspective.

Topics: Blog Taxes Yield MLP

Will the New Money Market Rules Affect You?

The Securities and Exchange Commission (SEC), the government agency that regulates the investment industry, recently announced new rules changing how money market funds operate. Subtle regulatory changes may sounds like esoteric legal minutia, but many investors have some of their wealth in money market funds: in total more than $2.5 trillion is invested in these funds. So will the new rules affect your portfolio? The answer is that the changes are somewhat limited, so (at this point) they probably won’t have much of an effect on individual investors.

Topics: Blog Regulation Money Market Funds

The Effects of Innovation

Is more innovation good for stocks? Given the success of Apple after the release of new products such as the iPhone or surging stock price of electric car manufacturer Tesla Motors, it may seem obvious that new innovations lead to better investment returns. But for the stock market overall, or even an entire sector of the market, that’s not necessarily the case.

Topics: Blog Stock Market Facebook Innovation Apple Tesla

How Long Can Bond Yields Stay Low?

Despite numerous predictions that bond yields would soar (and therefore bond prices would fall), yields have actually fallen so far in 2014. After rising from record lows last year, the yield on 10-year US treasury bonds is currently around 2.5%, still far below its typical historical range. How long can bond yields stay so low? The answer is “possibly a very long time” based on the experiences of other countries.

Topics: Treasuries Japan Blog Bonds Yield

The Key Differences between Mutual Funds and ETFs

With all the jargon commonly used in the financial industry, it can be difficult to parse out the differences between similar investing concepts. Take mutual funds and exchange traded funds (“ETFs”), for example. Both are “funds” (collections of stocks, bonds, and other investments that make it easy to achieve diversified exposure to a segment of the market). So are there differences between them that could affect your portfolio?

Topics: Mutual Fund Blog ETF

Are Stock Valuations Too High?

US stocks have continued to climb this year even after surging by more than 30% in 2013. Earlier this year we argued that US stocks appeared to be slightly overvalued, but other analysts argue that stocks are fairly valued. Which analysis is correct?

Topics: Blog Stock Market Valuation