Determining Actual Fund Costs

A mutual fund’s total costs are measured differently, depending upon the study or expert cited. For example, Kopcke reviewed the 100 largest domestic stock funds owned by defined contribution plans. Kopcke found trading costs averaged 0.11% of assets annually in the quintile with the lowest costs and 1.99% of assets in the quintile with the highest cost, with a median of 0.66%.

Rolling Period Returns

An interesting (and better) way to look at return and risk combined is by seeing how an asset category fared over a number of rolling periods. A rolling period includes two or more continuous years and all such periods over the time frame selected. As an example, over any given 10 years, there are eight 3-year rolling periods (1986–1988, 1987–1989, 1988–1990, 1989–1991, etc.). The advantage of using rolling periods is bad returns cannot be hidden as easily. Rolling periods provide an “apples to apples” form of comparison.

Growth of $10,000

The table below shows growth of a $10,000 investment in each of several categories. Notice the disparity between equities and fixed income.

Growth of $10,000  [1972–2016]

Small cap stocks


Long-term gov’t bonds




Med-term gov’t bonds


EAFE stocks


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Housing Prices vs. REITs

Housing Prices vs. REITs

FHFA is the federal agency regulating Fannie Mae, Freddie Mac, and 12 Federal Home Loan Banks. The index below represents home sales throughout the U.S. NAREIT is a real estate investment trust trade group. The index is comprised of all publicly traded equity REITs in the U.S.

Home Prices vs. REITs


FHFA Index

REIT Index

REIT Index




How to Evaluate Stocks; For Financial Advisors

As advisors, we sometimes forget the basics: a stock represents a fractional ownership interest in a publicly traded corporation. Historically, returns have been higher for owners and partial owners (stocks) than someone who lent money (notes and bonds). Stocks can be characterized by size (capitalization): small cap, medium cap, and large cap. A publicly traded company’s capitalization is calculated by multiplying the price per share by the number of outstanding shares of stock.

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Largest Mutual Funds

Superior Active Fund Management

Arnott (1993) and Odelbo (1995)

Arnott (1993) reviewed characteristics of equity funds with superior returns, finding 17 actively-managed large cap funds outperforming their benchmark in 37 out of 49 rolling 5-year periods ending 1993. A paper by Odelbo (1995) found great stock fund managers did not exclusively follow one investment style while looking for undervalued stocks. The author also found there was no statistical evidence of their superior performance.


Chevalier and Ellison (1999)

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Efficient Markets

Efficient Markets

A cornerstone of indexing advocates is based on securities markets being efficient. Barron’s defines the efficient markets theory: “…market prices reflect the knowledge and expectations of all investors. Those who adhere to this theory consider it futile to seek undervalued stocks or to forecast market movements.

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Wells Fargo Investment Advisors were the first to use indexed portfolios for some of their institutional pension plans from 1969-1971. The Vanguard 500 Index Fund was the first U.S. index fund offered to individual investors. Beginning in 1976, the fund did not reach $10 billion in assets for almost 20 years.


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Efficient Markets

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