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Articles by Cathy Pareto
Alpha Explained: How to Gauge Portfolio Success
Key Takeaways Alpha refers to excess returns earned on an investment above the benchmark return, often viewed as the value added by the portfolio manager. Active managers aim to generate alpha, eliminating unsystematic risk through diversification while comparing their performance through risk-adjusted measures like Jensen’s alpha. Jensen’s alpha incorporates the capital asset pricing model (CAPM) and risk-adjusted components to evaluate if a portfolio’s returns justify the undertaken risk.
Understanding Investor Behavior
While traditional financial theories assume rational behavior, behavioral finance challenges this assumption, noting that, when it comes to money and investing, we’re not always as rational as we think we are. Insight into the theory and findings of behavioral finance may help you make better investing decisions. Key Takeaways Rational actor theory assumes that individuals make decisions based on complete information to maximize utility.
ETF or Mutual Fund: Which is Right for Your Investment?
Key Takeaways Mutual funds are typically actively managed and purchased at end-of-day pricing, whereas ETFs offer intraday trading and are commonly passively managed. ETFs often have lower fees compared to mutual funds due to their passive management and tax-efficient structure. Both mutual funds and ETFs provide diversified exposure to a wide array of securities, though they differ in trade processing and management style.
Must-Know Rules for Converting Your 401(k) to a Roth IRA
Key Takeaways Consider the benefits and implications of rolling over a 401(k) to another type of retirement account if you leave your job. You will owe income taxes on the money you roll over from a traditional 401(k) to a Roth IRA that year, but you’ll owe no taxes on withdrawals after you retire–if you retire at 59½ years of age or older and you’ve owned this or another Roth IRA for at least five years.
New Wheels: Lease or Buy?
Buying a car can be overwhelming. In fact, the pleasure of getting a new car can be quickly clouded during the financing decision-making process and price negotiations. Besides price haggling, many car shoppers are stymied by the decision to lease or buy. This article will compare the two options and hopefully help you decide which financing decision is right for you.
Currency Risk Strategies for International Investors
Key Takeaways Investing in foreign stocks and bonds diversifies portfolios, offering potential returns with increased exchange-rate risk. Political instability, foreign taxes, and currency risks are key considerations in international investments. Currency futures and FX-related ETFs are tools to hedge against foreign exchange-rate risks. Investing in foreign securities can be a good thing for your long-term portfolio, providing diversification. But it also poses threats for investors.
Digging Deeper Into Mutual Fund Names
Most mutual fund names are simple and easy to understand. For example, many investors recognize that most mutual funds with "small-cap value" in their title invest in smaller companies that fund managers believe to be inexpensive. For the most part, the standard names that describe an investment style, like small-cap value and large-cap growth, accurately describe a fund's investment strategy. It's the more generic or vague names that can be much more confusing for the average investor.
Pick the Perfect Trust
A well-crafted estate plan ensures that a person's assets will be smoothly passed on to his or her chosen beneficiaries, after one passes away. The absence of an estate plan can lead to family conflict, higher tax burdens, and exorbitant probate costs. While a simple will is an essential component to the estate planning process, sophisticated plans should also include the use of one or more trusts.
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