Three Studies Worth a Quick Read

– Understanding that ordinary people typically save for retirement via periodic contributions to a retirement account, it is imperative to correctly measure both historical and expected investor performance.

– We believe a dollar-weighted return is superior to the traditional simple averages typically employed.

– During the period 1990 —2009 an all equity fund earned a geometric average return of 8.21 percent while the realized dollar-weighted annual return earned by an investor making annual contributions to an all equity fund was only 6.41 percent due to the pattern of returns over the period. Our simulations suggest that such an extreme difference has a small probability of occurring.

– We show there is a decrease in ending wealth variability for a more balanced approach to investing. This implies that even young investors might consider a balanced asset allocation to reduce the likelihood of such a divergent outcome.

Investment Insights: The Case for a Broader Approach to Income Investing - J.P. Morgan

With interest rates now at extremely low levels and government debt ballooning, it is becoming increasingly difficult to generate a satisfactory stream of income without taking on more risk. In this environment, investors may want to explore a broader approach to income investing.

– Current low interest rates on Treasuries can make traditional fixed income sectors look both risky and unrewarding.

– A broad strategy for building income-producing portfolios could include assets, such as dividend-paying stocks, which can provide a cushion if the market remains volatile, as well as an attractive tax advantage over taxable fixed income, given the probable tax increases on the horizon.

– International investments should also be part of an income solution, giving investors diversification benefits and access to a global economy that will likely continue to outperform that of the U.S., while providing attractive dividend yields, as well as the opportunity to benefit from a potentially declining dollar.