Factor-Based Investing Gels With Vanguard's Investment Principles - Canadanewsmedia
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Factor-Based Investing Gels With Vanguard's Investment Principles

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Vanguard has long been a proponent of low-cost, passive investing, and even though it recently launched factor-based investment products that are actively managed, it’s not a departure from the fund company’s investment philosophy.

That’s according to Doug Grim, senior investment strategist at Vanguard Investment Strategy Group, who said in a Vanguard Q&A session that even factor-based products, which track specific criteria, whether those are volatility or momentum, gel with the fund manager’s investment philosophy, which is focused first and foremost on goals. “Active has been rooted in our philosophy forever,” said Grim. “If you think about when we launched our first index product in the ’70s, all we had at that time was active products. And we’ve been launching active products ever since then.”

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In February, Vanguard launched six new factor-based ETFs that it said marked the first actively managed ETFs in the U.S. as well as one factor-based mutual fund. The five single-factor ETFs aim to achieve returns by being exposed to certain factors: minimum volatility, value, momentum, liquidity and quality. All five products will have an estimated expense ratio of 0.13%. The sixth ETF and mutual fund will invest based on multiple factors and will come with an expense ratio of 0.18%.

According to Grim, in order for actively managed products to work at Vanguard, they have to be offered to clients in a low-cost way. What’s more, he said that active products aren’t for everyone, with index investing the best place to start out. Grim noted that active investors have to engage in thorough due diligence to assess the portfolio manager and the process of investing and be patient once the investment is made.

“For us the difference with factors is it’s just another type of active strategy. You’ve got traditional active, bottom-up stock selection, or quantitative active where you’re using proprietary signals to try to generate alpha over time,” said the fund manager. “Factors is really more transparent, more rules-based, targeting well-known characteristics that are out there that have been well-documented, and trying to do it in a more risk-controlled way. And we think it fits as a result of that; it fits very well within our philosophy.”

Vanguard isn’t the only fund company getting into the factor ETF market. In January, Fidelity Investments revealed that it is expanding its factor-based ETF offering, announcing the launch of two international factor-based ETFs. In a press release, the Boston-based investment firm, which has more than $300 billion in ETF assets under management, announced the launch of the Fidelity International High Dividend ETF (FIDI) and the Fidelity International Value Factor ETF (FIVA).

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3 Essential Personal Saving And Investing Tips For Freelancers

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Personal saving and investing tips

Employees have great options for savings plans. There are often company retirement plans, 401K programs, and other choices – all of these can be made “easy” through payroll deductions.  The employee never “sees” that money, and the savings occur on auto-pilot.

If you’re a freelancer, your financial matters are more complicated. All of your income comes directly to you and is yours to dispose of as you please. If a part of that “disposal” does not include savings and investment, especially for retirement, then the prospects for your future are rather murky.

Adding to the challenges of savings is the fact that a freelancer’s income can vary so much from month to month and even year to year. And so, a plan for regular savings is tough to put in place. To accumulate wealth, freelancers need more self-discipline and careful planning than regular employees.

Where to begin with your personal finances

Begin with a budget. You have to have a clear picture of what your monthly expenses are before you can even begin to plan for the future. You have to set a goal of bringing in at least enough to meet those monthly expenses.

Once you know exactly how much you spend, you have to muster up the self-discipline to take any excess you have and put it into some form of savings and investments.

The other start point is to set a realistic retirement age goal. This will give you a time frame and a method of planning, once you know the target number of years you have to amass your retirement income.

For anyone who is looking toward long or short-term investing, there are options that come with greater return potential and greater risk and those that come with less risk but lower returns. As a freelancer who is looking for investment opportunities, you have these same choices. And you must be careful to find the balance between the two.

Here are some important tips to ensure that you are saving and investing wisely and will have enough once you reach the self-determined retirement age.

1. Emergency fund comes first

Because of unpredictable income, a freelancer must always first plan for those lean times when monthly income does not meet expenses. If you can put away an emergency fund of up to six months of income, this means that your savings and investment goals don’t have to be put on hold when income is low.

And here’s where the self-discipline comes in. When the great months happen, be sure to replace what you’ve used from the emergency fund.

2. Stay cautious with short-term investments

Most financial planners will tell you that more risky investments are better when you’re young or have money that you’ll not miss if lost. This is good advice to some extent.

If risky investments turn sour early in life, you’ll have ample years to recoup those losses. And if the money you invested is not part of your expenses or long-term investment plans, you won’t feel the loss so much. There are many options for ventures that carry great risk but also the potential for realizing big gains:

  • Tech startups are quite big right now, and many investors have realized great gains. A number of them reach out to smaller investors through crowdfunding, peer-to-peer lending and smaller investment rounds. Researching some of these potentials may prove interesting.
  • Another “hot” investment venue is cryptocurrencies and ICOs. While many of them fail to generate the funding they need to even launch, a few do make it. Crypto-investments require a lot of research, in order to find those cryptos that have potential and are trustworthy, and avoid falling prey to the hype.
  • Robo-investing products are on the rise, offering an affordable and simpler alternative to having a broker’s account with a financial institution. A lot of them will help you design a personalized portfolio based on your current income, albeit irregular, and possible risk tolerance. Some apps come with a learning curve and do require you to be somewhat familiar with the stock market, while others are rather simple to use even for noobs.

There are plenty of other options for risky and volatile investments. But do the research and make informed decisions before putting money into any of these.

3. Focus on long-term secure investments

This is where an IRA or a solo 401(k) comes in. This is your long-term savings that you will not touch until you reach that retirement goal age.

How much you contribute to your long-term savings is a subject of a lot of discussion. Some financial planners state that 10% of your income should go into long-term savings. Others state that you should determine how much total you want for your retirement, and add that freelancers should be saving 10 to 12X their average annual income.

Here’s a different idea. Perhaps you should consider projecting what your expenses will be in retirement rather than just looking at percentage of your income to save. This may be difficult to calculate, given the uncertainties of inflation, social security, and medical expenses, but if you get some professional help from a retirement advisor, you will be able to get at least a general idea.

Freelancers have unique challenges for savings and investment, especially as they plan their long-term needs for retirement. The key to “winning” these challenges is to establish a solid plan that includes emergency funds, long-term secure investments and a bit of risky but researched investing when funds allow.

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GAO Urges Removal Of Roadblocks To ESG Investing In Retirement Plans

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ESG investing should be made easier for retirement plans by the Department of Labor, the Government Accountability Office, the investigative arm of Congress, urged today. Photographer: Luke Sharrett/Bloomberg

ESG (Environmental, Social and Governance) investing roadblocks in retirement plans should be removed, the Government Accountability Office (GAO), the investigative arm of Congress, urged in a report today. “Asset managers and state and municipal plans using ESG strategies report enhanced risk management and other benefits,” the report said.

GAO called upon the Department of Labor to provide clearer information to plan administrators about how to use ESG factors, such as climate risks, executive compensation and workplace safety, to fulfill their fiduciary duties.

The report noted few retirement plans incorporate ESG into their investing strategies. But those that do have found it useful to identify potential risks and opportunities not brought to light by financial analysis, GAO said.

What constitutes ESG is in the eye of the beholder, the report noted, because some issues may be important to investors for moral or ethical reasons, but not be material to an investment’s financial performance.

Investment plans incorporating ESG factors generally had returns that were as good as or better than plans that didn’t, the Congressional researchers found.  Assets under management using ESG factors by retirement funds and other institutional investors grew to $4.7 trillion in 2016, according to a report by the Forum for Sustainable and Responsible Investment cited by the GAO study.

The sum represents a growth to one out of every five total dollars under the direction of professional money managers in ESG vehicles compared to one out of every six dollars two years earlier.

Asset managers told GAO they are not using ESG more often out of regulatory uncertainty and the lack of consistent and comparable data on the impact of individual factors.

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Circle Targets Cryptocurrency Rookies With Coin Investing App

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Circle Internet Financial Ltd., a mobile-payments and cryptocurrency-trading firm backed by Goldman Sachs Group Inc., is making a push to become the go-to destination for first-time Bitcoin buyers.

The Boston-based firm is introducing a feature Tuesday called “Buy the Market,” which allows users of its Circle Invest app to purchase all seven digital coins offered on its platform at the same time.

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“Buy the Market” on the Circle Invest app

Source: Circle Internet Financial

Customers can invest as little as $1, and their funds will automatically be spread across the tokens, weighted by market value. Circle builds in a 1 percent spread between the buy and sell prices, which is how it generates revenue, Chief Executive Officer Jeremy Allaire said. The coins are Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Zcash and Monero.

“The vast majority of invested capital by individual investors and retail investors — the vast majority of any asset class, whether it’s stocks or bonds or currencies or crypto — is more passively managed,” he said in an interview Monday. “If you’re a newbie and you feel like you’ve missed out or you’re interested now in investing in this category, this is a tried-and-true model that’s worked in retail investing.”

Other virtual-currency companies have launched similar products. Crypto exchange Coinbase said in March that it was rolling out an index fund for accredited investors that tracks the four coins on its marketplace. But unlike Coinbase, Circle has set a low investment minimum and is offering its product to retail buyers, opening up to a larger pool of potential investors, Allaire said.

Some digital-money startups have opted to cater specifically to accredited investors, or more experienced traders, amid concerns that the U.S. Securities and Exchange Commission will continue its crackdown on cryptocurrencies and classify more tokens as securities. Allaire doesn’t think any of the coins his company offers fall into this category. Circle, which announced in February that it was acquiring crypto trading venue Poloniex Inc., has been engaged with the SEC about its exchange business, he said.

The firm is also interested in pursuing a federal banking charter and is looking at other options for expanding its business, including custodial services and lending, Allaire said.

Circle announced last week that it had closed a funding round led by Bitcoin mining giant Bitmain Technologies Ltd. for $110 million, raising its valuation to about $3 billion from a reported $480 million in 2016. The company, which has seven million users, is partnering with Bitmain to create fiat-based digital tokens, the first of which will be backed by U.S. dollars and issued by Circle in the summer.

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