Investing Specialists

Morningstar Runs the Numbers

Morningstar.com

Inspired by Harper's Index (with a tip of the hat to FiveThirtyEight's Significant Digits blog), Morningstar Runs the Numbers uses a numbers-based approach to highlight recent Morningstar research, along with some outside news stories.

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Target-date funds hit a momentous mark in 2017 by eclipsing $1 trillion in assets. The funds' unimpeded growth means target-date funds play an increasingly important role in retirement success for more and more investors. Morningstar's target-date fund landscape report covers developments in the competitive landscape. Jeff Holt wrote a summary of target-date fund landscape using five charts

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A study by Morningstar's manager research analysts starts with the headline conclusion that the typical fixed-income fund is "priced to fail," meaning it can't keep up with its benchmark after fees. But is a passive approach that minimizes costs the right approach for every type of bond fund? If not, where might an active manager stand a better chance of beating the benchmark or a similar passive option? To find the answers, our anlaysts examined the historical excess return distributions in 25 Morningstar Categories across Europe, Asia, and Africa as well as the United States. Focusing on share classes available to retail investors, they looked at excess returns on a gross and net of fees basis, both compared with the funds' assigned category index and the closest passive option.  

3
To make the "world's best pasta sauce"--according to Delish--all you need is three ingredients: whole, peeled tomatoes; half an onion; and butter. The recipe is adapted from Essentials of Classic Italian Cooking by Marcella Hazan.

5
Companies face increasing pressure to lower their carbon emissions from many sources, such as regulators, customers, and investors. Implementing changes to a company's process that move it away from being reliant on fossil fuels can be a costly endeavor. To find funds focused on companies that have less economic value at risk in the transition to a low-carbon economy, we developed the Morningstar Low Carbon designation. Fund portfolios earning the Low Carbon designation are already operating with relatively low exposure to fossil fuels (on an asset-weighted basis), and therefore will require less costly retrofitting and adaptation to comply with stricter carbon standards. See our list of five Gold-rated funds that currently earn the Low Carbon designation

4
Confirmation bias. Herding behavior. Loss aversion. Anchoring. These are four biases that can derail investors. Are they signs of foolishness? Not at all, says head of behavioral science Steve Wendel. They are shortcuts that our minds take, which in everyday life are immensely valuable; however, normal rules of life don't necessarily apply to investing. To be more effective investors, Wendel says, we need to understand the value that our shortcuts offer, and find ways to use these shortcuts to our advantage or how to otherwise avoid them.

50%
Morningstar contributor and IRA expert Natalie Choate explains how she messed up her own required minimum distribution for 2017 and was on the hook to pay a 50% excise tax on the amount not distributed as required. Read about her efforts to amend the situation and get the IRS waive the penalty and her recommendations to help others avoid this mistake in the first place.

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