FINSER_23_2 ACADEMY OF FINANCIAL SERVICES OFFICERS President Lance Palmer University of Georgia President-Elect William Chittenden Texas State University Executive Vice President-Program Thomas Coe Quinnipiac University Vice President-Communications Christine McClatchey University of Northern Colorado Vice President-Finance Diane Docking Northern Illinois University Thomas Langdon Roger Williams University Vice President-International Relations Claire Matthews Massey University Vice President-Professional Organizations Tom Warschauer San Diego State University Vice President-Mktg & Public Relations A. William Gustafson Texas Tech University Vice President-Membership Larry Prather Southeastern Oklahoma State University VP Local Arrangements 2014 Duncan Williams William Patterson University VP Local Arrangements 2015 Benjamin Cummings Saint Joseph’s University Immediate Past President Frank Laatsch Univ. of Southern Mississippi EDITOR, FINANCIAL SERVICES REVIEW Stuart Michelson Stetson University DIRECTORS Robert Moreschi Virginia Military Institute Dale Domian York University Charles Chaffin CFP Board of Standards Rich Fortin New Mexico State University Grady Perdue University of Houston Clear Lake Jacob Sybrowsky Utah Valley University PAST PRESIDENTS Frank Laatsch, 2012-13 Univ. of Southern Mississippi Brian Boscaljon, 2011-12 Penn State University-Erie Halil Kiymaz, 2010-11 Rollins College of Business David Lange, 2009-10 Auburn University, Montgomery Vickie Hampton, 2008-09 Texas Tech University Frank Laatsch 2007-08 University of Southern Mississippi Daniel Walz, 2006-07 Trinity University Anne Gleason, 2005-06 College of Charleston Stuart Michelson, 2004-05 Stetson University Grady Perdue, 2003-04 University of Houston-Clear Lake Vickie Bajtelsmit, 2002-03 Colorado State University Karen Eilers Lahey, 2001-02 University of Akron Tom Eyssell, 2000-01 University of Missouri-St. Louis Jill Lynn Vihtelic, 1999-00 Saint Mary’s College Terry Zivney, 1998-99 Ball State University Don Holdren, 1997-98 Marshall University Robert McLeod, 1996-97 University of Alabama Walt Woerheide, 1995-96 The American College Dixie Mills, 1994 -95 Illinois State University Ted Veit, 1993-94 Rollins College Mona Gardner, 1992-93 Illinois Wesleyan University Jean L. Heck, 1991-92 Villanova University Frank K. Reilly, 1990-91 University of Notre Dame Lawrence J. Gitman, 1989-90 San Diego State University Travis S. Pritchett, 1988-89 University of South Carolina Tom Potts, 1987-88 Baylor University Robert F. Bohn, 1986-87 Golden Gate University Tom Warschauer, 1985-86 San Diego State University published in collaboration with the Financial Planning Association Financial Services Review is the journal of the Academy of Financial Services, published in collaboration with the Financial Planning Association. Membership dues of $75 to the Academy include a one-year subscription to the journal. Financial Planning Association members receive digital access to the current volume/issue of the journal. Membership forms can be downloaded from the journal website at http://www.academyfinancial.org. Or for membership, subscription, and address change notification, please contact Stuart Michelson, School of Business, Stetson University, 421 N. Woodland Blvd., Unit 8398, DeLand, FL 32723. Email: smichels@stetson.edu. Editorial: Authors should submit their papers electronically (Word format, no PDFs please) as an e-mail attachment to the Editor at smichels@stetson.edu. AFS Member submission fees are $50. The AFS non-member submission fee is $125, which includes a one year membership to AFS. Concurrent with the submission, please pay online or mail a check (for US funds) payable to AFS to Stuart Michelson at the address above. Should a manuscript revision be invited, no additional fees will be required. Style information for manuscripts is on the inside back cover of this journal. Copyright © 2014 Academy of Financial Services. All rights of reproduction in any form reserved. Financial Services Review The Journal of Individual Financial Management Vol. 23, No. 2, 2014 EDITOR Stuart Michelson, Stetson University ASSOCIATE EDITORS Benefits and Retirement Planning Vickie Bajtelsmit Colorado State University Stephen M. Horan CFA Institute Walter Woerheide The American College Estate Planning Ning Tang San Diego State University Investments Robert Brooks University of Alabama Dale Domian York University Jim Gilkeson University of Central Florida Jason Greene Georgia State University William Jennings United States Air Force Academy Larry Prather Southeastern Oklahoma State University Insurance Larry Cox University of Mississippi David Lange Auburn University Financial Institutions Stanley D. Smith University of Central Florida Investor Psychology and Counseling John Nofsinger Washington State University Meir Statman Santa Clara University Real Estate International Bill Blair MacQuarie University S. J. Chang Illinois State University Lawrence Rose Massey University Sharon Taylor University of Western Sydney Education Jean Louis Heck Saint Joseph’s University Financial Planning Profession Tom Warschauer San Diego State University Co-Published by the Academy of Financial Services and the Financial Planning Association The editor of Financial Services Review wishes to thank the Stetson University, School of Business, for its continuing financial and intellectual support of the journal. Aims and Scope: Financial Services Review is the official publication of the Academy of Financial Services. The purpose of this refereed academic journal is to encourage rigorous empirical research that examines individual behavior in terms of financial planning and services. In contrast to the many corporate or institutional journals that are available in finance, the focus of this journal is on individual financial issues. The Journal provides a forum for those who are interested in the individual perspective on issues in the areas of Financial Services, Employee Benefits, Estate and Tax Planning, Financial Counseling, Financial Planning, Insurance, Investments, Mutual Funds, Pension and Retirement Planning, and Real Estate. Publication information. Financial Services Review is co-published quarterly by the Academy of Financial Services, and the Financial Planning Association. Institutional subscription price for the year 2014 is $100. Personal subscription price for the year 2014 is $75 and is available by joining the Academy of Financial Services. Further information on this journal and the Academy of Financial Services is available from the website, http://www.academyfinancial.org. Postmaster and subscribers should send change of address notices to Stuart Michelson, Academy of Financial Services, Stetson University, School of Business, 421 N. Woodland Blvd., Unit 8398, DeLand, FL 32723. Editorial Office: Stuart Michelson, School of Business, Stetson University, 421 N. Woodland Blvd., Unit 8398, DeLand, FL 32723. Phone: (386) 822-7376. Email address: smichels@stetson.edu. Web address: www.academyfinan- cial.org. Advertising information. Those interested in advertising in the journal should contact Stuart Michelson, School of Business, Stetson University, 421 N. Woodland Blvd., Unit 8398, DeLand, FL 32723. Email address: smichels@stetson.edu, (386) 822-7376. Printed in the USA © 2014 Academy of Financial Services. All rights reserved. This journal and the individual contributions contained in it are protected under copyright by the Academy of Financial Services, and the following terms and conditions apply to their use: Photocopying Single photocopies of single articles may be made for personal use as allowed by national copyright laws. In addition, the Academy of Financial Services hereby permits educators and educational institutions the right to make photocopies for non-profit educational classroom use. Permission of the Academy is required for all other photocopying, including multiple or systematic copying, copying for advertising or promotional purposes, resale, and all forms of document delivery. Permissions may be sought directly from the Editor, Stuart Michelson. Contact information: Stuart Michelson, School of Business, Stetson University, 421 N. Woodland Blvd., Unit 8398, DeLand, FL 32723. Phone: (386) 822-7376. Email: smichels@stetson.edu. Derivative Works Subscribers may reproduce tables of contents or prepare lists of articles including abstracts for internal circulation within their institutions. Permission of the Academy is required for resale or distribution outside the institution. Permission of the Academy is required for all other derivative works, including compilations and translations. Electronic Storage or Usage Permission of the Academy is required to store or use electronically any material contained in this journal, including any article or part of an article. Except as outlined above, no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the Academy. Address permissions requests to the Editor at the address noted above. Notice No responsibility is assumed by the Academy for any injury and/or damage to persons or property as a matter of products liability, negligence, or otherwise, or from any use or operation of any methods, products, instructions, or ideas contained in the material herein. The Editors, the Academy, and our sponsors assume no responsibility for the views expressed by our authors. From the Editor This issue contains Issue 2 of Volume 23 of Financial Services Review (FSR). I would like to thank the board and members of the Academy of Financial Services for their continued support. I continue to work in broadening the scope of articles, while still focusing on individual financial management and personal financial planning. I encourage authors to reach out when discussing implications of their findings in a more comprehensive way. As such, all articles in the Journal more appropriately relate to financial planning issues. The lead article “Performance of Alternative Mutual Funds: The Average Investors Hedge Fund,” is coauthored by Srinidhi Kanuri and Robert W. McLeod both at the University of Alabama. Alternative Mutual Funds (AMFs) provide the individual investor with an oppor- tunity to invest in funds that follow strategies similar to those of hedge funds and seek returns uncorrelated with the market. In this article the authors analyze the performance of AMFs for a 14-year period using the Carhart four-factor model and the Fung-Hsieh seven-factor model. Their results show that most AMFs were not able to create any value for their investors over the study period and these funds perfomed even worse during the recent financial crisis. The second article “Portfolio Performance with Inverse and Leveraged ETFs,” is coau- thored by James A. DiLellio, Rick Hesse, and Darrol J. Stanley all at Pepperdine University. In this article the authors examine passive investment strategies that employ inverse or leveraged equity ETFs in their asset allocation and quantify the long-term impact on portfolio performance. Monte Carlo simulations are employed, drawing samples from distributions created by two distinct time periods of historical daily market returns. Their findings show that, while these products are generally not recommended within long-term passive invest- ment strategies, potential diversification benefits may exist, dependent on the behavior of equity and debt markets. The third article, “The Performance of the Faith and Ethical Investment Products: A Comparison Before and After the 2008 Meltdown,” is coauthored by Francisca M. Beer, James P. Estes, and Charlotte Deshayes all at California State University San Bernardino. In this article the authors study the risk and return characteristics of socially responsible investment and faith-based mutual funds prior to and following the market crisis of 2008. Their results show a high level of correlation between the indices examined along with a higher volatility than the S&P 500. They also find a significant shift in the mix of perfor- mance and volatility of these funds prior to and after the crash of 2008. This is an important consideration for planners and investors in when considering social or faith based invest- ments. Financial Services Review 23 (2014) v–vi 1057-0810/14/$ – see front matter © 2014 Academy of Financial Services. All rights reserved. The fourth article, “Saving for Retirement While Having More Nights with Peaceful Sleep: Comparison of Lifecycle and Lifestyle Strategies from Expected Utility Perspective,” is coauthored by Rosita P. Chang at University of Hawaii at Manoa, David Hunter at University of Hawaii at Manoa, Qianqiu Liu at University of Hawaii at Manoa, and Helen Saar at Dixie State University. Using bootstrapping simulations the authors examine the fit of target-date funds (TDFs) as the main retirement savings instrument for the utility- maximizing investor who becomes more risk averse as she gets older. The authors also demonstrate that TDFs can provide higher expected utility than the alternative lifestyle strategies. With loss aversion incorporated in the model, they find that the optimal lifecycle strategy over time leads to higher expected utility than the best lifestyle strategy. They conclude that TDFs are preferable to utility-maximizing investors, although an investor’s risk tolerance should be considered when selecting TDF funds. The final article, “The Perpetual Growth Model and the Cost of Computational Efficiency: Rounding Errors or Wild Distortions?,” is coauthored by Morris G. Danielson and Jean L. Heck both at Saint Joseph’s University. In this applied article, the authors investigate the constant dividend growth model (Gordon, 1962). The model is primarily used because of its computational simplicity, although, value estimates from the model can be highly dependent on future expected cash flows. The authors results suggest that price estimates from the constant growth model can overstate a stock’s intrinsic value by a sizeable amount, in some cases two or three times the underlying intrinsic value. The potential overstatement increases as the firm’s dividend yield decreases, shifting a greater portion of the expected cash flow into later years. Because the model is less likely to misstate value for low-growth, high- payout firms, the interesting implication is that the model is most useful when its ability to value growth is needed least. I would like to send a special thank you to the many reviewers that have significantly contributed to the quality of our journal by providing timely and thorough reviews of the submissions to our journal. Thanks to those who make the journal possible, especially the referees and contributing authors. Please consider submission to the Financial Services Review and rely on the style information provided to ease readability and streamline the review process. The Journal welcomes articles over the range of areas that comprise personal financial planning. While FSR articles are certainly diverse in terms of topic, data, and method, they are focused in terms of motivation. FSR exists to produce research that addresses issues that matter to individuals. I remain committed to the goal of making Financial Services Review the best academic journal in individual financial management and personal financial planning. Best regards, Stuart Michelson Editor Financial Services Review vi Editorial / Financial Services Review 23 (2014) v–vi