I recently came across a calculator developed by Morningstar to help families estimate future college costs and to determine whether they are on track with saving to meet the future costs of higher education. Let’s have a look at what this tool can and cannot do and how such a tool may be useful.
The key variables that determine the future cost of a college education are:
(1) How many years remain until your son or daughter starts college
(2) Whether they will attend a public or private college
(3) How long they will remain in college, and
(4) Whether they will actually pay the “sticker price,” or receive financial aid, grants, scholarships (etc., etc.)
The Morningstar calculator assumes that your student will, in fact, be paying the full advertised cost of the average public or private university. This is a fairly large limitation to the utility of the tool all by itself. The average student does not pay the advertised price of attendance. In fact, Continue Reading »
Posted in 401(k), Active Investing, Diversification, financial planning, Tools, Uncategorized, Wealth | Tagged college, college education, saving for college, Tuition | Leave a Comment »
One of the recurring themes in the financial press in recent years is a warning to income-oriented investors not to pile into dividend-paying stocks to boost portfolio income. The Wall Street Journal has a recent article on this topic titled, “Why Dividend Stocks Aren’t the New Bonds.” This article is motivated by the fact that $17 billion flowed into equity-income funds in 2010 even as $80 billion flowed out of U.S. equity funds.
The arguments made by the WSJ article are similar to those in a November 2011 blog post by Vanguard’s Chief Economist, Continue Reading »
Posted in 401(k), Active Investing, Asset Allocation, Diversification, Dividends, financial planning, Income Investing, Investors, retirement income, retirement planning, Uncategorized, Volatility | Tagged Bogleheads, bonds, Burton Malkiel, Dividend Stocks, income, Treasury bonds | 2 Comments »
The recently-published book by Zvi Bodie and Rachelle Taqqu, Risk Less and Prosper: Your Guide to Safer Investing, provides a unique perspective on how to meet the challenge of long-term financial planning. The book is well-organized into a number of steps required for identifying and organizing long-term goals and thinking through how to meet these goals. The presentation is built around a narrative in which a group of people meet to try to figure out how to meet their long-term goals and how to deal with the uncertainty associated with both their lives and their investments. Continue Reading »
Posted in Asset Allocation, Behavioral Finance, book review, Books, Diversification, financial planning, Long-term investing, Low Cost Investing, Rebalancing, Regular Investing, Retirement, retirement income, retirement planning, Stock Investing, Uncategorized, Volatility | Tagged bonds, Risk Less and Prosper, TIPS, Worry Free Investing, ZVI Bodie | Leave a Comment »
Guest Blog from Quicken.com.
Only one thing always happens in the financial markets: Values fluctuate. Before investing in any market, at any price, in any climate, prudent investors think about how much fluctuation they can handle. In other words, how much can your portfolio go down before you start to lose sleep?
We all have our trigger points. After the stock market began skidding in October 2007, frayed nerves sent investors scrambling for havens they hoped were less risky. Then the market reversed course. Strong gains in much of 2009 left risk-averse investors on the sidelines, watching stock prices climb and wondering when, if ever, they’d have the stomach to invest in stocks again.
The lesson? Continue Reading »
Posted in 401(k), Diversification, financial planning, Income Investing, Investors, Long-term investing, Market Outlook, Market Timing, Markets, pension plans, pensions, Retirement, retirement income, retirement planning, Risk, Uncategorized, Volatility | Tagged quicken, retirement planning | Leave a Comment »
Standard and Poor’s downgraded France’s credit rating last week from AAA to AA+. While this downgrade has gotten a lot of press coverage, there are a number of topics surrounding the downgrade that are worth noting.
First, France now has the same credit rating from S&P as the United States. As you’ll remember, S&P downgraded U.S. sovereign debt from AAA to AA+ back in August 2011. Second, the yield on France’s 10-year bonds is at 3.08%. While this yield is well above the U.S. 10-year Treasury yield of 1.9%, it is certainly not a sign that the bond market sees substantial credit or interest rate risk associated with France. The media response to the downgrade is reminiscent of the situation in July last year when there was a media frenzy surrounding the possibility that the U.S. would fail to raise the debt ceiling and technically default on its debts.
Third, we can better understand the markets for debt (bonds) if we also look at the markets for equity (stocks). They are related. The appetite of investors for risk (and that of the market as a whole) varies through time. When investors are broadly risk averse, they are less willing to Continue Reading »
Posted in Bonds, debt, Dividends, Global Investing, Income Investing, Investors, Uncategorized, Volatility | Tagged AA, AAA, bonds, downgrade, economy, France, income, S&P, yield | Leave a Comment »
In “Can You Get 7% Per Year in Income with Only Moderate Risk?” a blog I wrote back in the beginning of December, I analyzed a portfolio with 7% yield and “moderate” risk. My analysis suggested that it was possible to create a portfolio with 7% yield and about the same level of risk as a portfolio allocated 50% to a total market stock index (VTI) and 50% to a broad bond index (BND). My analysis also suggested that this portfolio had a projected volatility of 15% on a going forward basis. A helpful reader (see his comments by clicking on the article above and scrolling to the bottom of the page) found that this portfolio lost Continue Reading »
Posted in Active Investing, Dividends, financial planning, Leverage, Long-term investing, Uncategorized, Volatility, Wealth | Tagged bonds, Burton Malkiel, closed end funds, Income Investing, MLP, Munis, Target Date Funds, VIX Index | 4 Comments »
Guest Blog by Kip Robbins, CFA, Zacks.com.
Having worked in the equity markets for awhile now with a primary focus on finding profitable stock-picking strategies, I sometimes feel like the keeper of great stock picking ideas. That being said, as the New Year is upon us, I’m in a giving mood and would like to gift you three great ways to pick stocks in 2012.
In the previous two articles I’ve posted here, you’ll remember that I discussed the merits of Research Wizard as an essential stock picking tool for the individual investor to create and test new ideas. So today, I’m going to give you an example of how to develop a stock-picking strategy within the Research Wizard using three specific strategies:
First, it’s very important to start with a good ranking or rating system. Most of the time, there’s a lot of research already committed to a rating and starting with a good working foundation is a great way for you to save time. (Examples of these are broker stock ratings or the Zacks Rank. I’ll use the Zacks Rank since it’s more comprehensive than broker ratings and also has a great track record for selecting stocks.)
Second, look for stocks that Continue Reading »
Posted in Investors, Long-term investing, Low Cost Investing, Market Outlook, Portfolio Investing 101, Risk, Stock Investing, Uncategorized | Tagged asset allocation, Income Investing, stock investing, stocks, volatility | Leave a Comment »
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