Monthly Archives: December 2011

Standing at the Close of 2011

This has been a chaotic year in the financial world.  In this latest article, I will take a look at what happened in 2011 and give my personal views on where things are going for 2012.

Many Happy Returns?

The biggest news of the year would have to be Europe.  As I write this, the EAFE index of international developed-market stocks has returned -12% for the trailing 1-year period and an annualized -4.7% per year over the last five years.  The EAFE index has a 15-year annualized return of 3.3% per year.

The S&P 500 Index has delivered 2.8% for the trailing 1-year and stands at almost exactly 0% total annualized returns (including dividends) for the trailing three years.  On the other hand, Continue reading

Happy Holidays from the Portfolioist

All of us at the Portfolioist would like to take this moment to wish you and your family a safe and happy holiday season.

We’ll be taking off the remainder of the week, but will be back online next week with a variety of articles that will look back on 2011 and help you prepare for 2012.

All the best–

Lauren Tivnan & Geoff Considine, Ph.D.

Just Put the Ball in Play

Guest Blog by Robert P. Seawright, CIO, Madison Avenue Securities. 

On account of the success of Moneyball (both the book and the movie, nicely satirized here), baseball management is often compared to investment management, and with good reason. Moneyball focused on the 2002 season of the Oakland Athletics, a team with one of the smallest budgets in baseball.  At the time, the A’s had lost three of their star players to free agency because they could not afford to keep them.  A’s General Manager Billy Beane, armed with reams of performance and other statistical data, his interpretation of which was rejected by “traditional baseball men” (and also armed with three terrific young starting pitchers), assembled a team of seemingly undesirable players on the cheap that proceeded to win 103 games and the division title.

Unfortunately, much of the analysis of Moneyball from an investment perspective is focused upon the idea of looking for cheap assets and outwitting the opposition in trading for those assets.  Continue reading

Burton Malkiel: Buy Munis, Foreign Bonds, and Dividend Stocks

Burton Malkiel, Princeton professor and author of A Random Walk Down Wall Street, had an Op Ed piece in the Wall Street Journal on December 7th that advocates rethinking simple indexed portfolios.  While Vanguard has recently published research asserting the superiority of a simple asset allocation made up of 50% allocation in a stock index and 50% allocation in an aggregate bond index, Malkiel proposes that investors need to look at a range of asset classes that are less familiar to most investors.

To begin, Dr. Malkiel asserts that long-term Treasury bonds (10 years and longer) have such low yield that they are likely to have negative real long-term return (return net of inflation).  Rather than invest in Treasuries, he advocates Continue reading

New Study Released: How Much Americans Need to Save to Retire

The Center for Retirement Research at Boston College recently came out with a new analysis of how much Americans need to save in order to be able to maintain a reasonable lifestyle in retirement.  Published in November 2011, the report is titled “How Much to Save for a Secure Retirement.”

The study starts with an assumed target “replacement rate” that represents the fraction of pre-retirement income that an individual will be likely to need to maintain their lifestyle in retirement.  A long-term project at Georgia State to estimate required replacement rates provides the numbers that serve as the foundation of the CRR paper.  The Georgia State research suggests Continue reading

The 50-50 Portfolio Solution?

The New York Times had a piece this weekend that proposes a simple portfolio solution for worried investors. 

Are you ready for this? 

The portfolio is a 50% allocation to stocks and 50% to bonds.  The conclusion that the 50/50 portfolio makes sense is based on a study by Vanguard published in October 2011 that finds that this allocation seems to generate consistent returns, regardless of whether the economy is in recession or expansion.  The study is based on portfolio performance from 1926 through June 2009. 

The 50/50 portfolio generated an average annual return of 7.75% per year during recessions and 9.9% per year during expansions.  Continue reading

Can You Get 7% Per Year in Income with Only Moderate Risk?

With ten-year Treasury bonds yielding around 2%, many investors are looking for investments that can provide higher levels of yield. Barron’s just ran a cover story on this topic, titled:

“How to Get Safe Annual Payouts of 7%: Despite rock-bottom interest rates, you can still earn investment income of 7%-plus per year. How to keep money flowing during retirement.”

But is it really possible to create a low-risk portfolio with a yield of 7% or more? Continue reading