I have known Phil DeMuth for a number of years and I admire his common sense and views on many topics. Phil authored the recently-published book The Affluent Investor that fills a need in the crowded shelves of investment books. As a financial advisor to high-net-worth families, Phil brings valuable perspective to investors who have built substantial portfolios and seek to protect and grow their wealth effectively. (more…)
Archive for the ‘Asset Allocation’ Category
Review of The Affluent Investor by Phil DeMuth
Posted in Asset Allocation, book review, Dividends, ETFs, Financial Advisors, Income Investing, Investors, Mutual Funds, Wealth, tagged affluent investors, high beta rich, high-net-worth families, investment portfolios, lifecycle investing, phil demuth, The Affluent Investor on April 9, 2013 | Leave a Comment »
The Great Rotation?
Posted in Asset Allocation, Bonds, Stock Investing, Tid Bit, tagged equities, fixed income, IPOs, re-allocate, stock rally, Tech bubble, The Great Rotation, trends on February 8, 2013 | Leave a Comment »
The financial media loves a catch phrase and, with the apparent emotional hook of the ‘fiscal cliff’ diminished, we needed a new one. The current best candidate is the so-called ‘Great Rotation.’ The idea here is that investors, finally and completely fed up with the dismal returns from bonds, are going to move heavily back into equities. This is the ‘Great Rotation.’ When I Google the term, there are 820,000 search results. Not bad for a phrase that was invented in October 2012 (in a research note from Bank of America, apparently). (more…)
The Yield Paradox
Posted in Asset Allocation, Bonds, Dividends, Risk, Stock Investing, tagged Corporate Bonds, junk bonds, Master Limited Partnerships, MLPs, Monte Carlo Simulation, mortgage reits, Municipal Bonds, Quantitative Easing, Treasury bonds, yield paradox on January 31, 2013 | 2 Comments »
I have been struggling to understand a problem that I am going to refer to as the ‘yield paradox.’ Yields for individual asset classes look low. The 10-year Treasury bond is yielding about 1.9%, and 30-year Treasury bonds are yielding a similarly paltry 3%. The S&P 500 is yielding 2.1%, which is very low by comparison to historical levels. Investment-grade corporate bond indexes are yielding less than 4% (see LQD, for example, at 3.8%). Given that the official rate of inflation for 2012 was 1.7%, these yields mean that investors are getting very little yield net of inflation. The very low yields on bonds and on stock indexes is a direct result of the Fed’s actions in holding interest rates at historical lows via Quantitative Easing. We have not yet gotten to the paradox. (more…)
Target Date Strategies Over The Last Five Years
Posted in 401(k), Asset Allocation, Diversification, Long-term investing, Mutual Funds, pensions, Retirement, Risk, tagged glidepath, pension protection act, retirement plan participants, risk targets, Target Date Folios, Target Date Funds, target percentage, traditional target on January 29, 2013 | Leave a Comment »
The intent of target date strategies is to provide investors with fully-diversified portfolios that evolve appropriately as investors age. Target date funds have enjoyed enormous growth over recent years, not least because the Pension Protection Act of 2006 allows employers to direct retirement plan participants into these funds as the default investment option. Consultancy Casey Quirk projects that target date funds will hold almost half of all assets in 401(k) plans by 2020.
Target Date Folios are an alternative to traditional target date funds, launched on the Folio Investing platform in December of 2007. These portfolios now have more than five years of performance history. Prior to the design of the Folios, a detailed analysis of target date funds suggested that they could be considerably improved. The Folios were designed to provide investors with an enhanced target date solution. In this article, I will discuss the design and performance of the Folios and target date mutual funds over this tumultuous period. The risk and return characteristics of these funds and Folios provides insight into the effectiveness of different approaches to portfolio design and diversification. (more…)
Perpetually Out of Step
Posted in Asset Allocation, Investors, Long-term investing, Market Timing, Mutual Funds, Stock Investing, tagged DOW Jones Industrial Average, mutual fund fees, mutual fund investors, mutual fund management on January 25, 2013 | Leave a Comment »
There is increasing evidence of big flows of money into equities and leaving bonds. This is being seen at all levels in the market, including among institutional investors such as pension plans. The Wall Street Journal just published an article discussing this shift called Are Mom and Pop Heading for Wall Street? Mutual fund flows suggest that investors are finally returning to equities, after selling in droves over the past several years. This article summarizes the issue:
From April 2009 through now, mutual-fund investors sold a quarter trillion dollars in stock funds, according to recent data from the Investment Company Institute.
Ironically, that selloff coincided with a period of stellar performance in stocks—when the Dow Jones Industrial Average jumped more than 60%. (more…)
Falling ETF Fees and What They Mean
Posted in Asset Allocation, Bonds, Diversification, ETFs, Markets, tagged asset allocation strategies, Burton Malkiel, expense ratios, market cap, market indexes, sectors, stock indexes, stock market index, Target Date Folios, Vanguard on January 7, 2013 | Leave a Comment »
Vanguard has just reduced the expense ratios of 24 of its ETFs. The reductions are fairly substantial. What I noticed, in particular, is that the reductions include sector-specific ETFs.
The Vanguard Energy ETF (VDE), the Vanguard Information Technology ETF (VGT), the Vanguard Telecom ETF (VOX), and the Vanguard Utility ETF (VPU) each now have 0.14% expense ratios vs. 0.19% previously. While the expense ratios of these funds were already low, the new expenses are 26% lower than before. (more…)
Getting Help in Choosing and Managing a Portfolio
Posted in 401(k), Asset Allocation, Diversification, Financial Advisors, financial planning, Investors, Long-term investing, Low Cost Investing, Portfolio Investing 101, retirement planning, Risk, tagged individual retirement accounts, investment advice, IRAs, online brokers, self-directed investing, Target Date Funds on December 20, 2012 | Leave a Comment »
There is currently $5 Trillion invested in Individual Retirement Accounts (IRAs), $4.7 Trillion invested in self-directed retirement plans provided by employers (401(k), 457, and 403(b) plans), and $2.3 Trillion invested in traditional pension plans offered by private companies. These numbers are stunning for a number of reasons. First, self-directed retirement plans (IRAs, 401(k)’s, etc.) dramatically dwarf the amounts invested in traditional pensions. This is part of a long-term trend, as employers move away from traditional pensions, but the magnitude of the shift is striking. With the assets in IRA’s surpassing the $5 Trillion mark earlier this year, the amount of money in individual accounts is moving ahead of employer-sponsored plans. What’s more, it is anticipated that IRA’s will continue to grow relative to employer-sponsored plans as people retire and roll their savings from their ex-employer’s plan into an IRA. This matters because investors in IRA’s have even less help in creating and maintaining their portfolios than investors in employer-sponsored plans. (more…)
A Picture is Worth a Thousand Words: The State of the Economy
Posted in Asset Allocation, Bonds, Inflation, Retirement, tagged bond yields, Consumer Price Index, Federal Reserve Economic Database, labor participation rate, recession, Treasury bonds, unemployment, unemployment rates, US economy on December 7, 2012 | 1 Comment »
Availability of timely data is at the core of effective financial and economic analysis. The Federal Reserve Economic Database (FRED) provides a vast array of economic time series via an intuitive graphical interface. If you want to get a read on the U.S. economy, FRED is an outstanding resource. The ability to quickly create customized charts makes it quick and easy to examine a wide range of data. In this article, I am going to show a number of these charts, while exploring the overall economic U.S. economic picture. (more…)
What Are the Core Asset Classes for Total Return Portfolios?
Posted in Asset Allocation, Bonds, Commodities, Diversification, ETFs, Inflation, Investors, Risk, Stock Investing, tagged Corporate Bonds, emerging market stocks, Emerging Markets, equity energy, fixed income, gold, government bonds, investing strategy, Municipal Bonds, real estate investment trusts, REITs, stock market index, TIPS, Utility stocks on November 28, 2012 | 1 Comment »
One of the most important questions for investors and advisors is identifying a set of asset classes that will be considered for inclusion in a portfolio. Some people will decide that all they need or want is one broad stock market index fund and one bond fund. Others will choose to include Real Estate Investment Trusts (REITs) and commodities. There are well-thought-out arguments that inflation-protected government bonds (TIPS) are a major core asset class. It is also quite common for investors or advisors to break stocks out into value vs. growth and small cap vs. large cap. (more…)
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