The S&P500 has recently been hitting new all-time highs, which would seem to suggest that the economy is recovering and that the U.S. economy is back on track. The story does not look quite so rosy when you account for inflation, as Mark Hulbert has recently noted. The current level of the S&P500 is, in fact, still about 24% below its high in 2000 once inflation is considered. Economists and finance people would say that, measured in real terms, the S&P500 is 24% lower than it was at its 2000 peak. What this means is that the proceeds from the sale of a share of an S&P500 index fund purchases considerably less in real goods today than it did thirteen years ago. (more…)
Archive for the ‘Dividends’ 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 »
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…)
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…)
Apple’s Share Price and Behavioral Finance
Posted in Behavioral Finance, Bonds, Dividends, Risk, Stock Investing, tagged Apple, Behavioral Finance, IPO, market price, risk capital, shareholders on January 16, 2013 | 2 Comments »
The price of a share of Apple (AAPL) is almost 30% below the high that it set back in September 2012—about five months ago. Even before its peak, the price of Apple shares had already made it the most valuable company in history. In those heady times, Apple shares reached $702. Today, they are at $503. Even today, however, Apple remains the largest single holding in the S&P 500 at about 3.6% of the total index. It is mind boggling to consider that the market value of the most valuable public firm in history could decline by 30% in five months, without some sort of catastrophic event. But this is the situation and there are some lessons to be drawn. (more…)
A Thoughtful Outlook for 2013
Posted in Bonds, Dividends, Global Investing, Inflation, Market Outlook, Risk, tagged Corporate Bonds, dividend yield, emerging bond market, equities, global money management, inflation risk, Jason Hsu, market forecast, outlook, P/E, predictions, price-to-earnings on January 11, 2013 | 1 Comment »
In general, I ignore the spate of market predictions that experts issue at the start of each year. There are exceptions, and after reading Jason Hsu’s outlook for this year, I am pleased to recommend it to readers. Dr. Hsu is the Chief Investment Officer at global money management firm, Research Affiliates. I found his article both insightful and appropriately skeptical of all forecasts. How can you not appreciate a money manager who starts his prediction for the year ahead with John Galbraith’s quip that “the only function of economic forecasting is to make astrology look respectable”?
I am going to mention a few of the elements of Hsu’s outlooks and add some thoughts. Hsu first examines the drivers for bonds and then equities. I will follow this structure. (more…)
Investing for Income vs. Total Return
Posted in Bonds, Dividends, Income Investing, Long-term investing, retirement planning, Risk, tagged bond yield, Larry Swedroe, longevity risk on December 10, 2012 | 2 Comments »
One of the most-discussed issues in long-term investing is whether to focus on income generation or simply to think in term of total return (price gains plus income). The discussion of this topic often focuses on whether investors should seek out stocks that pay dividends vs. simply planning to sell a fraction of their portfolio periodically to provide income. I recently wrote a long article on this topic, which has been cited in a very interesting discussion of this theme going on at Bogleheads. One of the most active participants in the debate on the Bogleheads forum and elsewhere is Larry Swedroe, a well-known advisor and author. As I read the Bogleheads discussion thread, it strikes me that there is considerable confusion around this topic, so I thought I would add a few more thoughts. (more…)
Sector Watch: Wine, Beer, and Spirits
Posted in Commodities, Diversification, Dividends, Investors, tagged alcohol, alcoholic beverages, folios, sin stocks, Wine Beer and Spirits Folio on October 19, 2012 | 1 Comment »
The stocks of companies that produce and distribute alcoholic beverages have dramatically out-performed the broader market both in recent years. There are many factors that can lead to the relative out-performance of one sector. Surprisingly, however, so-called ‘sin stocks,’ including those of companies that produce and distribute alcohol, have a long history of delivering high returns to investors. Sin stocks tend to fall into the ‘value’ category, but even after accounting for the well-known value premium, a 2005 study, titled The Price of Sin: Effects of Social Norms on Markets, found that ‘sin stocks’ provide additional returns that cannot be explained by the value premium alone. The study finds that this out-performance is both substantial and statistically significant. The Folio Investing Wine, Beer, and Spirits Folio demonstrates that this out-performance has persisted in recent years, too. (more…)
Sector Watch: Spotlight Telecommunications Stocks
Posted in Asset Allocation, Dividends, financial planning, Global Investing, Investors, Market Outlook, Stock Investing, tagged cell phones, France Telecom, FTE, global economy, industry, International Stocks, KKPNY, KPN, mobile phones, new media, S&P 500, stock indexes, technology, TEF, Telecom Folio, telecommunications, Telefonica on October 5, 2012 | 2 Comments »
The telecommunications industry is evolving quickly. Recent data suggests, for example, that half of all adults in the United States have a tablet or smartphone. There are many countries that have an average of more than one cell phone line per person. In the developing economies, cell phones have allowed much broader access to voice and data services than would have been possible if the traditional fixed-line infrastructure needed to be built. Ten years ago, Nigeria had only 100,000 phone lines. Today, Nigeria has 100 Million cell phone accounts. The ways that people use telecommunications are also expanding. For people with little or no access to banking, mobile money services can provide the essential roles of banking. The continued convergence of banking with telecommunications has substantial implications for both. (more…)
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