In a recent post, I presented a list of the ‘core asset classes’ that investors need in order to build portfolios that fully exploit available diversification opportunities. That article focused on portfolios designed for total return potential, the combined return from price appreciation and income generated by the assets in the portfolio. For investors focusing on building income-generating portfolios, the core asset classes are somewhat different. In this article, I present a proposed set of core asset classes for income-focused investors, along with examples of representative funds. Continue reading
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. Continue reading
Let’s say you want to build your own stock market index fund based on the S&P 500. Easy: download a list of all the companies in the index–from 3M (MMM) to Zions Bancorp (ZION) and their market cap, and start investing. Every stock in the index will be easy to buy in whatever quantity you want.
Now, after the success of your first index fund, you decide to create an emerging market fund, concentrating on the world’s up-and-coming economies. Again, no problem. We have the internet, after all, and we can just print off a list of all the stocks in China, India, Chile, Hungary, and so on, pull out a pile of Benjamins, and go to town.
That won’t work, says Raman Subramanian, Executive Director of Index Research at MSCI. Continue reading
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
Political turmoil in the Middle East and Africa, a natural and nuclear disaster in Japan, rekindling European debt crises: It’s easy to understand why investors may shy away from investing in foreign stocks these days.
They may be making a mistake.
Reluctant Global Investors
“There’s so much fear out there,” says Darleen Gilmore, founder of Austin Wealth Specialists, an investment advisor who likes clients to put a certain percent of their holdings into global markets. “I have to ease them into it.” Continue reading
Bob Huebscher over at Advisor Perspectives just published an interesting article that gives an overview of Grantham, Mayo, van Otterloo & Co.’s (GMO) outlook for the coming years. The article is based on a talk given by Ben Inker, head of asset allocation at GMO.
Most investors who are aware of GMO first encounter the Boston-based investment management firm by reading some of the brilliant essays of Jeremy Grantham, one of the firm’s founders. Grantham’s market outlooks have historically been prescient.
A Bleak Outlook?
GMO’s broad outlook for investors — the firm manages $107 billion in assets — has changed since last year. Continue reading
As usual it’s great fun to read and full of things to worry about. Continue reading
Below is a Fidelity Investments heat map showing the investing terrain of the past year, particularly how correlated a variety of investment classes were to the S&P 500 Index over the 12 months ended August 2010. As has been much discussed, many investment classes have moved in close tandem to this US Stock index. It is a small world after all.
But for those defending the importance of a continued commitment to bonds despite the low yields (Jack Bogle, Bill Bernstein, and Fidelity itself, among them) this map provides much support. Investment grade bonds and 30 day T-bills are the truest counterweight to all equities in every region of the world. Precious metals in general, gold in particular, the Yen, agriculture and livestock provided balance too.
The graphic comes from Intelligent Speculator, who notes surprise at the BRIC and Emerging Market’s similarly close correlation to the US market, and also predicts a more valuable role for real estate moving forward.
(Please click on image to enlarge.) Comments, insights, questions welcome below.
In his new book, The Investor’s Manifesto, William J. Bernstein makes a strong case not just for the idea of portfolio investing, but the fact of it. Any one of us, with a modest amount of effort, can build a good portfolio, Bernstein argues. Then he proves it.
Bernstein is not your typical individual investor. A PhD and formerly practicing neurologist, he has a wild passion for investing, and an appetite for dot matrix diagrams that can be a bit intimidating. A bestselling author of four previous books on investing and economic history, in this tome the good doctor set out to write something accessible to the masses. He’s achieved his goal. Continue reading