Investment Help

If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.

Tuesday, June 21, 2016

Some Great Free Sources for Market Information

This morning I had work to do on a piece I was writing plus I  wanted to follow Draghi's 9 am (EST) speech to the European Parliament on Brexit - Britain's decision to go or stay with respect to the European Union. Brexit of course is the most important event currently impacting global markets and has the potential, according to experts, to significantly roil markets, depending on the outcome of the vote.

So, how to follow events and work on the computer at the same time?  The resource I use most often  is Bloomberg TV available at I like the fact that there is no sign up and it can be brought up fast.  And it is free!

Try it - I think you will like it. If you want to follow markets at the same time as you listen to Bloomberg TV you might want to reduce Bloomberg so you can still listen  (I'm listening to Draghi as I type this) and bring up the futures page on MarketWatch For those interested this can reveal market impacts of events in real time.

I will bring these resources up again later today as I follow Yellen's Congressional testimony. I hope you find these resources as useful as I do.

Tuesday, May 3, 2016

Research on 60/40 Portfolio

Two points:  we are wired to think short term, and investment research is typically too abstract and/or complicated to make basic points to the average investor.

Here is a nice succinct piece that shows results for a portofolio going back to 1926 comprised of 60% stocks/40% bonds (as represented by the 10-year Treasury):

 What Can a 60/40 Portfolio Deliver?
 by The Investment Scientist Michael Zhuang.

The results show the hugely important bottom line that the worst 10-year period was +1.8%/year.  Think about this:  if you are 75 years old or less, you probably have an investment horizon that is at least 10 years long.  Most people, of course, have a considerably longer horizon and absolutely need portfolio growth!

Thursday, April 14, 2016

My 2 Cents on Active versus Passive and Tony Robbin's "Money"

I'm working my way through Money, Master The Game by self-help guru and motivator supreme Tony Robbins.

One claim he continually makes is that passive management, using low-cost indexes, beats active managers who try to time the market and/or pick stocks, 96% of the time.

I think most people would agree that Tony Robbins is an exaggerator of the highest degree; and this, in my opinion, is an example of it.

Interestingly, there is no definitive percentage of active management underperformance.  When people throw out a number, they are basically referring to an average of numerous studies using various approaches.  Whether active managers can beat the market has been studied by academics, i.e. non-partisan researchers, for various time periods, various asset classes, and even for different countries.

My belief, from studying the results, is that passive wins 70% to 80% of the time over longer periods after all costs are taken into account.  If this is closer to the truth, then there are a fairly large number of managers and individuals beating the market by actively investing.  For every 1,000 investors in this category, 200 to 300 fall in this special group.

But, still the odds obviously favor the passive approach for most investors who are saving for their retirement.

I break it down to simple terms when I explain this to people trying to get to a successful retirement.  I say the active versus passive decision is like trying to draw a blue ball out of an urn that contains 200 to 300 blue balls and 700 to 800 red balls. Is this what most investors want to attempt when it comes to their nest egg?

Another point to understand, that Tony Robbins I think misses, is that many people who have underperformed just don't know it and actually believe they are doing well.  Consider that a simple 65% stocks/35% bonds portfolio more than quadrupled over the past 20 years.  For someone whose manager has tripled their assets over this period, he/she will likely feel they have done well.  In other words, they are clueless how much their manager has taken in fees and/or underperformed!  Probably they will go around touting their manager as a superior investment manager!

Keep in mind that there are always people who break the rules and win big.  In one of my favorite books, Rocket Boys, the memoir by Homer Hickam, the mother put every last cent in Johnson & Johnson stock because she saw all the kids in the neighborhood constantly needing bandaids etc. for their recurring scrapes.  She undoubtedly would look befuddled at the mention of diversification.  But her one stock approach bought her a nice place in Myrtle Beach!
A final point made in this ongoing debate is on the failure of superior performance to persist.  This means that picking the 200 to 300 market beaters over the last 10 years is futile.  What is generally missed, however, is that some percentage of the underperformers from the first 10 years will outperform by such an extent over the next 10 years that they will be superior performers over the 20 years!  Like zombies they come back!

Other than the irksome (to me) percentage, Tony Robbin's book is interesting albeit way too long and too much of a pump-it-up infomercial for my tastes.

Monday, March 21, 2016

How Active Managers Sucker Naive Investors In

Here is another article at MarketWatch that naive investors should throw in the trash:

 Why buy-and-hold is a bad idea for retirees by Ken Moraif.

Two points first:  MarketWatch is one of my favorite sites because most articles are informative, timely, and well-written.  Secondly, this straw-man type of bashing of "buy and hold" is quite popular and used to charge egregious fees in my opinion.

Why should the article be trashed?  I suggest you read the article first and see if you can figure it out.  If you can't, then you need help in the investment world because you are set up for the manager who wants 1% to 2% of your assets annually and is likely to underperform.  You need to do some research or get some guidance on the hit your nest egg takes over a longer period of time as you contribute to the average underperforming active manager's coffers (see:  article on recent SPIVA scorecard.)

Now to the article.  The author presents an example which shows the retiree who put all of his or her money in stocks in 2000:

So in 2000, your first year of retirement, you took out $40,000, but, oops, the market went down 10%, and you lost $100,000. You were left with $860,000. Then the market dropped 13% in 2001, gobbling almost $112,000 of your investments, plus you took out $41,200* to live on. Your investments fell to $700,000.

After 3 years he claims:

You lost half your nest egg in three years.

Now let's take a deep breath and step back a minute and ask the very basic question of who would put their nest egg 100% in stocks.  Maybe the author's firm recommends retirees put 100% in stocks, but I know of no others that do.

To be clear on the difference, let's take a look at his returns versus more reasonable numbers.  He says the market was down -10%, -13% and -23% in 2000, 2001, and 2002.  What was the performance of a buy-and-hold investor for these years using a 65% stocks/35% bonds basic, reasonable buy-and-hold allocation? Using the BlackRock Asset Class Returns chart, you can see they were -1.1%, -4.8%, and -9.8% for 2000, 2001, and 2002 respectively.  A huge difference!

The discerning reader may have also noticed that the author assumes 3% inflation for the withdrawal schedule.  He could have an interesting conversation with Fed Chairperson Janet Yellen who has been trying to reach the Fed's goal of 2%.

The bottom line is that the author has used wholly unrealistic assumptions to reach his conclusions--which could negatively impact the undiscerning reader. 

What if I was to flip this around and seek to create a straw-man type of argument in the other direction and ask how active investors fared who put their entire nest egg in Pershing Square (the firm managed by former active hedge fund manager Bill Ackman).  That story by Brett Arends is here:  Bill Ackman's stock drops.

Friday, February 5, 2016

My Favorite Investment Chart


BlackRock Asset Class Returns - A 20-Year Snapshot

chart has just been released for the period through 2015. This is a 2 page chart many advisors would not want you to see. It illustrates that investing in low cost Funds over an extended period, using a buy and hold strategy has produced excellent returns with relatively low volatility.

Understanding what this chart shows can make a huge difference for those trying to build a nest egg for retirement. Understanding this chart reveals how many investors could have invested their 401(k)s as well as their other monies to achieve better performance. It is useful for comparing their performance as well as their advisor's performance.

The first page shows year by year the returns of 7 different asset classes with each color coded so that it is easy to see for any given year the top performing sectors as well as the lower performing sectors. They also show a diversified portfolio as the white box.  The diversified portfolio is comprised of all the sectors. The actual composition of the diversified portfolio is provided in the last footnote on the first page of the charts.

The first thing that jumps out is that the diversified portfolio is never among the top 2 performers but also is never in the bottom 2. This is a visual depiction of the fact that diversifying reduces volatility.

A second point is that chasing the hottest sectors can be hazardous to your investment health. Notice that in 1998 and 1999 the top performing sector was Large Cap Growth. For the ensuing 3 years this sector was at or near the bottom.

A third point to note is that the Fixed Income sector (i.e. bonds) produced a negative return in only 2 out of the 20 years. This is worth some consideration because investors tend to be leery of bond Funds because bond prices go up and down and managers therefore may sell at losses and buy at higher prices. The overall market though, as shown, is much better behaved in terms of loss aversion. The index shown is for the entire U.S. investment grade bond market and holds bonds until they reach 1 year left to maturity.

The second page of the chart shows line graphs of the sectors as well as the cumulative and average annualized returns and standard deviations. Keep in mind, as you look at this chart, all the events that occurred that kept nervous investors out of the market including terrorist attacks, the "Great Recession", Greece threatening the viability of the European Union with its debt issues, and even shutting down the government. Despite these the patient investing of $100,000 at the beginning of the period ended up at $417,329! The average annualized return was 7.4% and the standard deviation as shown in the table was a relatively low 10%.

It goes without saying that many financial advisors who charge big fees would love to have results close to these to report to their clients.

It is a sad commentary however that many investors have no idea what they could achieve. Over the period shown many investors would feel their advisor (or they themselves for that matter) had done a good job if they had turned $100,000 into $315,000 say.

Some may question at this point what happened to the extra $100,000. For an answer read "Where Are the Customers' Yachts ?" by Fred Schwed.

Disclosure: this post is for educational purposes. Investors should do their own research or consult with professionals before making investment decisions.

Monday, January 11, 2016

Target Date Funds Comparison

Here is a nice article on Target-Date Funds by John Presto at MarketWatchOpinion:  Target-date retirement funds may miss the mark for investors.

This is the type of article that is mostly not read by investors who need to read it because, by definition, most target date Fund investors are in these types of Funds because they don't want to make their own decisions on which Funds to buy and how to allocate their overall assets.

The article emphasizes the important points to consider.  First, you want to ascertain that index funds, as opposed to actively managed funds, are used.  Secondly, you want to understand the asset allocation, i..e., the percentage in stocks and bonds.  Is 87.1% or 89.5% the right percentage to be invested in stocks?  Only Dr. Who knows; and he is in a cave at an undetermined location--so forget trying to figure that out.  And thirdly, you want an idea of the "glide path," that is, how the Fund becomes more conservative over time.
You do however, want the Fund to have a decent "glide path."  Moving through the years from being 30 years from retirement to retirement should result in a substantive increase in bonds and a consequent reduction in equities.  The table in the article showing only a slight equity exposure reduction for the Fidelity Fund was puzzling.

Another consideration is the risk tolerance of young people.  In an ideal world, young people should be aggressively invested, contribute on a regular basis at least 12% of gross income, and ignore the market value of their Funds as well as financial news.  Financial news, like news in general, is biased to be negative and will cause some younger people to stress out over the ups and downs of their portfolio as well as the potential for such based on pundits' assessments of financial events.  Young investors can easily dampen the volatility by utilizing a money fund in conjunction with the target-date Fund or choosing a Fund 10 years prior to their retirement date.

The bottom line on target-date funds is that they are better than investing in money funds, as the article points out.  Also, they have in this regard been a positive, in that they are the right vehicle to opt employees into the company 401(k). There also can be some exploitation of investors by adding Funds that a Fund provider is trying to build up in terms of assets under management, and they are a bit more expensive compared to constructing the same basic allocation with the lowest cost index Funds.

Sunday, January 3, 2016

Estimated 2015 Performance of BlackRock Diversified Portfolio

Regular readers know my favorite investment chart is the BlackRock 20-year sector performance.  It details the relative performance ranking of asset classes on an annual basis as well as the performance of an easily replicated low-cost diversified portfolio comprised basically of 65% stocks, 35% bonds.  As can be seen by referencing the above link, the diversified portfolio returned 8.7% on an average annualized basis over the 20-years ended 12/31/2014.

The diversified portfolio allocation is an appropriate benchmark for many individuals in their 40s and even early 50s, depending on their specific risk tolerance.  The chart contains sufficient data, however, to construct a benchmark and analyze performance for any specific allocation; and, in fact, the allocation can be changed over time using the data in the table--as it should be as an individual ages.

Voluminous data from unbiased academic studies have been presented over the years showing that a diversified portfolio of low-cost funds outperforms upwards of 70% of active managers over the longer term, after all costs are taken into account.  These studies cover various time periods, countries, asset classes, and investment methodologies.  In line with this data, the low-cost diversified approach warrants consideration as a benchmark for investors.  It shouldn't go unnoticed that the approach economizes on the investor's time.

Below is an update showing the estimated performance of the diversified portfolio's sectors for the 12 months ended 12/31/2015.  Overall, the portfolio returned approximately -.03%. This was a year pundits labeled "violently flat."  Although there were big up and down moves, well-diversified portfolios tended to be unchanged.

For the 12-month period, sector performance was mixed with small growth stocks doing best, followed by the investment grade bond market which eked out a small gain.  Small cap value stocks did especially poorly.  Commodities, including oil, had an especially horrendous year and were responsible for weighing down the broad averages.

Weight (%)
Return (%) 12 months ended 12/31/2015
AGG (Barclay’s Aggregate Bond Index)
EFA (EAFE Index)
IWM (Russell 2000)
IWF (Russell 1000 Growth)
IWD (Russell 1000 Value)

Disclosure:  This post is intended for educational purposes only.  Past performance is not indicative of future performance.  Individuals should consult a professional or do their own research before making investment decisions.