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.

Friday, April 10, 2015

How to Boost a Target Date Return

Paul Merriman of MarketWatch has written an interesting article,

How to double your target-date retirement fund's return in a single move

that is worth reading and considering by target fund investors, especially younger investors, many of whom have been opted into target date type funds.

The gist of the article is straightforward:  put the bulk of your automatic 401(k) contribution into a target date fund, but also put a percentage in a small-cap fund. 

Why small-cap funds?  Although small-cap funds are volatile (will remind you of Jack Nicholson going beserk at various times!), they make up for it with exceptional long-term performance.

A couple of important points:  you need to be able to handle the volatility.  The article doesn't really spell out the asset allocation over time for Jessica, the fictional investor; but it would have been interesting to see where she stood on 1/1/2008 with a "free falling Tom Petty," off-the-cliff experience immediately ahead.  In 2008, stocks fell 37% and then in early 2009 dropped another 50%!

Sadly, the best laid plans many times are trashed in the real world of investing.  It is hard for most people to see something they have built up over a number of years crumble in front of their eyes.

Also, keep in mind the long term covered by the study.  A quick glance at the 

BlackRock sector returns 

(see page 2) for the past 20 years shows that Large Cap Core achieved an average annualized return of 10.5% versus 9.6% for Small Cap.  Standard deviation was 15% for the former compared to 19.6% for the latter!  Thus, you would have slept better and been ahead using Large Cap.

By the way, if you can only stand to read one person in the investment arena,  

Paul Merriman 

would be an excellent choice.  He stands out even among all the other excellent "Retirement" writers at MarketWatch.

Wednesday, April 1, 2015

Update: 1st Quarter 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.  The diversified portfolio returned 8.7% on an average annualized basis over the 20-years ended 12/31/20114.

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 approximate performance of the diversified portfolio's sectors for the 3 months ended 3/31/2015.  Overall, the portfolio returned approximately 2.17%.

For the quarter, sector performance was mixed with the international (EFA) doing best and large and mid-sized value (IWD) lagging. The bond market (AGG) achieved a positive return as yields dropped over the 3 months.

Weight (%)
Return (%) 3 months ended 3/31/2015
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.

Monday, March 30, 2015

Clements on Index Fund Investors

Here's a nice piece by Jonathan Clements at MarketWatch on index fund investor performance versus active fund investor:

Are index-fund investors smarter?

The article presents interesting findings by Morningstar on dollar-weighted returns for active fund investors and index fund investors that support what we present here on an ongoing basis.

What interested me was his observation on why indexers tend not to jump in and out of the market at the wrong time.  He observes that indexers have a single worry - the performance of the market whereas active fund investors have two concerns - the performance of the market and the worry of the active fund they are invested in.

Although he didn't mention it, this combined with the risk averseness of investors clearly makes active fund investing for many investors a real challenge - especially in volatile markets such as we have experienced recently!

Friday, March 20, 2015

Real World Investment Fees

Here is what advisors see.

C.P. is 74 years old.  Her assets are at a popular brokerage, E.J., where she has an advisory relationship.

C.P. is not high net worth.  She has $112,666, of which $47,497 is with E.J. She has $62,600 in savings at a bank that is earning a pittance that she wants to get invested.  This is her nest egg!

Cursory reading has convinced her that having the $62,600 with E.J. in high-cost funds is not in her best interest.

Here is a list of her current investments with E.J.:

Fund/Ticker Symbol
Invested Amount
12 Mo. Performance (%)
Note that the Mers, annual expense ratios, range from .59% to 1.96%/year.  Note, as well, that the largest investment is in a front load Fund that takes 5.75% right at the get-go.  Hmm!

The ranks shown are from Morningstar.  They average out to 46, which means the performance numbers are roughly average; and because Funds tend, on average, to underperform their respective  market sectors after all expenses over the long term, it is likely that C.P. would have a difficult time getting good performance with this setup.  This is especially the case when you understand the impact of the loads which put the client significantly behind the starting line.

Her asset allocation, obtained by putting the above ticker symbols and dollar amounts into the Morningstar X-Ray utility, shows:

4% cash
46% U.S. Stocks
15% Foreign Stocks
31% Bonds
3% Other

I'm not sure, on top of everything, whether C.P. pays an advisory fee.  If she does, it obviously just digs the hole deeper.  She, then, would be paying a fee to be put into high-priced funds - a recipe for building an advisor's account but not the customer's account.

To add insult to injury, there is a charge of $95 to terminate each account.  The above listing is for two accounts:  a regular account and a small IRA.  Ooch!!  Think about this.  If they do a bad job and you want to fire them, they charge you for sending info to another custodian. 

Saturday, March 14, 2015

Do You have a Good 401(k)?

In today's world where we are responsible for our own retirement, a good 401(k) is extremely valuable.  If you are young and you have a good 401(k) and you take advantage of it, you are on the track to spending the last third of your life in really, really good shape.

Don't know how to do it?  Read this blog or hundreds like it, or read Millionaire Teacher by Andrew Hallam or The Elements of Investing by Malkiel and Ellis.  These books will take you two weekends, at most, and will put you on the aforementioned path.

But how do you know if you have a good 401(k)?  One thing you might want to do is visit where you may find your company 401(k) listed and rated.

Another approach is to read

 7 Clues That Your 401(k) Plan Sucks by Robert Berger.

Incidently, his website Dough Roller is one of my favorites that I check weekly for the articles he lists!

In this article he wrote for Daily Finance, Berger has the following important points to examine on determining the quality of your 401(k):
  • employer match - in just about every instance, a match should be taken advantage of.  How do you find if you have a match?  Ask Human Resources or look at a recent statement.  Statements will have "employee contribution" and "employer contribution"(if any) listed.
  • Roth 401(k) - if you have a Roth 401(k), it is good; and consideration should be given to using it.  Know that you won't get the upfront tax break for using it; but, going forward, you'll never worry about taxes again (assuming Congress doesn't change the law ;).
  • Index Fund offerings - generally, if you don't have low-cost index fund offerings, then you should limit your contributions to the company match and use an IRA elsewhere.  If you aren't sure of what a low-cost index fund is, read the above mentioned books.  If you have low-cost index fund offerings (example: Fidelity Spartan Funds), then your path to a successful retirement is straight forward.  Use them to the fullest extent allowed!
Berger's article lists other important considerations.  One important point to note is at the very beginning where a lawsuit is referenced concerning a Plan Administrator.  If your 401(k) has only high-expense fund offerings, you may want to highlight the case mentioned with a yellow highlighter and drop it off in your Human Resource person's mailbox.  The days of clueless administrators choosing poor fund choices for plan participants is slowly coming to an end.

Tuesday, February 24, 2015

FeeX - Understand Account Fees and How to Lower Them

I've hammered home again and again the importance of investment fees and how to lower them.  Now there is a free service, FeeX, that will analyze your accounts, identify the fees, and advise on how to lower them.

An overview of the service is provided by investorjunkie:  FeeX Review - An Investment Fee Reducer.

As explained in the overview, the service is still free, requires you linking them with your accounts, and examines the following fees:
  • Mutual fund expense ratios, which are present even on no-load funds
  • Exchange traded funds (ETF’s) expense ratios (even though they’re typically lower than what mutual funds charge)
  • Advisory fees (can be between 1.0% to 1.5% of an entire account balance)
  • Wrap fees
  • Sales loads
  • Redemption fees
  • Transaction fees
  • Account maintenance fees 
It also grades your fee structure versus similar investors.  The final step is to suggest ways to lower your fees.

A lot of this, of course, can be done yourself.  You can research the all-important yearly expense ratios, sales loads, and advisory fees.  As the article points out, paying 2% of assets per year reduces a retirement nest egg significantly.

Thursday, February 19, 2015

Getting to a Low-Cost Index Fund Strategy

Did you ever hear the old joke about the Maine farmer who was standing in his field when a car pulled up and asked if he knew how to get to a certain town.  He squinted, furrowed his brow, pursed his lip,s and then came out in his Maine accent with, "You know, I don't think you can get there from here."

That's how I feel sometimes when I meet with new clients.  We go over the principles underlying low-cost well-diversified index investing.  We cover the thinking behind different asset allocation models and the importance of sticking with an asset allocation strategy through the ups and downs of the market.

Then we look at their investments.  More times than not they include several bank accounts, multiple 401(k)s, IRAs and taxable accounts.  The taxable accounts include inherited stock, and they look at me quizzically when I ask about cost basis.

The Funds they hold include front load, back load, and everything in between.  Some hold private collective funds on which it is difficult to understand the management fees.

The bottom line is we need to go from a smorgasbord of investment vehicles to a well-structured basic asset allocation comprised of low-cost index funds.  Sometimes I feel like the Maine farmer.

But usually it is best to proceed slowly.  Take one account at a time.  Know exactly where you are headed and take baby steps if necessary.  Understand each investment.  If it's a taxable account, look at capital gains - are they long term or short term?  Look at the Funds - are they load Funds?  Does it make sense to hold for a while to lessen the deferred charge?

If moving accounts to a new broker, can the Funds be moved "in kind"?  If not, how will your overall asset allocation look over the transition period?

Sometimes it pays to have an advisor take over during this set-up period.  An advisor knows how to get from where you are to where you want to go on a tax-efficient basis.  In many instances, once the account is finally set up so that the asset allocation is clearly understood and assets are invested in low-cost index funds, the advisor can bow out and the client take over.