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.

Sunday, January 25, 2015

Update on Morning Routine

Source: Capital Pixel
I'm primarily an indexer and passive dividend stock investor.  Thus, I don't hunger after economic data during the course of the market day or breathlessly wait for the next pundit coming up on CNBC.  But I do like to feel like I know what is going on in the market and  like I understand the major influences.  To that end, I begin my day gathering data.

I go to MarketWatch and begin at the data source shown:

Source: MarketWatch
I first record the yield on the 10-year Treasury Note (1.79) and the German 10-year Bund yield (.32) and then calculate the difference.  That difference, as shown, is now 1.47%.  So, even though the U.S. rate is anemic, it is considerably higher than the German rate as well as most of the other yields shown in the table.  Other things equal, U.S. rates are enticing to many in the global markets.

Next I click "FX" and record  "WSJ $ Idx, a basket of currencies, as well as the euro.  Both of these have moved higher.  On January 14, for example, the WSJ Idx and the euro stood at 84.02 and 1.18, respectively.  Today they are at 85.40 and 1.12, respectively.  The bottom line is U.S. Notes and Bonds look very attractive to global investors both on a yield level basis and dollar appreciation basis.  This was the major factor confounding prognosticators in their prediction that rates would rise in 2014!

I next click "Futures" and record both the price of oil and gold.  In reading Barron's "Roundtable," I have gotten chuckles, as I'm sure some of you have, over the hand-wringing by participants of the failure to foresee the collapse in oil prices.  Some of the participants seem to question the whole pundit/prediction exercise!

One final data point I started picking up recently was the yield on the S&P 500 which, itself, has gone above the yield on the 10-year Treasury.  I get it by going to Yahoo! Finance and looking at the yield on SPY, the ETF tracking the S&P 500:

Source: Yahoo

As shown, the yield is 1.87%.

All of this takes less than 10 minutes in the morning and gives me a good feel for how markets are behaving.

A couple of years from now, I will surely be tracking different indicators.  That's the nature of markets - what is important at various times changes.  There was a time when the P/E ratio on internet stocks was a driving factor.  At another time, it was the rate on adjustable rate mortgages.  Today it happens to be the spread between U.S. interest rates and global rates along with the value of the dollar.

Since some of you may go to the MarketWatch site, it is a good time to tout the "RetireMentors" which can be found by clicking the "retirement" link at the top of the homepage.  IMHO, this is the best ongoing collection of articles online for people interested in retirement.

Friday, January 16, 2015

On Percentage Changes

Sometimes people get the impression, from the way percentages are calculated, that to get back to even a stock has to go up much more than it dropped.  Here is a simple example:  suppose we buy a stock at $2/share and it drops to $1/share.  By the conventional way of calculating percentages, this represents a decrease of (1-2)/2 = 50%. The formula is:  (ending value - beginning value)/beginning value.

To get back to where we started, it will need to go from $1/share to $2/share which equals a percentage gain of (2-1)/1 =100%!  Yikes!  It has to go up twice as much!  Really?  Actually, as you can see, it just needs to rise by the same $1 it dropped.

To look at this another way, check to see if you are really ahead if you buy a stock that round trips from $1 to $2 and then back to $1.

As an FYI, this is one area where economists are not lazy.  In dealing with elasticities, it is necessary to calculate percentages; and the approach economists use is to take the average of the prices for the divisor.  This would make a move from $1 to $2 a percentage change of 1/1.5, or .67%.  If it goes back to $1, the change would be -.67%.

Thursday, January 1, 2015

2015 Performance - 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 8.3% on an average annualized basis over the 20-years ended 12/31/2013.

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 table 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 12 months ended 12/31/2014.  Overall, the portfolio returned approximately 7.96%.

For the year, sector performance was mixed.  Large Cap Growth  (IWF) and Large Cap Value (IWD) achieved the highest performance with double digit returns.  International (EFA) had a negative return. The surprise for the year was the solid 6.04% return of the bond market (AGG).  Most forecasters believed rates would rise in 2014!

As a point of reference, a 7.96% average annualized will double your money in 9 years.

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.

Return (%) 12 months ended 12/31/2014
Expense Ratio
AGG  (Barclay’s Aggregate Bond Index)
EFA (EAFE Index)
- 5.04
IWM (Russell 2000)
IWF (Russell 1000 Growth)  
IWD (Russell 3000)

Tuesday, December 30, 2014

A New Year's Resolution That Pays

It was probably Warren Buffett, but who knows, maybe it was Yogi Berra, who said (I paraphrase), "Don't wait until it rains before fixing your roof."  In this spirit, I suggest the resolution for 2015 to read some personal finance/investment books.  This isn't as painful, for most people, as most resolutions.  It isn't like pushing away the second piece of blueberry cheesecake or trying to quit smoking.  In fact, many people would surprise themselves because it is, in effect, the same as finding money.  The important point to understand is that these books lay out the steps you need to take before " rains."

For example, the wrong time to worry about your disability insurance is right after the doctor has told you that you'll need hip replacement surgery.  The wrong time to question your home insurance is as you watch fire trucks pulling up to your house.  And, yes, the wrong time to seriously think about funding life in your 60s is in your 50s.

Here is a post where I listed 4 of the books I recommend most often:

recommended books.

Let me add, as well The Charles Schwab Guide to Finances After Fifty by Carrie Schwab-Pomerantz.

As an example of what you'll find in this book, consider the following table (p. 251):


Source: The Charles Schwab Guide to Finances (p. 251)

The table shows the break-even for a $1,000 monthly benefit.  The payout equalizes, as shown, at age 78 for the earliest take-out opportunity and the full retirement age of 66.  Comparing full retirement age and age 70, the break-even occurs at age 83.

Notable, of course, is the additional almost $100,000 from holding off versus earliest choice for the 95-year-old.

Admittedly, the information in the books recommended here can be garnered by paying an advisor a couple of thousand dollars, and this is a route those with more complicated situations should go if they can afford it.  Still, it can be beneficial even for those of you in this boat to have at least a cursory knowledge of the areas you will cover.

Happy 2015 to you and your family!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!


Monday, December 29, 2014

Bond ETF Performance (Update)

I last reported on bond ETF performance on


Here is a year-to-date update.

Allocating the fixed income portion of invested assets has been a challenge for investors over the past few years and continues as rates refuse to rise in tandem with experts' expectations, corporate spreads widen, and international worries mount.  This was especially true since the last update, as investors piled into Treasury securities and sold high-yield and international bonds.

Not long ago, investors could put the bulk of fixed income assets in an index fund tracking the Barclay's Aggregate Index and then go to thinking about the stock portion of assets.  Not true in 2013, and still not true as we approach the end of 2014.  Most observers continue to believe that rates will head higher, especially once the Fed starts its expected increasing of the Federal Funds rate in mid-2015.

Important dynamics in today's market are the rising dollar and the lower yields globally.  For example, the yield on the 10-year German Bund is 0.56%, 166 basis points below the 2.22% yield on the 10-year U.S. Treasury!  From the perspective of a European investor looking globally, an extra 1.66% in a depreciating Euro market is mighty attractive!

As you can see, the returns vary widely among the different funds.  Since the last update, long duration Treasury notes and bonds have outperformed high yield instruments; and the yield curve has flattened. Note the -3.81% performance of the international high yield fund!  Note, also, the payoff for being in the 7 - 10 year part of the Treasury curve at 8.45% versus 2.70% for the 3 - 7 year sector!

Unfortunately, most 401(k)s do not offer a decent selection of bond funds - you are typically forced to select from a couple.  On the other hand, if you have an IRA, you  have the selection available below as well as many others - another reason in favor of rolling over 401(k)s.

In general, you want to limit, to the extent it makes sense, the bond exposure of your investable assets  in your taxable accounts--where they will get hit with your marginal tax rate as ordinary income--and invest your bond allocation in qualified accounts like 401(k)s, 403(b)s and Roths.

The bogey in the bond market is AGG, the Barclay's Aggregate Bond Index:  it is to the bond market what the S&P 500 is to stocks.  Thus, the overall market has achieved a return of 5.63% to date. Given that the Treasury portion of this index has increased in weighting over the past few years, it has been especially well positioned for a market where investors are piling into Treasury securities.

Disclosure:  this post is for educational purposes.  Individuals should do their own research or consult a professional before making financial transactions.

MBB 6.16 MBS
CSJ 0.48 1-3 YR. CORP. 
IEI 2.70 3-7 YR. TREAS.
IEF 8.45 7-10 YR. TREAS.
BSJF 0.48 2015 HIGH YLD.
HYS 0.44 0-5 YR. HIGH YLD.

Tuesday, December 9, 2014

Bond Correlation Data Supports Previous Posts

Recently I wrote two posts on the

hedging property of Treasury notes and bonds,

a property very much unappreciated by many investors.  In fact, I looked through a number of well-known bond books - the types of books a novice investor would pick up at the library or bookstore if he or she was seeking to learn about bonds.  The books waded through duration and how bond prices work and the different types of bonds and the various risks in investing in bonds.  But nothing about the all-important hedging property.

This is important because, when one looks at longer term performance, it is a legitimate question on why bonds should even be held in a portfolio.

And, the reasoning isn't complicated.  Treasury notes and bonds offer a very decent hedge for that very real possibility that stocks could go to hell in a hand basket! I n fact, as pointed out in the previous posts, bonds had a positive return in all of the down markets of the past 20 years.  In 2008, they produced a positive return exceeding 5% as stocks fell 37%!.

Let me put it like this:  if someone tells you they gave up on the investment markets because of what they experienced in 2008, then it is a good bet that they had minimal or zero exposure to Treasury notes and bonds.

Why are bonds a really good hedge?  This isn't rocket science:  when markets get scared, people dump stocks and jump into the safest security in the world - U.S. Treasury notes or even bonds.  In doing this, they push up the prices of notes and bonds, thereby producing a positive return when stock prices fall.

This week, Josh Brown of

"The Reformed Broker"

reported correlation statistics calculated by Richard Bernstein.  If you look at the correlation chart in the article, you find that Intermediate Treasuries and Long Term Treasuries had the highest negative correlation with the S&P 500 of all the asset classes shown over the period examined.

As regular readers know, I am not a fan so much of correlation statistics because they are basically fancy-dancy averages and, as any average can, they have the potential for throwing the unwary investor for a loop.  Everyone has heard the tired joke about the man who crossed the river that had an average depth of 3 feet.

To be clear, let me bring up the obvious deterrent of low rates.  It is important to be careful because the risk of a sharp rise in rates continues to hang out there.  For this reason, you need to be careful in how much is invested in longer duration Treasuries, or bonds of any type.  Nobody is saying this is easy!

In this case, though, the underlying logic is what is important.  In the same way that you may fantasize what you would do if you were President, portfolio managers know what they will do when markets panic.  They will pile into Treasuries!

Sunday, December 7, 2014

Robo Advisor or Full Service Advisor?

Put your info online and, for a reasonable fee, a robo advisor (see picture) will come back with a recommended asset allocation and specific funds to invest in.  Also, you'll typically get a lot of personalized reporting on your investments letting you know how much you should be saving, where you can expect to be several years from now, etc.

What's not to like?

Well, a lot, if you listen to full service advisors.  They argue that investments need to be part of the whole financial picture.  And they are more than glad to explain how the whole financial picture can be complicated.  You need advice on when to take Social Security, how to choose a 529 plan, whether to do a Roth, estate planning questions, etc. I nvestments need to fit into this bigger picture and that makes the 1 - 2% fee they charge reasonable for managing your investments, they say.

Actually, there is a third way:  forget the full service advisor and forget the robo advisor and learn how to do the whole thing yourself.  This, in fact, is doable for most people by reading a relevant book, three of which are constantly touted here:

Millionaire Teacher by Andrew Hallam,

Your Money Ratios by Charles Farrell,

The Smartest Money Book You'll Ever Read by Dan Solin.

Each of these books is easy to read - two weekends at the most - and you'll come away a lot smarter after reading them.  In fact, you'll come away knowing exactly how to invest after reading them. Furthermore, you'll know how to decide how much insurance you need, what you should seek in the way of estate planning, and even how big a mortgage you can reasonably carry.  Every family should have someone who knows and understands the information in these books.

As a motivation, you should know that understanding the information in these books will save you a huge chunk of your nest egg over your lifetime.

But it isn't just about do-it-yourself investing.  Most important of all, you'll come away with an understanding of when you need an advisor.  It may be in your 50s when you really want to hone in on whether you are saving enough to get your  nest egg where it should be by the time you reach your retirement date.  It may be that you want a formal outside opinion on your investments or even a formal analysis of the best time to take Social Security.  It may be that you have stock options you need to exercise in a tax-efficient way.

The bottom line is that there are times you need to pay up for advisory services and there are times when it isn't necessary, and knowing the difference can affect your pocket book greatly.  Again, the readings will help.  At the very least, they will help you understand what questions to ask and enable you to participate meaningfully in the advisor conversation - a conversation that some find intimidating.