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, June 30, 2013

Year-to-Date Performance - 6/30/2013

Source:Capital Pixel
My favorite investment chart is the BlackRock 20-year sector performance.  It details the relative ranking of asset classes as well as the performance of an easily replicated low-cost diversified portfolio comprised of 65% stocks, 35% bonds.  The portfolio returned 12.2% over the 12 months ended 12/31/2012 and 7.9% on an average annualized basis over the past 20 years.

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

Here is an update showing the approximate performance of the diversified portfolio for the 1st six months of 2013:

Return (%) 6 months ended 6/30/2013
Expense Ratio
AGG  (Barclay’s Aggregate Bond Index)
EFA (EAFE Index)
IWM (Russell 2000)
IWF (Russell 1000 Growth)
IWD (Russell 3000)

  The overall return of the diversified portfolio was approximately +7.01% over the first 6 months of the year.

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.

Thursday, June 27, 2013

Do You Own Load Funds?

Friendly reminder:  For those participating in the online Millionaire Teacher by Andrew Hallam book discussion, chapter 2 reading should start tomorrow.  It will be about the value of time in the investment process.  Commenters are especially welcome.  Now on to the topic of this post.

I run into people all the times whose portfolio is filled with load funds.  And, most don't know (and even those who do don't know) that there is no evidence that paying the extra fees incurred by the load results in superior performance.  To be blunt -  buying load funds is, in most cases, akin to paying the sticker price on a new car.  If that doesn't bother you, then reading the rest of the post is a waste of time.

How can you tell if your funds have loads?  Actually it is easy.  Just go to, put in the ticker symbol in the quote box, and you can tell quickly as shown by this example:


The load for this fund is 2.25%.  How much is paid and when it is paid is an important question and not easily answered.  Some loads are backloads, and a percentage is paid if the shares are paid before a certain period.  Some are paid up front and some are paid as you go - it depends on the class of the share.  All of this is purposely made opaque by mutual fund companies.

As an aside, you may be stymied by not being able to come up with a ticker symbol because you are investing in the proprietary funds of the provider.  In this instance, you have to be a junk yard dog in getting information on the costs you are incurring.  I would recommend asking for any information you are given in writing - this tends to focus the rep on ensuring that he or she is not just talking off the cuff. 

If load funds are held in your 401(k), chances are it could be news to your fund administrator.

The only reliable source of information is the fund provider.  I would suggest getting specific information on how the load works.  This is really important when you go to sell issues or roll over an account.  For example, if you have a backload and you automatically reinvest dividends, then you could pay a sales charge on the reinvested shares when you sell.

My suggestion is to avoid load funds altogether.  If they are all that is offered at your work 401(k), then ask why, unless you want to work until you are in your eighties!

Sunday, June 23, 2013

Millionaire Teacher Online Book Discussion Started

Andrew Hallam
The online book discussion of Andrew Hallam's best selling Millionaire Teacher has begun at Millionaire Teacher Book Discussion blog.  This is an excellent chance for Andrew Hallam fans to interact with new readers as they learn the basics of investing for a successful retirement.
To succeed, this discussion needs commenters offering examples, asking questions, and even debating various points. All are welcome.

Thursday, June 20, 2013

Bernanke Press Conference - Lessons Unlearned

I've waded through a number of assessments of yesterday's press conference, by Ben Bernanke, following an important two-day Federal Open Market Committee meeting.

I'm an investment advisor/economist - not a Fed watcher.  Thus, I watch the Fed and markets but don't devote 12 hours a day tracking every Fed governor sneeze, if you get my point.

From this perspective, it seems to me that the oceans of commentary on what Bernanke said and what happened yesterday missed the point.  Here is my take--to which I welcome responses.

The culprit du jour, Quantitative Easing (QE) is just an extension of the price controls instituted by Greenspan.  During Greenspan's tenure, the price of money was controlled by targeting the Fed Funds rate.  This was done prior to Greenspan but nowhere near the extent to which Greenspan did it.  Over time, it lost its potency as the rate was targeted essentially at zero and Bernanke dug into his black hat, waved his wand, and introduced QE--a way to attempt to control prices on longer maturity yields.

Price controls end in an ugly situation.  I can't explain why economists don't stand up and scream this at the top of their lungs.  Pressures build as assets and resources are misallocated.  That should have been a lesson from the 2008 housing debacle and, earlier in economic history, from Nixon's price controls not to mention the history of the Soviet Union.

Turning to the Bernanke press conference yesterday, it seemed to me that the break occurred (the 10-year yield started to spike) at a specific point.  A questioner asked why interest rates hadn't responded to the bulge in the Fed balance sheet in the way that the Fed had said it would (I'm paraphrasing big time here!).  In other words, why was the 10-year yield rising as the Fed was buying $85 billion/month in Treasuries and Mortgage-Backeds?   Bernanke's response (again paraphrasing:  the FOMC had discussed this and had concluded THEY DIDN'T KNOW WHY!

This response, IMHO, was the key that killed the market.  In ways, markets are naive.  If you listen to the gurus who parade on CNBC and Bloomberg TV, you would believe that the Fed has complete control over markets.  These gurus have missed the lessons of the past and even recent history.  For example, recently, Bernanke and the Fed governors and Bank Presidents on the FOMC believed at one time that flooding the system with excess reserves would get banks to lend.  Oops - wild miscalculation.  The 2008 banking problem was a solvency problem--not a liquidity problem.  Banks sat on the excess reserves!

Today, yields are determined by bond holders who have bought into the idea that the Fed knows what it is doing.  If those bond holders (individuals, hedge funds, etc.) lose the faith, the Fed can do all the Quantitative Easing it wants and it won't stop yields from spiking.

By then, of course, Bernanke will be back at college, no doubt writing a memoir which hopefully will be better than Greenspan's.

Sunday, June 16, 2013

An Excellent Explanation of a Variable Annuity

When I drive around on Saturday morning, I listen to investment advisor radio programs.  One I find interesting promotes variable annuities.  Granted that they may be a fit for some super risk-adverse investors, but most of the people buying them are not getting what they think they are paying for!

The promoters make them sound like the best thing since sliced bread as they tout guaranteed rates and the avoidance of market risks.  I even want to call their hot line as I listen to their hype and get one, AND I KNOW WHAT'S WRONG WITH THEM!

But (here's a news flash) everything isn't always what it seems in the world of investing.  If you are considering a variable annuity, you'll want to read this excellent short analysis first:
Variable Annuity with a 5.5% Guaranteed Growth Rate? by Mike Piper.

As you read it, keep in mind that the investment advisors on the radio tack on an advisors fee.

If you need an income stream, it is usually best to purchase a single premium immediate pay annuity. Do your research, and understand the protection in the event the insurance company has financial difficulties.

Tuesday, June 11, 2013

Simple Investment Rules Not Simple to Follow

Having a well-thought-out investment approach is important.  The last thing you want is for a market to move significantly and to not have a pre-thought-out approach.  This is exactly where investors make critical errors.  In fact, it is central to the book discussion of Millionaire Teacher by Andrew Hallam I will be hosting starting June 20th.

I feel, along with Andrew Hallam and other giants in the field of investing, that using low-cost index funds and sticking with an asset allocation is the best approach for most individuals. But, if you see yourself as a big time trader and want to jump in and out of the market or particular stocks, it's alright with me - go for it. I  and the others believe, however, that you should at least consider the evidence for the index approach.  This evidence is presented in the book and will be looked at in the book discussion.

The index approach has as its foundation 3 simple, basic rules:

  • control your emotions
  • diversify
  • minimize fees
On the surface, it's hard to get more basic.  Surprisingly, at least to those who don't take the time to look at the evidence, utilizing these simple rules has outperformed a high percentage of professional investors over the years!

Still, despite being simple to state, they are not always simple to follow unless they have been well thought out.  For example, some individuals cannot follow the "control your emotions" dictum.  Even in mundane markets, they are following their account hourly and letting the quality of their day be controlled by whether the market is up or down.  In a 10% correction, they will tend to bail; and when the market is on a tear, they over invest.  They are classic "buy high, sell low" investors.

Those investors who cannot control their emotions need professionals to handle their investments.

"Diversify" (aka "don't put all your eggs in one basket") seems easiest to follow.  It isn't.  I sometimes joke that, if Enron had invited me to give an investment advisory presentation on 1/1/2000, it could have been short and sweet.  I could have walked to the lecturn and just said, "diversify your retirement funds out of Enron stock."  The fact is that many Enron employees had their retirement funds invested 100% in Enron.  And why wouldn't they?  Enron had been named the "top innovative company" in the U.S. for 6 years running!  It had been named a top company to work for.  Surely, if you worked at the headquarters, you saw first hand the "geniuses" calling the shots - in all of their smug arrogance.

Those who would have followed the simple diversification rule would have had a completely different retirement than many former Enron employees have experienced.

I know some of you are nodding and saying, "OK, but I wouldn't have fallen prey to Enron."

Well, how about this - as we have found out, many in the U.S. (and probably globally) had their retirement plan wrapped up in their house and more generally, in real estate.  The plan was for house prices to continue ever upward by double digits (sort of a sophisticated version of the baseball card collection retirement plan) and in the end to exploit this by selling and going to an apartment or downsizing, etc.

This is what happens when people buy the biggest house they can afford and their funds are siphoned off into mortgage payments in lieu of a retirement account spread among various sectors and asset types.  The painful aftermath of this "all eggs in one basket" approach will be felt for a long time.

The diversification issue shows up in different guises!

But that's what markets are about.


Sunday, June 9, 2013

Carry Trade Backfires!

Speculators love carry trades.  When done right, risk is minimized and can seem non-existent.  Speculators are helped along when central bankers are transparent.

To do a carry trade, you want to borrow at a low rate and invest the proceeds at a higher rate.  Leverage the trade, and you can make some big bucks - as long as it works as expected.

The premier carry trade for decades has been to borrow in Japan at low rates and invest at higher yields elsewhere.  Today that elsewhere has been Europe.  Given that Abenomics has committed to raising Japan's inflation rate by keeping rates low, it means the trade will hopefully be paid off in cheaper Yen.

But as Keynes once said, "there is many a slip twitx the cup and the lip."  Last week, ECB president Draghi indicated that easing moves were not imminent (if yields rise, the trade loses as bond prices drop!); and holders of Spanish and Italian bonds sold, driving their rates higher.  As they sold, they reversed the carry trade by paying back the borrowing in Japan, causing the Yen to appreciate in value and thus the "slip" Keynes talked about.  The fallout included a sharp decline in U.S. stocks, and the tsunami moved down the liquidity chain until the Yen stabilized.

And so...another source of volatility in a volatile market.

No More Excuses!

On 6/20, we will kick off the online book discussion of Millionaire Teacher by Andrew Hallam.  The kickoff will be at 7 pm at the Miller Library in Ellicott City, Maryland, but YOU DON'T HAVE TO BE PRESENT TO PARTICIPATE!  The program will be online, and we will read one chapter/week and discuss.

This program will teach you how to come up with money to invest, how to invest, the pitfalls to avoid when investing, and how to avoid the traps Wall Street sets for you!  And it does it all in a highly readable fashion with a laugh-out-loud sense of humor.

I will be facilitating the reading and thus will be available for questions, comments, and to make additional points.

HERE'S THE BOTTOM LINE - ending up not prepared for retirement and having your eyes glaze over in viewing a list of mutual fund choices is over.  Commiserating in the company lunch room over the fact that you have no clue on how the company retirement plan works is no longer an option - you'll easily be able to choose the best investments from the available choices.  In fact, you'll learn an investment approach that historically has outperformed most professional investors - Andrew Hallam presents the evidence for your consideration.

So get hold of the book (used copies available online at less than $10! or check out at your local library) and start reading.  Visit the blog at and participate.

Here are some comments on Millionaire Teacher from market experts:

  • "Andrew Hallam has distilled the timeless lessons for investing into nine easy to understand and easy to follow rules. The newbie investor will not find a better guide than Millionaire Teacher." Burton Malkiel, author A Random Walk Down Wall Street 10th edition.
  • "Put away your checkbook. Instead give this book to every young person and you will be gifting them a lifetime of financial independence and success." Robert Miles author Warren Buffett Wealth.
  • "Every once in a while I read a financial book that I think should be shared with everyone I know. Millionaire Teacher is that book!" Charles E. Kirk, The Kirk Report.

Tuesday, June 4, 2013

Financial Literacy Quiz

For those of you who like to take quizzes, here's a good one from Kiplinger:  QUIZ.  Short 12-question quizzes like this are fun and help you pinpoint areas where you might need to do some research. And, who knows - you might come up with something that could make a significant financial difference.

This quiz was found in an article, "Are Americans Getting Smarter with their Personal Finances?," by Kathy Kristof.  An interesting point made in the article is that the 2008 recession seemingly "scared straight" the American consumer.

Sunday, June 2, 2013

A Financial Literacy Event

The Howard County Library System of Howard County, Maryland and the Howard County Financial Education Alliance are hosting a first-ever online book discussion of Andrew Hallam's book, Millionaire Teacher:  The Nine Rules of Wealth You Should Have Learned in School.  I will facilitate the event via the blog at, putting out questions, responding to questions and comments, and seeking to generate discussions.  Please register at LIBRARY REGISTRATION.

The kick-off will be a face-to-face meeting at the Miller Library in Ellicott City on 6/20 at 7 pm.  YOU DO NOT HAVE TO ATTEND THIS MEETING TO PARTICIPATE!  There will be books at the meeting to check out.  For those not able to check the book out, it is available for less than $10 on Amazon.

The fact of the matter is that we've been put in charge of managing our own retirement without a guide on how to proceed.  Andrew's book fills this gap.  It is not your typical brain-numbing financial book.  It is the story of a man who built a sizeable portfolio on a modest income.  People of all ages can benefit greatly from Andrew's story.

My hope is that participants will engage in discussion and debate.  I will present questions, comments, etc.  You don't have to agree with me - in fact, I welcome debate, comments and the stories of others - both successes and things you would do differently if given the chance.  My belief is that we learn best when we learn from each other.

THIS IS NOT JUST FOR YOUNG PEOPLE!  My hope is that some parents will do the reading with their adult children, thereby getting over the difficult hump for many of actually talking about money!

I look forward to this unique experience and hope you will join us.  Please don't hesitate if you have any questions.