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, March 30, 2014

Dividend Aristocrats

real aristocrats
Dividend aristocrats have increased their dividends each year for the past 25 years.  There are presently 51 aristocrats in the S&P 500.  Here are the first 10 dividend aristocrats shown with ticker symbol, dividend yield, and P/E ratio.  The P/E ratio is based on the trailing twelve-month earnings:

MMM     2.60%     19.95
AFL        2.30%      9.31
ABT        2.30%     23.66
APD        2.50%     25.56
ADM       2.32%    21.00
 T            5.40%     10.24
ADP        2.50%    26.26
BCR        0.60%    17.27
BDX        1.90%    24.15
BMS        2.80%    18.65

A complete list can be found at

S&P 500 Dividend Aristocrats .

The yields and P/E ratios were obtained at

Yahoo! Finance  (just put ticker symbol into quote box )

The reader will  note that the issues are a bit pricey.  For comparison purposes, the weighted P/E on the overall S&P 500 is 19.63.  The fact that  many aristocrats have a higher P/E reflects their solid performance.

To see this go to the useful site at

S&P Dow Jones Indices

Source: S&P
 Here you can see that the aristocrats achieved a 5-year annualized return of 23.23% versus 20.43% on the overall S&P 500.

If you do the same exercise for the 1-year period ended 3/28, you'll find the aristocrats underperformed, 17.65% versus 20.89%.

These results point up an important point regarding investment approaches:  there is no single "no brainer" approach to investing.  This is important to keep in mind today because you'll see articles that tout dividend investing as an approach that always outperforms.

Investment Approaches

As an advisor, I talk to a lot of people about how to go about investing.  I understand that many people have difficulty relating to the typical approach that sets up a benchmark and then constructs a portfolio that seeks to outperform a benchmark they are not familiar with.  Many times there is the unasked background question concerning the performance of the benchmark:  what if it gets hammered?

Then there is the investment approach du jour:  manage to meet goals.  With this approach, portfolios are constructed differently for those seeking to finance a college education, leave an inheritance, or meet basic retirement needs.  To me, this approach is a bit wishy-washy and enables investment managers considerable leeway to produce poor performance.

Another way is suggested with the dividend approach and is welcomed by not only those in or near retirement but also the young.  The dividend investing approach has the goal of creating  passive income, and passive income is what you need in retiring - either early or normally.

I find that those who have dabbled in real estate relate to this way of viewing investing.

From the perspective of dividend aristocrats, the passive income approach is especially attractive in that dividends are consistently increased.  Consider this:  the yield on the 10-year Treasury note is 2.70%; and, if bought today, is locked in for the next 10 years.  Look back at the list above, and you'll find issues with yields above 2.70%.  If bought today and dividends are increased, yield at cost can rise significantly!

Think about the dividend approach like this:  suppose you had a basic annuity with an insurance company whereby you pay them a certain amount and they pay you a specified amount for as long as you live.  This is known as a single premium immediate pay annuity (the income stream is similar to Social Security).  Once you make the payment, there is no underlying value to worry about.  Similarly, in  investing in a portfolio  of dividend stocks, you can ignore the underlying value of the portfolio.  If it goes up, it can be considered gravy; but what you really care about is the income stream.


Like all investors, the dividend investor should diversify.  Buy Pfizer or Merck - don't buy both.  Buy AT&T or Verizon - don't buy both.  In 2008, the non-diversifier could have easily gotten hammered by the finance sector--caveat emptor.  The big risk in dividend investing is that dividends will be decreased!

Dividend stocks are in competition with the bond market.  They are substitutes for the marginal investor.  A sharp rise in interest rates would likely cause a greater discrepancy in performance between dividend stocks and non-dividend stocks than noted in the 1-year performance results reported above.

Creating a strong portfolio of dividend paying stocks requires some research and understanding that higher yields means greater risk.

Disclosure:  I hold stocks mentioned above for myself and for clients.  This post is for educational purposes.  Investors should do their own research or consult a professional before making investment decisions.

Tuesday, March 25, 2014

A Bond-Buying Pitfall

The pitch is practiced.  The reasoning is flawless.  The graphics are impressive.  You are elderly, wealthy, and seeking to protect a substantive nest egg.

Actually, on second thought, you may not be so wealthy.  You may merely have a six-figure taxable account as part of your nest egg.

Either way, you are walking around with a huge target on your back when you interact with the brokerage and advisor community.  Many in this community see you as an easy mark from which they can extract a significant portion of the nest egg you have built up over many years or inherited.

One way is to invest you in individual municipal bonds.  What, you say?  Aren't these the most conservative, low-risk instruments I can invest in?  If you believe this, go back and try to figure out the return you have actually achieved over the past 5 years on your muni bonds.

Even better, do as New York Times columnist Carl Richards suggests in

"Determining the Markup on Municipal Bonds"

and ask your broker what exactly is the cost of investing in your municipal bonds.  After he or she gives you a gibberish answer, ask "what is the mark-up?"  Another way to get at this is to ask for a bid price on your most recent purchase.

Then compare the mark-up percentage to the yields you are getting on your bonds.

As you read Richard's article, you may want to underline "...instead of seeing which bond would be best for the client, I was supposed to figure out which one had the highest markup...."  Since you've got your pen out, you may want to also underline, "...that most prospective clients didn’t know the markup existed. They said 'their guy' didn’t charge them anything...."

The points Richards brings up don't just apply to the muni bond world but also to corporate bonds. They are the reasons I prefer bond funds over individual bonds.

As an aside, Carl Richards is among my favorite personal finance writers.  I will be reviewing his book

The Behavior Gap

in the near future.

Sunday, March 23, 2014

Are You Being Robbed?

Every advisor has sat across the table from a potential client, recommended rolling over a 401(k) and been hit with "but in my 401(k) my assets are managed for free."

Here's the news flash:  "WALL STREET DOES NOTHING FOR FREE."

Thinking that your assets are managed for free is naivety at its highest.  It's akin to the stock investor who thinks he (usually it is a male) has done well when his portfolio is 12% higher when stocks have risen 30%.

Having said that, it is understandable because investment management services are not charged in the same way as just about everything else in our universe (as well as other universes that support life) is charged.

A great explanation is given at:

"A Simple Change That Would Help Millions of Investors" by Morgan Housel at The Motley Fool.

In the article, Housel presents some sobering facts:

  • Fidelity earns more per customer than Apple
  • the average two-earner couple will pay $155,000 in 401(k) fees over their lifetime
  • According to a study by industry researcher LIMRA, 22% of 401(k) participants think they don't pay any fees or expenses
  • Ned Johnson, the son of the company's founder, is worth $9.3 billion, making him the 47th richest man in America.
The article focuses on Fidelity; but, in truth, Fidelity is one of the better 401(k) providers.  They offer inexpensive, well-diversified index funds.  Administrators who are even a bit savvy can offer attractive funds to participants.  In turn, participants who learn a bit about funds can avoid the $155,000 hit mentioned above.  This isn't true, unfortunately, for many other providers!

I, along with many others, have long been appalled at Wall Street's exploitation of America's workers via the 401(k)s and other investment services.  By taking advantage of a complex situation, Wall Street has, IMHO, robbed workers of a goodly portion of their nest egg and contributed significantly to what will soon be seen as a retirement crisis.

My approach has been to insist that my services be paid for by clients writing checks.  A bit of extra work on the part of the client?  Sure, but they know exactly what they are paying for my services.

I found the above article at:

Dough Roller Money Tips

a site that presents articles from around the web that are of interest.

News flash for the bank robber:  it is easier to rob with a pen than with a gun.

Yellen's Dots

The dots are moving higher.  Yikes!  Now more Federal Open Market Committe participants expect the Federal Funds target rate, which they control, to be at 1% at the end of 2015.  This is a move up from December's expectations and up from the current target at 0 -0.25%.  This reflects their view that the economy will be better and inflationary pressures beginning to head towards 2%.

IMHO, it is a sad state of affairs that Fed-watching has gotten to this point; but it is an inevitable outcome of a policy that tightly controls the most important price in the economy - the price of money. Deciding to reduce or increase this price via short-term interest rates favors or penalizes primarily real estate and autos, in the process thereby shifting or taking resources away from other sectors of the economy. 

Thinking through the consequences of tightly controlling interest rates answers some of the questions asked at Yellen's press conference, one of which questioned why the labor market improvement has been anemic despite aggressive policy stimulation.  Simply, in 2003 the Greenspan Fed pushed rates down to 1% and the worker force shifted to real estate - becoming brokers, mortgage lenders, construction workers, etc.  Then with a 2x4, it hit the labor market square on and pushed rates higher--throwing those sectors out of work.

To make a long story short, the labor market is not a simple commodity market.  Workers get experience in a certain area; they do not just change on a dime as prices are manipulated and their sector goes in and out of favor.  At every Fed Chairperson press conference, the question will be asked on why the recovery is taking so long.

Wall Street's perspective is simple:  the Fed is printing money and that money is going into stocks. Starting to close the spigot means stocks will have to trade or be priced the old-fashioned way--on earnings.  And that is scary, especially at present lofty levels.

The best policy move the Federal Reserve could take is to abandon controlling interest rates and to let the market set the price of money.  After all, that's what a free market is supposed to do.  Then Yellen's dots (based on FOMC member forecasts of economic activity which are themselves typically way off base) would be an academic exercise--which is what they should be. 

Tuesday, March 18, 2014

Another Fraud Case

Psst!  Hey man, looking for a great return?  I've got great credentials. I headed up NAPFA (National Association of Personal Financial Advisors).  Give me custody of your assets, and I'll send you a monthly report that will list how much you have in investments.  Not the actual investments you hold, but how much you have given me and its current value.  My credentials?  Trust me, I headed up a national well-known financial organization.  Sort of like Richard Whitney, president of the New York Stock Exchange.

Do you think people would fall for this?  Apparently they have ...again.  Mark Spangler, former head of NAPFA (National Association of Personal Financial Advisors) is headed for prison for 16 years on a conviction of fraud.

Former NAPFA Chairman Spangler gets 16 Years for fraud, must pay $19.8M in restitution

He had custody of client assets and used the assets not to invest in publicly available funds but into venture capital companies.  He provided clients with statements showing how much they supposedly had in  publicly traded issues--absent specifics.  Some questioned this, but he apparently talked his way around it.

This story comes in different guises, but it is the same.  The twist here is Mr. Spangler's high profile.

A couple of asides.  First off, his firm had more than $100 million under management.  My guess is that just playing it straight up would give Mr. Spangler a salary of probably in excess of $500,000!  What did the man want?  Secondly, investors could have been greedy themselves.  This is just a guess.  I know when something like this surfaces everybody acts like they didn't know what was going on.  In fact, if one of the venture capital companies hadn't gone under, Mr. Spangler's scheme may have continued.  Just saying.  Thirdly, this isn't rocket science; and investors will hopefully learn one day. Get statements from a third party, and don't let the advisor have custody.  Revisit the Madoff case and see how he made off with client money.

Oh yeah, Richard Whitney served time in Sing Sing for his embezzlement activities. 

Friday, March 14, 2014

What Buffett Didn't Say

OK, so there is a buzz going around about Warren Buffett's advice in his will to the trustee on how his money should be invested.  See

The Warren Buffett Guide to Retirement Investing by Robert Berger.

Some seem to express surprise that Buffett suggests his assets be invested in a low-cost index fund.

All I can say is those who are surprised haven't been paying attention because Buffett has consistently said  over the years on numerous occasions that most investors, including those that invest for the nation's largest pension funds, should invest in low-cost well-diversified funds.

To be perfectly clear, it is worth emphasizing what he didn't say.  He didn't say that the trustee should do a meticulous search and hire a consultant to analyze investment performance and methodology of the top investment managers, including the much-touted hedge fund gurus.  He didn't say that the search should include the top stock pickers, market timers, and chartists who loudly proclaim that their analytical powers are akin to a crystal ball that clearly divines future prices better than the millions of investors setting prices today.
His prowess in the market has come from a deep understanding of value, unrivalled patience, and, yes, a willingness to bailout sticky situations on extreme penalty terms.  It has come from being in a position to restructure boards of companies bought to cut out the deadwood and enable value to flourish.

Again, why not find someone of the same ilk?  Along the same lines, I wondered why, when Michael Jordan came to the Washington Wizards, he didn't try to bring in someone who could take off from the foul line and dunk a basketball, hit a 25-foot jump shot with a championship on the line when all 5 players on the other team knew he was going to take the shot, and break his record 10 seasons of achieving the NBA scoring record.

Legends know how hard it is to do what they have done.

Wednesday, March 12, 2014

Why Is America So Pessimistic?

 Random Rant.
The S&P 500 has set new all time records.  A simple buy and hold policy has more than quadrupled investment assets over the past 20 years.  It is fairly easy to get ahead, be financially secure, and enjoy a peaceful existence in this country.  Yet polls show a huge dissatisfaction.

Stock Market Surge Bypasses Most Americans, Poll Shows (David Lynch/Bloomberg)

After reading the article, take a gander at the comments.

At the risk of stirring the hornet's nest, I would argue that it isn't that hard to get ahead in this country. Sadly, more and more of those who understand this are trying to get across our borders.  They are willing to take jobs Americans turn their noses up at.  When I started college, I worked in the laundry at NIH in Bethesda.  I gathered the gowns, etc. throughout the hospital and delivered them to the cavernous laundry in the basement.  How many young people would take that job today, given the choice of working or not?  It was a nasty job.  But, for sure, it served a purpose - it kept me motivated in my studies.

But I'm in the weeds.  Back to the "getting ahead" proposition.  Just about anyone willing to work hard with a decent high school education can enroll at the local community college and, within two years, get  a "good job" in the medical field or elsewhere making good money.  Plumbers, construction workers, and automotive technicians make good money.

This, of course, raises one hurdle (that I saw firsthand by teaching 12 years at the community college level); and that is getting a solid background in high school.  I have experience here as well - I substitute taught for a year and a half in the public high schools, an experience I highly recommend. And the high schools are a huge part of the problem.  A goodly portion of the high school population is being cool by playing games and learning little of value for a free market capitalistic system.  In today's vernacular, many graduate with skills that are barely worth the minimum wage--if that.

They enter the local community college needing remedial courses for the material they should have learned in high school.

Some people like to fall back on the "I can't afford college" argument.  Guess what?  I and many others couldn't either.  I took a year off after high school, lived at home, and saved every penny I made for college.  I worked 60 hours a week that year and then entered community college.  After that, I was drafted into the Army and used the G.I. Bill to pay for the university level as well as worked part time. Instead of going the military route, a young person today can take those 2 years to work and save.

The bottom line is this:  most young people can gain the skills necessary to make a meaningful contribution to the economy without going into debt.   News flash:  Making a meaningful/valued contribution is what is required in a free market economy.  I'm not saying the journey is easy, but most would agree it is highly rewarding.  The hardest part for young people today is probably the removing of the headphones, the giving up of surfing the internet, and the limiting of gaming. 

IMHO, the glass is half full--not half empty.

Sunday, March 9, 2014

Compare 4 Bond Funds in 15 Minutes (or less) you're facing a choice of several bond funds, and you're not sure how to proceed.  You know that duration is important and you've checked that at


You know that yield is related to duration and quality of holdings - that higher quality means lower yield.

You know that price and yield are inversly related - that an increase in yield is the flip side of a decrease in bond prices.

Still - how have bond funds performed?  Reflecting on this a bit, you realize that last year saw an increase in yields; so it could be an indicator of future performance if you believe that yields will continue to rise.  To see the 12-month change in yields, you can go to


and find:

Source: Bloomberg
As you can see, the benchmark 10-year Treasury Note increased in yield by 75 basis points from 2.04% to 2.79% over the past 12 months.

Again, as noted above, bond prices fall in this kind of environment.

Assume we are considering 4 bond funds:  AGG (benchmark Barclay's Aggregate Bond Index), CSJ (short duration corporate bond fund), HYS (short duration high yield bond fund), and JNK (long duration high yield fund).  In particular, we are interested in how the funds performed over the past 12 months.  Aside: if you need a list of bond ETFs, go to

Bond ETF List .

OK ...we're ready to roll.  Start the 15-minute clock.

Go to

Yahoo! Finance 

Find the quote box on the left hand side, put in your first fund's ticker symbol AGG, and click "Go." Find the graph on the right hand side and click 1 yr:

Source: Yahoo

Find the Compare link (see below) and put in the ticker symbols of the funds you want to compare.  You'll note that you get drop-down lists when you put in the symbols, and you need to carefully select the right funds!

What you end up with, in the Yahoo! graph, is the percentage change in the price of the funds - not the total returns.  To get total returns you can go to the Morningstar site and find performance data.

As expected, AGG with its lower yields and relatively higher duration had the biggest negative price change at slightly more than -2%.  The best performer was the short duration, high yield fund HYS.

One point to note is that the price of CSJ was fairly stable over the year.  It has a yield of 1.14% (pretty hefty compared to today's money market rates).  It is the type of fund that yield seekers who can withstand some price volatility find attractive.

So, my challenge to you:  pick 4 funds (can even be stock funds!) and see if you can get a quick picture in under 15 minutes.  If so, then you are on your way to becoming  the Rachel Ray of the investing world ;)

Disclosure:  Past performance is not necessarily indicative of future performance.  This post is for educational purposes and investors should do their own research or consult a professional before making investment decisions.  Some of the funds mentioned are held by me and my clients.

Monday, March 3, 2014

Make Your 401(k) Administrator Read This Article

Along with many others, I have been pounding away at the importance of fees for nest egg accumulators.  Happily, these efforts are paying off; and more and more is being written on the impact of fees.  Sadly, however, many of the decision-makers (read plan administrators) still don't know what they are doing and select highly priced funds for company 401(k)s.  So, to make this real easy, copy the article at this link

Give Fees an Inch, and They'll Take a Mile

by Jeff Sommer in the New York Times, 3/2/2014.  Note, also, that the article has the following important link to a Securities Exchange Commission bulletin

How Fees and Expenses Affect Your Investment Portfolio

In the SEC bulletin article, you'll find the following table:

Source: Securities Exchange Commission

CLICK TO ENLARGE.  The chart shows that, on $100,000 over 20 years, a seemingly small 1% fee will take $28,000 from the nest egg. Assume 4% growth in the foregone funds, and it costs another $12,000.

Plan administrators need to understand these numbers and at least offer inexpensive funds to plan participants.

Many individuals have a broader problem, of course.  You may have rolled over IRAs and taxable accounts.  Understanding how fees affect the overall structure of these accounts over the long-term and minimizing these fees are one of the best ways to use your time in preparing for retirement.  If you are a bit shaky in this area, find a fee-only financial advisor and get hourly consultation on your overall fees.  Again, it could be one of the best investments you ever make.