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.

Saturday, April 27, 2013

Dividends vs. Bond Yields

Dividend Payers vs. Bonds
The battle between dividends and bond yields rages on.  Times are atypical.  Typically, a bond allocation can easily be met by buying a well-diversified portfolio of bonds tracking the overall market--an ETF that tracks the Barclay's Aggregate Index, such as AGG or SCHZ.

But today the 10-year Treasury note yields 1.7% and high risk bonds trade at historically low-yield spreads.  Furthermore, investors are becoming more aware of bond market risks.  They are more aware of falling prices as yields rise, and junk bonds facing yield spread widening risk in the event the economy surprises on the downside.

Understandably, investors, including especially those in retirement or close to retirement, are looking around.  Stocks with dividend payouts exceeding the yields on their bonds have caught their eye.

Not only are investors using dividend stocks in the stock allocation portion of the portfolio, they are also substituting dividend stocks for fixed income.  The thought here is to forget about price and focus on dividend yield.  Hold for the long run and seek issues with a history of raising the dividend.  **Think about this:  if you have $1.0 million and need $30,000/year, then a portfolio of stocks that paid 3% and had a history of raising dividends might be interesting to consider.  Along these lines, how would one find such a listing?

Today this is actually quite easy to do, given the excellent research and writings of dividend bloggers. Here is a recent posting by Dividend Growth Investor, one of the best in this genre:  "Dividend Investing Articles to Enjoy."  In the post, the first article contains a favorite listing by Dave Fish which has an Excel spread sheet listing companies with at least 25 years of increasing dividends.  This is an excellent source for dividend investors.

You'll also want to read the article from Dividend Ninja's site on why dividend stocks are not bond substitutes.  This, obviously, argues against the view up for consideration here; but it is good to consider different points of view.

In fact, I would argue for thinking about over-allocating to the stock allocation by 10% (for example, if the allocation is 60% stocks, make it 70%) with strong dividend payers and under-allocating by the same 10% to the fixed income portion.

**There are two ways to construct a portfolio.  The predominant way is with a view towards beating the market in terms of total return.  The second way, that is little discussed but seems to be a driving force among those building dividend portfolios, is to construct a portfolio to yield a given income stream with little thought to the price movement of the assets - especially over the short term.

Disclosure:  Investors should do their own research or consult a professional before making investment decisions.  The information here is for educational purposes.

Friday, April 26, 2013

Frontline Documentary: The Retirement Gamble

The other night, after I gave a presentation at the Howard County Library System on Managing Your 401(k), Frontline aired an excellent documentary entitled The Retirement Gamble. My friend Jim Summe forwarded the link to the documentary and I just now watched it online. As I watched I thought to myself I could have scheduled my presentation a bit later and just showed the documentary.

The documentary covers all the main points of why investors have had problems with their 401(k)s and why the country faces a retirement crisis. It covers market history since the late 1990s when investors were riding sky high making money hand over fist to getting slammed twice in the last decade - first by the bust and then the housing crisis. It explains very well the impact of fees on 401(k)s and how Wall Street has successfully hidden fees so that it is impossible to understand exactly what is being charged. It even explains the difference between a fiduciary and a broker and interviews a couple of top mutual fund executives which reminded me of kids caught raiding the cookie jar. Listening to the spokespeople  of the mutual fund industry explain fees underlines the fact that it is an industry severely lacking in morals.

An eye opening analysis by John Bogle showed that over a 50 year period a 2% difference (the industry take) between what the market makes and what the 401(k)  participant earns results in 2/3rds of the nest egg being sacrificed. Investment pros claim not to know this or say they believe the figure to be high but interestingly the documentary points out that they invest in low cost index funds - not the high priced funds they sell!

One criticism I would have of the documentary is that there are ways to invest that avoid high fees and weather the ups and downs of the market. Clearly a number of the people interviewed were not well diversified. Many admitted they didn't know what they were doing. What would really be useful is if Frontline profiled the Thrift Savings Plan and talked about asset allocation and avoiding emotional investing.

Rather than coming away thinking that Wall Street is to be totally avoided and that the 401(k) is a ripoff, investors could learn how to appropriately use the product.

I recommend that everyone watch the documentary and encourage others in their family as well.

Tuesday, April 23, 2013

Seminar Evening

Source: Capital Pixel
Tonight at 7 pm I give a seminar at the Miller Branch of the Howard County Maryland Library System on the 401(k) and the overall investing of assets.  I'll cover the 401(k) in the context of overall assets, the importance of overall asset allocation, and what I look for when I pick out the funds to invest in.  I'll go over  the location of investments, the importance of fees, how to tell if one's 401(k) is a good one, and what to do--including proactively approaching the fund administrator and seeking to get good funds in the plan, if it isn't.

This isn't a dinner at a fancy restaurant.  I'm not going to feed the audience and make them feel obligated that they owe me something.  I won't come at the audience like a laser intent on signing up clients.  It is educational. 

Those who feel intimidated can sit in the back and soak up information.  I understand how they feel.  I feel the same way when I meet a funeral director.

Having said all this, I have found that those who attend these seminars tend to be knowledgeable. Clearly, by signing up and attending, they are interested in furthering their financial knowledge.  Most have already read up on the subject or questioned others.  In fact, those who could benefit the most are puttering around  the library outside the library room.  It is they who will, one day in their mid-50s, wonder if they are on the right path financially to be able to retire.

This, of course, is the pool where financial advisors draw most of their clients.

Monday, April 22, 2013

Ask Your Investment Advisor How He or She is Compensated

People are embarassed to talk about money.  I started on the investment side managing money for institutions such as pension funds, college endowments, and corporations.  So this wasn't a problem for me for a good part of my career.

But then I switched to managing money for individuals and was given a checklist with all kinds of questions to ask about people's financial situation. The questions were pretty standard - about how much people made and how much debt they had, etc.  I mentioned in passing, to the president of the company, that I felt awkward asking these kinds of questions.  His response: "Why?"

Asking these questions, of course, comes with the territory of being an advisor; and I quickly got over my awkwardness.

Still, I think today that clients should flip all of this around and really pin their advisor to the mat on how they are being compensated.  In other words, they should find out exactly what their advisor is making off of them.  Believe it or not, it is now the law that qualified plan (i.e., 401(k)s,403 (b)s, etc.) fund providers have to spell out the costs to participants of the plans they are investing in--down to the level of individual mutual funds as well as account maintenance.

All of this is brought up by an excellent article, "How Financial Advisers Get Paid," by Jim Blankenship.  The article nicely spells out the difference between fee-based and commission-based compensation.  In fact, the article can be an excellent lead-in to asking the question on compensation. The next time you see your advisor, just mention you've read a recent article on the subject and it led you to wondering about his or her compensation.

Thursday, April 11, 2013

Gain Control of Your Investments

Source: Capital Pixel
Carl Richards has written Five Steps for Gaining Control of Your Investments and Avoiding Mistakes in this month's AAII Journal. This is a really good read for the DIY investor--especially for those of you out there who are struggling.  The article includes some nifty simple diagrams to emphasize the main points.

One of the parts that I liked was where he asked what kind of questions are we asking.  Are they, in fact, things we have some control over?  Many investors spend an inordinate amount of time asking whether Europe will implode, the economy's growth rate will pick up, where is the market headed, and whether they should buy or sell a particular stock.  Instead, Richards points out, there are areas where investors have some control over that they should focus on, like how much they can save, how is the portfolio allocated, and can "I pick up some extra work this month?".

This reminds me of the old joke about the husband and wife where he worried about the big questions like whether China should be admitted to the United Nations and she concentrated on the small issues like where they would live.

Another point that Richards makes is that investors often times listen to people with different time frames.  There are long term investors, short term swing traders, and day traders saying really smart things.  But if you are a investing for your retirement 15 years down the road, it is really meaningless to you.

For those of you who don't know, AAII (American Association of Individual Investors) is dedicated to helping the DIY investor.  They very likely have a chapter near you and offer monthly meetings featuring speakers on various investment topics and approaches.  Their website also offers educational materials as well as an interesting discussion section.

Tuesday, April 2, 2013

April is Financial Literacy Month

Yahoo has a nice interview,  "Money 101: Q&A with Warren Buffett,"  on his Secret Millionaires Club as well as various financial literacy pointers for kids.  These include:

  • "The best investment you can make, is an investment in yourself.” 
  • “The more you learn, the more you’ll earn.”
  •  “Learn from your mistakes, and the mistakes of others.” 
  •  “Great partnerships make any job easier.” 
  • “Fail to plan, plan to fail.”
  • “With business as in life, get to know people before you judge them.” 
  • “It’s not just the outside that counts, it’s the whole package."
In Howard County Maryland, several events sponsored by the Howard County Library System are planned to offer opportunities in April to increase financial literacy.  On April 6, the East Columbia branch will host the annual Money Matters Fair at which there will be all kinds of activities for teens and younger children.  For the older crowd, there will be opportunities to get free credit reports and income tax help.

On 4/16  Jeff Yeager, author of The Ultimate Cheapskate's Road Map to True Riches, will give an entertaining presentation on living the frugal life at the Miller branch.

On 4/23 Yours Truly will give a presentation on How to Manage Your 401(k) and Other Investments also at the Miller branch.

Check in your community and you'll likely find similar activities promoting financial literacy this month.