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.

Thursday, May 30, 2013

Build a Dividend Calendar

A challenge many face in the investment world is getting investments to the point where you can understand them.  In today's "manage your own assets" world, people have numerous accounts of various types.  Step 1 in gaining control of investments typically involves ordering accounts - taxable, IRAs and 401(k)s, and finally Roths.

Next, if called for, consolidation can take place.  Assuming the investment approach of utilizing low-cost ETFs is the guiding approach. the number of accounts can usually be reduced.  There is no need to have 11 accounts at 7 different brokerages.

Inevitably, there will still be some individual stocks because clients many times want to pick stocks with part of the assets or they may be sitting on large capital gains that need to be managed for tax purposes. A final step is to think through the location of investments to fit a specific asset allocation.

Once all of this is in order ,the sailing is pretty smooth - keeping an eye on performance and asset allocation.  From time to time, rebalancing is necessary to align the asset allocation.

Another exercise which is helpful, quite easy, and helps in understanding the big picture is to build a dividend calendar.  This is especially important if, like many investors today, you are using high dividend paying stocks as a substitute for bonds.

Build a Dividend Calendar

Assume a portfolio comprised of 100 shares of Johnson & Johnson (JNJ) and 100 shares of Schwab's dividend ETF (SCHD).

There are a number of sites that give dividend information.  One I like is  Scroll down the left hand side and click "Dividend History."  Next, put in the ticker symbol for JNJ in the "Get a Quote" box.  This is what you come up with:

CLICK TO ENLARGE As you can see, JNJ had to be held on 5/28, the dividend will be paid on 6/11, and each share will receive $.66. Thus, the owner of 100 shares will get $66.

Doing the same exercise for SCHD shows the last payment date, but you can easily estimate the next payment as being made around 6/22 and estimate the amount using the previous payment.  The amounts then would be filled in at the appropriate dates on the calendar.  Note that you can save your stock list, making it easy to update data as stocks declare their dividends.

I like to put the amounts on an Excel spreadsheet so that I can easily set up formulas to calculate totals, yields, etc.; but old schoolers can also write amounts to be received on paper calendars.

Finally, it is worth checking that payments for the correct amounts are made into your accounts.  At Schwab, for example, you check the "History" tab and put in the symbol to get:

CLICK TO ENLARGE As you can see, the dividend for OHI was paid 5/15 on 200 shares.  Just for practice, check (using the Nasdaq link) to see if the correct amount was received on the correct date.

For Retirees 

Income for many retirees is obviously crucial, and they face the challenge of weathering a market downturn.  Some advisors recommend a bucket approach, others position the portfolio in an extreme defensive position, thereby giving up the potential for a higher quality retirement.  I recommend that a retiree's portfolio be positioned so that at least 60% of the income need is met by interest and dividends. This means, for example, that, if your nest egg is $1.0 million and you are seeking $40,000/year inflation adjusted (4% rule-of-thumb), you should identify approximately $24,000 in interest and dividends.

This 60% interest and income positioning, along with the cash portion of the asset allocation, has historically successfully weathered sharp market downturns ,enabling retirees to participate in the ensuing market upturns.  Note to the weak hearted:  I'm not saying it has been easy!

Disclosure:  This post is for educational purposes.  I and my clients own securities mentioned. Individuals should do their own research or consult a professional before making investment decisions.

Monday, May 20, 2013

Tracking Bond ETFs

Fixed Income has been a challenge for some time for portfolio managers.  Back in 2003, the Federal Reserve pushed short-term interest rates to 1%.  Then the 2008 housing debacle pushed the Fed into crisis mode, whereby they responded by pushing short rates close to 0% and influencing the overall yield curve via their ongoing quantitative easing.

Asset allocation models, in turn, typically suggest a healthy portion towards bonds for yield and portfolio stability.  Portfolio managers have, thus, had to scramble in this environment not unlike RG III chased by Dallas Cowboys.  Seeking yield, but eying at the same time duration, has not been easy.  Not surprisingly, one of the questions I get frequently is how do I invest bond assets and what funds do I follow.

My approach is to formally write down asset prices in an Excel spreadsheet on an ad-hoc basis, i.e., when I see rates start to move or when I'm constructing a portfolio or even when I'm bored.  The table below shows the funds I follow and their prices etc., today.  As you can see, there is no particular order and there is a variety of funds.  Funds were added whenever I became interested in them.

I track price as well as indicated value.  Since these are ETFs, they trade like stock.  As such, the price of the underlying portfolio is priced at regular intervals; but the price in the market is based on supply and demand.  If the price exceeds indicated value by an appreciable amount, it definitely gives me pause.

I also record the SEC yield.  This weighted yield is based on yield to maturity and is net of management expenses.  As such, it is useful for comparing funds.

When I'm constructing a portfolio or when I hear an analyst say, for example, that high yield bonds are expensive, I can go to the spreadsheet and check how the high yield funds I track have done.  Similarly, if I read that international bonds offer value, I can pull out the international bond funds and see how they have done.

I believe that tracking funds is most easily accomplished using Morningstar.  Putting in the ticker symbol gives you the required data plus the additional research you'll need, such as the all-important duration, holdings, and fund expenses.

Disclosure:  I and my clients hold most of the funds listed.  The purpose of this post is educational. Investors should do their own research or consult a professional before making investment decisions.

Pr. ($s)(5/20) 11:30 am
I.V. ($s)
SEC Yld. %
High Yld. Corp.
Total U.S. Bond
U.S. Aggr. Bond
MBS Bond
1-3 Year Credit
3-7 Year Treas.
7-10 Year Treas.
USD Emerging Mkt
Senior Loan Port.
Int’l. High Yld.
Preferred Stk.
Bullet Shrs 2015 Corp.
Invest Grade Corp
Build Amer Bonds
PIMCO Total Ret.
PIMCO 0-5 Hi Yld Corp
Floating Rate Notes

Sunday, May 19, 2013

Gerard Minack's Message

There are all kinds of data and arguments supporting the low-cost, indexed approach to investing.  There are the academic studies that have examined various asset classes, time periods, investment styles, and fund flows.  There are the admonitions of highly-regarded students of the markets who have spent a lifetime studying markets, such as Bogle, Malkiel, Ellis and, yes, even Warren Buffett.  And then there are those who spent careers on the brokerage side and come to see the mistakes investors make.

Highly-regarded Morgan Stanley strategist Gerard Minack falls into this latter classification and presents what he concludes as he retires from the brokerage business in this interview forwarded to me by a client.

Investors make two mistakes according to Minack:
  •  INVESTORS BELIEVE PAST PERFORMANCE PREDICTS THE FUTURE.  This despite the ever-present disclosure that this isn't the case.  Investors read about the most successful funds, sectors, and managers and pour monies in their direction.
  • INVESTORS ARE TERRIBLE MARKET TIMERS.  Investors pour money in at market peaks and run for the hills when markets are cheap.
Minack presents graphs to support his points.

But this isn't the whole story.  Minack comes from a broker.  He points out that brokers put clients in high-cost active funds with the best recent performance that time the market, and this is harmful to investors.

As it happens, I was leafing through an industry magazine this weekend which had a feature on brokers who had done beneficial community service.  The brokers are names everyone recognizes - especially if you followed the bailout efforts in '08 and '09.  The individuals profiled helped the elderly, low-income kids, people incapacitated, etc.  No doubt their community efforts do considerable good.  And no doubt some do good on the investment side.

Still, at the same time, many brokers are siphoning off huge chunks of client's nest eggs, as Minack implies.  I know because I see the damage firsthand.  Confused potential clients hand me their statements across the table, and I see accounts with huge loads and high expense ratios.  Potential clients tell me they don't understand why their accounts are not going up, and they tell me their broker won't call them back!  And they definitely have no idea what their costs are and that there is another, much different approach.

As I leafed through the magazine, I looked closely at the pictures.  Maybe their community service satisfies their conscience, but it isn't easy to see how.

Like Minack, I guess the reason I have a number of clients is because investors just don't know.

Tuesday, May 14, 2013

A Favorite Publication

I see this blog as fairly wide ranging but confined mostly, though not totally, to investing.  But investing is only one part of the whole financial literacy area.  So, like most of you, I constantly seek out information in other pockets of the financial arena.  I view this effort somewhat like a video game where there exists an evil nemesis seeking to thwart my efforts and my task is to get information from various sources to attain a "golden key."

My information sources are wide and varied.  I have smart friends who reveal valuable tidbits, informative television programs I watch, blogs I read on a regular basis, and publications like Money Advisor by Consumer Reports.

I rarely endorse a product in this blog, but Money Advisor is worth endorsing.  It can be had for $49 for 2 years.

Let's take a look at the June issue.  Subject areas include Health Care (can you afford helping an aging relative), Investing (portfolio prep for a rise in interest rates), Retirement (fixed versus variable annuities), Spending (moving and storage scams), Taxes (when to amend a tax return).  There are also a number of regular columns.

Some of the info is of a "feel good" nature.  For example, they polled 169 readers and found that 47% of them had made a financial mistake costing more than $20,000.  See, now you don't feel so bad.

Other info is highly practical.  For example, in some states, sales taxes on a new car can be greatly reduced by trading in with the dealer rather than selling privately.

Annuity Research

What I like the best, though, is the research they do that can save me a lot of time.  Here is a table (p. 5) showing the monthly payout for a $100,000 immediate pay fixed annuity from the 10 highest payers out of 20 they surveyed.  These payouts are before taxes for a 65-year-old male living in New Jersey.

Insurance Company
Monthly Quote (No Guarantee)
10-year guarantee to beneficiaries
Weiss Ratings of financial strength
N. American Co. for L&H

Kansas City Life
American National
American Equity
Pacific Life & Annuity
American General (AIG)

Sources:, USAA,  Quotes are for 3/22-29, 2013.  A is excellent, B is good, and C is fair.

As you can see, there isn't a big difference among the payouts; and it doesn't cost much to get a 10-year guarantee. 

Interestingly, the immediate pay fixed annuity is the one annuity that makes some sense for many people (for at least up to 20% of their assets) entering retirement, but most investment managers (even RIAs with their fiduciary status!) won't recommend because it subtracts from their investment fees.

This is the type of valuable research, succinctly, that can save a reader a lot of time.

Disclosure:  I am not associated with Consumer Reports in any way.  The purpose of this post is solely educational.