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 "...it 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):

LIFETIME SOCIAL SECURITY BENEFIT

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!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!


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Bond ETF Performance (Update)

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I last reported on bond ETF performance on

10/13.

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.

ETF	YTD RET.	DESCRIPTION
HYG	2.32	HIGH YIELD
AGG	5.63	TOTAL MARKET
SCHZ	5.80	TOTAL MARKET
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.
EMB	6.53	EMERGING MKT.
BKLN	0.17	BANK LOANS
IHY	-3.81	INT'L. HIGH YLD.
PFF	13.38	PREFERRED STK.
FLOT	0.16	FLOATING RATE
BSJF	0.48	2015 HIGH YLD.
LQD	7.84	INVEST GRADE CORP.
BAB	16.16	BUILD AMER.
BOND	6.27	PIMCO TOTAL RET.
HYS	0.44	0-5 YR. HIGH YLD.
VCIT	7.36	INTERM. CORP.

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!

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.

Following the Market

Birdwatching is like market watching

I'm an indexer and dividend investor.  As such, you might think I don't follow the markets closely.  That would be wrong.  Like active stock pickers and market timers, I like to try to understand what is going on and. yes, even guess (knowing that it is a guess is, I believe, a quantum jump in investment sophistication that many ego maniacs in the markets can't make) where the market is headed.

As an economist, I like to keep the market tracking process efficient.

Over the years, I have come to understand that the market is driven by broad themes over various time periods; and understanding these themes is important.  For example, in the mid-70s and early 80s, it was all about energy because of OPEC.  Being underweighted or overweighted, energy drove relative performance.  In the late 1990s and early 2000s, of course, it was all about internet-related stocks both on the way up and the way down.  In 2008, you needed to get the impact of the housing crisis on financial services and, especially, the banking sector right.

Today, I look at relative yields, the dollar, oil prices, and the price of gold.  In particular, I go to

Marketwatch

and record the difference between the U.S. 10-year and the German 10-year.  Here you see that difference at 2.24 - .70 =  +1.54%  (154 basis points).  Eyeballing the other rates shows the advantage of the U.S. 10-year Note as well.

Source: Marketwatch

But for foreign investors, the currency conversion is also important.  Click the FX link, and you find a broad FX index, WSJ$IDX, and the Euro.  I record each of these first thing each morning.  To the extent that foreign investors invest in the U.S.10-year and yields drop and the dollar strengthens, it is a very good investment compared to investing in their home country.

This hasn't gone unnoticed by market observers as an important  influence that has kept U.S. interest rates low despite an aggressive Fed policy and an expanding U.S. economy.

As an aside, I once knew a man who explicitly  sat down and waded through numerous investment publications whenever he felt he didn't understand the markets.  This is the process that many needed to go through earlier this year as their confident predictions of a sharp rise in interest rates didn't just materialize but actually moved in the other direction.  This would have led to an understanding of relative yields and the influence of global yields on U.S. yields.

I also click on "Futures" and get the price of oil and the price of gold.  Each has had, and will have in the future, a major role in moving markets.

The whole process of collecting this data takes just a few minutes and is, I believe, useful in understanding broader markets.  For example, dividend-paying stocks should continue to at least hang in and provide decent performance as long as their yields stay above the yield on the 10-year UST and global yields remain low.

Help For Expat Investors From Andrew Hallam

If you or someone you know is working outside of their home country, you need to get

The Global Expatriate's Guide to Investing

by Andrew Hallam.  The subtitle From Millionaire Teacher to Millionaire Expat refers to his immensely popular book Millionaire Teacher.

Hallam's gift is the ability to explain, using stories and humor, some of the most intricate parts of the investment markets facing everyday workers seeking to attain a secure and satisfying retirement.  These are the parts of the market where a huge part of the financial services industry have, sadly, taken great advantage of investors in the U.S. and, even to a greater extent, globally.

If U.S. citizen investors think they face a complex task investing in the U.S., they should consider the task from the perspective of the out-of-country expat investor.  All countries have their own rules; but, in general, the expat has no type of social security, has to be careful choosing a broker because of how difficult it is to compare fees and different offerings, be aware of laws that could affect tax exclusion, be aware of possible estate taxes from investing too great an amount in certain counties, factor in the cost to convert currencies--and the list just goes on and on.

All of this has not gone unnoticed by the unscrupulous who have invaded expats, especially teachers teaching abroad, with retirement schemes that lock in participants for decades into high cost, commissioned products.  These outrageously priced products have the potential to wipe out almost the entire contributions as well as earnings, if participants decide they want to change course.

In the book, Hallam gives explicit advice for successful investing for all investors--using the low-cost index approach recommended in the first book as well as by such market stalwarts as Buffett, Bogle, and Malkiel--but also introduces the permanent portfolio which has an incredible record.  The second half of the book covers expats in specific countries.  Again, actionable steps are presented so that expats in those countries know exactly what to do.

Part of the problem is that human resource departments are not generally investment savvy.  This book is a must read for them!  This book should be given to every new hire.

Simply stated, the information in this book is available nowhere else.  Everyone would profit by reading it--but especially expats.

Financial Literacy Quiz For High Schoolers and College

Here is a neat little financial literacy quiz put out by AARP appropriate for high schoolers and/or college students:  QUIZ .

If you can be at their elbow, the quiz should generate some discussion.  They may need to ask what a Roth is or what is term insurance.  They may ask why is the annual interest rate on a credit card so important and why a shorter payment term reduces finance charges.

Better to learn these financial literacy concepts on a quiz rather than after paying excessive finance charges or shying away from a 401(k) because they just don't what it is!
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What is "Flight-to-Quality" ?

Source: Capital Pixel

Last week I wrote a post on the important role of bonds in a portfolio when the market gets scared--as in a 15% or greater sell-off.  The post showed that the four times the S&P 500 had negative returns over the past 20 years the Barclay's Bond Index produced positive returns.  When the S&P 500 returned -37% in 2008, the bond index returned greater than 5%.

Thus, bonds are a hedge or a type of insurance in the event of a significant sell-off in stocks.  This shift of assets into bonds is "flight-to-quality" and typically is concentrated in Treasury notes and bonds.  Again, it takes place when the market is scared.

A good way to put on this hedge is simply to use AGG or a similar Barclay's Aggregate Index exchange traded fund for the fixed income portion of assets.  Note three metrics:  .08% expense ratio, 5.3 duration, and 31.29% Treasury issues.  The duration of 5.3 tells you that, if yields rise 1% from 2.3% to 3.3% over the next 12 months, then AGG will fall in price by approximately 5.3%.  Add in 1.8% approximately from interest payments and total return would approximate -3.5%.  There's no free lunch here!

Those looking for a really good "flight-to-quality" hedge might consider TLO - the long Treasury etf. Note that it has a duration of 16.6 years so is a lot more volatile than AGG.  Also note that it was up over 23% in 2008!

Disclaimer:  This post is for educational purposes.  Investors need to do their own research or consult a professional before making investment decisions.  Exchange traded funds mentioned are held by me and by my clients.

Best Spending Tracking Tool Poll

Rob Berger at Dough Roller has recently written up results of a poll for "what software or tool do you use to track your spending?".

As you can see Mint, Quicken, YNAB and Excel are the top four.  I use Excel just because I'm old fashioned and prefer to limit the spread of bank account/broker account information.

Just recently, a client requested I send Schwab account numbers to FutureAdvisor to see a recommended asset allocation.  I told him he could do it, but I didn't feel comfortable doing it.

By the way, Dough Roller is a nice article aggregation site for those interested in DIY investing.  I recommend checking it out each week.

The Most Important Thing About Bonds That Most Investors Don't Know

Not a bad hedge!

I've recently read a couple of books about bonds along with an article about how to protect a portfolio from a stock market correction.  The article was one of those Yahoo! type articles touting something like 10 ways to protect your portfolio.  It listed a number of esoteric ideas including puts, stop loss orders, etc. Nothing about bonds.  Maybe bonds wouldn't be your first thought either.

Maybe they should be.

Let's cut to the chase and take a look at the four times out of the past 20 years that the large cap core index, essentially the S&P 500, has produced a negative annual return along with the return on the Barclay's Aggregate Bond Index:

	2000	2001	2002	2008
Large Cap Core Stock Index	-1.1%	-4.8%	-9.8%	-22.8%
Barclay’s Aggregate Bond Index	+11.6%	+8.4%	+10.3%	+5.2%

 Source:  BlackRock Asset Class Returns

Hopefully something jumps out at you.  The fact is that bonds, as the table clearly shows, offer a pretty decent hedge, i.e. insurance, to dampen the impact of stock market downturns.

People many times want to get wrapped up in the mathematics and look at correlations which, essentially, are fancy averages; but there is more to it than this.  I say this because most correlations disappointed investors in 2008.  Asset classes that were supposed to provide a cushion in the event of a downturn didn't.

Bonds, on the other hand, especially Treasury notes and bonds which comprise most of the Barclay's Bond Index, are the go-to asset when investors get scared!  This is called "flight-to-quality."

Understanding a bit of history can lead to a pretty good idea of how bonds will act in various scenarios. Is it possible for both bonds and stocks to have a negative return?  Surely, especially when inflation picks up.  Most likely, in this situation, if stocks drop (which is not a given), it won't be by much.  On the other hand, if there is a major downturn, 15% or more say, it is probably because  the market is scared and bonds could be expected to do well.

One point worth emphasizing is that fixed income encompasses money markets, certificates-of-deposit, and savings accounts.  Sometimes people treat these as bond like instruments.  They are not.  Their price won't rise in a "flight-to-quality" instance.

What About Levels?

Most of the bond market has fixated over the past few years on the historically low rates and the need to position portfolios for a rise in rates.  After all, the thinking has been there is nowhere to go but up. Well, time has proven that this isn't exactly the case.  But beyond that, where should bond investors be today?

Well, if they load up on short duration bonds and corporate bonds offering higher yields, they could be severely disappointed in a crisis.  For example, if the market became convinced that we were locked into a serious Japanese-type deflation episode, the meager 2.35% 10-year Treasury yield could look robust.

The bottom line is that investors need to recognize that hedging like, insurance like, properties of bonds when managing their portfolios.  When is more the question rather than if when expecting a stock market correction?  When it comes, investors will appreciate their bonds (pun intended).

What the Fed Doesn't Get

For some reason, the Federal Reserve still believes that tightly controlling the most important price in the economy - the price of money -  over the long term is the way to meet their long-term objectives of 2% inflation and full employment.  Their policies penalize struggling retirees living off of fixed income and favor the big banks who are subsidized with low-cost reserves.

Controlling prices goes against history and especially recent history. It will land Yellen and, yes, Bernake right in the penalty box with Greenspan.  It will be crowded in there because most Fed governors as well as Fed Bank presidents will be in there as well.  Recall Greenspan's history.  He was dubbed the "maestro" for his rate-manipulating prowess--until that very prowess set off the bubbles in the dot.com sector and then housing that resulted in the worst economic downturn since the 1930s and brought the economy to the brink of another Great Depression.

The history is not complicated.  All you need is a chart of the Fed Funds rate:

Source: Economagic

This is the rate targeted by the Federal Reserve as explicitly specified in the statement released at the conclusion of each Federal Open Market Committee (FOMC) meeting.  The rate target is anxiously awaited by the investment community at the conclusion of each meeting, and its changes are predicted and stressed over in the financial press.  If you need an immediate assessment, just check out the circus at CNBC up to and following an FOMC meeting.

Today, and for some time, as shown on the graph, the rate is essentially zero and is expected to stay there for a "considerable time."

All the various interest rates in the economy  are correlated--which means that, by controlling the Fed Funds rate, the FOMC affects your monthly car loan, how much interest retirees receive on certificates of deposit ( a pittance), and even monthly mortgage payments.  It affects the value of the dollar in global trade.  Controlling the general price of money isn't akin to controlling the price of ice cream.

It doesn't take much reflection to realize that investors love that the Fed spells out in excruciating detail its thinking of how it is going to control the rate - especially when the Fed is either lowering or holding it low for a prolonged period of time.

But history shows controlling interest rates isn't all good.  First look at 2003 on the graph above.  For a 12-month period, the rate was brought down to 1% and held there for 12 months.  Why?  An important reason was the bursting of the dot.com bubble in early 2000.  But why the bubble?  Where did it come from?  This isn't rocket science.  Most market observers get this part.  From 1987 on, Greenspan stepped in every time the financial markets faltered and lowered the Fed Funds rate, leading to the coining of the phrase "Greenspan put."  It reached a point where investors threw concerns about risk to the wind and even piled into newly issued securities of companies that had only vague business plans and no clear path to profits.

Why?  Hey why not - the Greenspan Fed was the golden goose that would rescue markets.

Econ 101 teaches that controlling prices builds pressures over time.  Historically, this has been seen whenever wages and prices were controlled.  So, here we are today with a long trailing period of time where the Fed--in its wisdom--held the price of money below where normal market forces would push it.  And the pressures have built.  Capital will flow or not flow depending on market views of when the price will change.  Look back at the graph and notice the change following 2003 whereby the rate was pushed to 5.25%!  Capital flowed into housing with mortgage rates at historical lows and then was abruptly cut off!  Jobs were easily and widely available in residential construction, mortgage banking, etc., and then they weren't.

The way off this bubble-creating, capital mis-allocating merry-go-ground is straight forward.  Just target the growth rate of the money supply.  For example, M2 growth could be targeted at 3%, say.  This would then enable the price of money, i.e. interest rates, to be set by the market, as most prices in a free market economy are set. 

Gobbledygook!

I'm a fan of Barron's.  Let me say that right off the bat.  Part of my every weekend is devoted to reading it cover-to-cover.  Even though I'm an indexer, buy-and-hold guy, I like to see ideas and read what people think about the market.  I especially like articles on specific companies and analyst outlooks.

It seems that recently the publication has made a push to present "Top Advisors" and "All Star Advisors."  Every weekly publication now has a list of such advisors.

I even like these lists and reading what the advisors think.  A lot of it is total hogwash, and I have to say that I'm amazed that higher wealth families pay dearly for this advice.  I admit that high-wealth individuals and families need comprehensive services; but, from a lot of what I read, the investment services they are getting are worth nowhere near what they are paying.

What bothers me, though, is that there may be individuals who read this stuff and actually act on it.  Let me give an example.  Top advisor presented on page S19 of last Saturday's issue:  Joseph W. Montgomery of Wells Fargo Advisors.  The write-up says "Old school diversification, with stocks, bonds, and cash, served to pare portfolio risk for many years.  But it failed in the 2008 crash..." It goes on to tout commodities, etc., for diversification.

Really? I sn't there a point where we need to look at the data.  Check out Asset Class Returns A 20-Year Snapshot. by BlackRock.

In 2008, stocks were down -37% (Large Cap Core) and bonds (which "failed"?) were up +5.2%, as evidenced by the Barclay's Aggregate Bond Index, and cash returned + 2.1%.  Reflecting on these numbers and the much ballyhooed pounding of retirees in 2008, one has to seriously question diversification.  UNLESS THERE ARE EXTENUATING CIRCUMSTANCES, RETIREES SHOULD HAVE AT LEAST 40% IN BONDS AND CASH.  Following this fundamental rule enabled many retirees to weather the worst stock environment since the 1930s and come out fine in the ensuing sharp rally.  But, of course, this isn't a "man bites dog story" and, therefore, is not as sexy as the scary "crash destroys retirees nest eggs" write-up.

Just for the record, you may want to check out the returns in 2008 of commodities.  Still interested in diversifying into commodities?

Hopefully, you aren't reading this the wrong way.  I'm not anti-commodities as a diversifying asset class.  The point is to be careful.  If you sell bonds and buy commodities thinking you are reducing volatility, you may be in for a shock.

In the world of investing, math sometimes makes us lazy.  Give me a bunch of asset correlations, based on past data, and I'll construct an optimal portfolio.  Easy...I just feed the correlations into the program and it spits out weightings.  Twelve months down the road, we find that the world has acted a lot different than it has historically.  The price has been paid for lazy thinking.

Here is what investors, even "Top Advisors," need to know and think through.  Bonds are the "flight-to-quality" asset - especially U.S. Treasuries.  Long periods go by and investors forget about this feature of bonds--especially periods like the end of the 1990s and 2007.  Behavioral finance people find that investors ramp up their risk tolerances during these periods and shun bonds and increase stock exposure.  If stocks go up and commodities go up more, a light bulb goes off and the diversifying quality of the asset class is widely emphasized.

The bottom line is:  as always, check claims.  We live in a world where this is very easy.  If you don't, you could fall prey to pure gobbledygook; and it could cost you.

$300/hour for reading!

There are a lot of whiners walking around today, wringing their hands, complaining about the lack of good jobs.  There are many arguing for a large increase in the minimum wage.  Concern about the expanding wealth gap and income gap between the middle class and the top 1% has turned into a national pastime.
  
Well, I'm here to tell you that many of these people could put big bucks on the table by just spending a few hours reading some of the books I've mentioned here on an ongoing basis.  The books spell out the basics of how to avoid getting ripped off in retirement accounts, how to ensure you are on the right path to retirement, when and how you need to budget, and how to ensure you've taken the right steps to protect yourself and your family against catastrophe.

As I mentioned in a previous post, I'm getting geared up to present a seminar on indexed investing and dividend investing on November 13 at 7 pm at the Miller Library in Howard County, Maryland.  As I've mentioned before, although  attendees get a lot out of the seminars as indicated by feedback comments, it is those non-attendees wandering throughout the library who would likely get the biggest "bang per buck" for attending.  But personal financial literacy is just something most don't want to be bothered with.

You can read Millionaire Teacher by Andrew Hallam or Your Money Ratios by Charles Farrell or I'll Make You Rich by Ramit Sethi in a few hours.  Any one of these books will put thousands of dollars on the table for most people for just a few hours' commitment.  All it takes is for the light bulb to go off and that little voice saying "Aha, I get it."

I'm an economist.  I've taught Intro to Microeconomics for more years than I want to admit.  One of my complaints about how the price theory portion of the course is taught is that it emphasizes immediate payment.  In fact, in many areas of life, the payment for an act is well into the future and may even not be in dollar terms.  When you sat on the porch and learned from your grandfather how to whittle a flute out of a simple branch, the payoff wasn't just immediate - part of it came years down the road when you passed the knowledge on.

Reading these books will produce a much greater payoff than the $300/hour  headline above, and it will happen over many years.

Investment Seminar Announcement

I will be giving a seminar/ workshop at the Miller Library in Columbia, Maryland on Thursday, November 13 starting at 7 pm. The presentation will go over two approaches to investing :  (1) low-cost index investing as touted by John Bogle, Warren Buffett, and Burton Malkiel ( author of A Random Walk Down Wall Street) as well as many other knowledgeable investors, and (2) dividend stock investing for investors seeking to develop an income stream in a low interest rate environment.  Also, we will go over a worksheet to determine how to pinpoint whether we are on the right track for retirement.

So bring a friend, bring a neighbor, or suggest it to a co-worker who has expressed confusion on the whole topic of whether they are doing the right approach with their investments.  We live in a world where we are responsible for our own retirement.  This is something many people are getting wrong-- possibly including your neighbors, your co-workers, and your friends.  Get it right and your 65-year-old self will thank you.

I hope to see you there!

Here is a link for the registration : Seminar/Workshop .

Bond ETF Fund Performance (Update)

A Different Kind of Bonding

I last reported on bond ETF performance on 5/23.  Here is a year-to-date update on the performance of funds I follow based on Morningstar net asset value performance data.

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.

 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.

An important dynamic in today's market is the rising dollar and the lower yields globally.  For example, the yield on the 10-year German Bund is 0.85%, 143 basis points below the 2.28% yield on the 10-year U.S. Treasury!

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. International bonds have not fared as well in recent markets.

Unfortunately, most 401(k)s do not offer a decent selection of bond funds - you are forced to select from a couple.  On the other hand, if you have an IRA, you typically 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 4.10% to date.

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

ETF	YTD RET.	DESCRIPTION
HYG	2.43	HIGH YIELD
AGG	4.10	TOTAL MARKET
SCHZ	4.14	TOTAL MARKET
MBB	4.27	MBS
CSJ	0.69	1-3 YR. CORP.
IEI	1.81	3-7 YR. TREAS.
IEF	5.64	7-10 YR. TREAS.
EMB	7.36	EMERGING MKT.
BKLN	1.18	BANK LOANS
IHY	0.79	INT'L. HIGH YLD.
PFF	11.20	PREFERRED STK.
FLOT	0.55	FLOATING RATE
BSJF	1.51	2015 HIGH YLD.
LQD	6.33	INVEST GRADE CORP.
BAB	11.58	BUILD AMER.
BOND	4.82	PIMCO TOTAL RET.
HYS	0.93	0-5 YR. HIGH YLD.
VCIT	5.93	INTERM. CORP.

Posted by Robert Wasilewski at 9:14 AM