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, May 24, 2014

How Risky is Your Bond ETF?

The genesis of this post is the article

"Investors Get Complacent in Search for Yield"

at the bond site Learn Bonds. The article focuses on the move toward leniency of terms for lower-rated issues in bank loan funds as investors clamor for higher yields.  Simply, risky issuers usually have to bend over backwards in offering protective covenants to attract investor money.  Not so much today, as the Fed has driven yields into the ground and kept them there for the past few years and seemingly for the forseeable future.  This is part of the Federal Reserve's program of trying to push investors into taking risk.

OK, so the playing field has potholes.  How does the DIY investor check this out?  Well, let's go through a simple example where we look at a risky fund and do a first cut check.

The fund is  BKLN.  First off, go to Yahoo! Finance; put in the ticker symbol.  You'll find the yield is 4.15%.

Source: Yahoo Finance

If you go to, put in the ticker, and scroll down the right-hand side, you'll find that BKLN has a low duration. I n today's historically low-yield environment, this tells you right off the proverbial bat that this is a risky issue, i.e. 4.15% for a low duration fund is a flag!  Remember that, by the time the Fund gets to you, a lot of people have taken a cut! Thus, the underlying loans have considerably higher yields! back to Yahoo! Finance and scroll down the right-hand side and click "Holdings." This gives you a page that lists the Fund's top 10 holdings.  You'll see names you don't recognize. That's okay--unless you're a professional bond trader.

Go ahead and scroll down a bit further, though, and find the following breakdown of the Fund by rating:

Source:  Yahoo! Finance
This is what we are after.

The Table shows that only 9% of the ETF is rated above BBB. BBB happens to be the lowest rating to qualify for the "investment grade" category.  Many pension funds can only invest in investment grade and higher fixed income instruments.

The bulk of the ETF is invested in B rated issues.  Here is how S&P defines the "B" rating:  "More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments."  The "more" refers to the next higher category of "BB" which in turn specifies "faces major ongoing uncertainties to adverse business, financial and economic conditions."

So, the bottom line for the DIY investor is simply this:  know going in the risk you are taking.  If you want to juice your yield, risky funds will do it; but, if you are not careful and at least don't limit your exposure, they also can wreck an investment strategy.  Many learned this the hard way in 2008.


Friday, May 23, 2014

Bond ETF Fund Performance (Update)

I last reported on bond ETF performance on 12/21.  Here is an update on the performance of funds I follow based on Morningstar 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 mid-2014.

As you can see, the returns vary widely among the different funds.  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 have the selection available below as well as many others - another reason on the side 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 Table shows the longer duration or longer maturity funds performed best as would be expected in a declining yield environment.  Spreads tightened, as shown by the better performance of corporate bond funds, including high yield, compared to Treasury bond funds.  Note also the strong performance of emerging market bonds (EMB) and international in general.

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 3.30% to date. FLOT and BKLN are essentially money market substitutes.  Their returns, therefore, although meager relative to the overall market, were quite good compared to anemic money yields.

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

MBB 3.66 MBS
CSJ 0.55 1-3 YR. CORP. 
IEI 1.90 3-7 YR. TREAS.
IEF 4.91 7-10 YR. TREAS.
BSJF 1.97 2015 HIGH YLD.
HYS 1.89 0-5 YR. HIGH YLD.

Monday, May 19, 2014

Vanguard's Personal Advisor Service

Vanguard's Personal Advisor Service is similar to what I do.  It enables Vanguard clients to "partner" with a professional financial advisor.  Clients get a personalized financial plan built on a disciplined investment approach utilizing low-cost, well-diversified funds.  The approach emphasizes tax efficiency, rebalances as needed, and even transitions from the accumulation stage where the investor is building the nest egg to the decumulation stage where the investor begins drawing a paycheck on the nest egg.

Also, the fee is low at .3% of assets and (this is important!) the client can leave at any time!  In other words, there is no contract locking you in.  To me, the ability to leave is important because the hard part is getting set up - rolling over funds, selling and reinvesting in a tax efficient way, and locating the investments appropriately among qualified and non-qualified funds.  Once this is set up, then many investors can take over, especially if they understand the importance of sticking with the asset allocation plan and not allowing emotions to wreck their strategy.

At 0.3%, the service's fee is actually lower than the fee I charge of 0.4%--which in turn is way below the industy average.  In fact, if you have a little time you might want to verify this by googling "investment advisor" along with your zip code.  Call the first 10 that pop up, and tell them you've got a million bucks and need investment help.  You'll be hard put to find any that charge below1% and will likely find some that charge 2.50%!  Also, most will charge extra for doing a plan, and some will even invest you in load funds.

Mike Piper at Oblivious Investor did a good write up on Vanguard's Service in response to a reader's question that is worth reading at

"What's the Big Deal with Vanguard's Personal Advisor Service?"

Full disclosure and caveat:  I am not affiliated with Vanguard and have not used this service myself. This post is for educational purposes.

Wednesday, May 14, 2014

Your Life in Weeks

If you're like me, you enjoy creative presentations of data.  Besides the enjoyment factor, creative presentations are a different way of framing issues and, thereby, could be a so-called tipping point in getting people to understand important concepts.

Framing is key in the financial literacy arena.  For example, the usual approach of getting all worked up over compound interest, etc. and its  end result over 25 years or so just doesn't impress younger people on the importance of saving early.  They click out on the typical presentation and later show in polls that they retain very little.

With the framing idea in mind, please read the post at

"Your Life In Weeks" by Tim Urban.

The interesting part of the post (from financial literacy perspective) is the colored chart showing weeks in retirement. For some people, I believe, the visual will be more revealing for the importance of thinking about retirement than just the usual approach of citing numbers.  Urban's presentation also shows nicely how retirement is part of life overall and not just some separate issue to deal with.

Maybe somebody just as creative will develop Tim Urban's chart further by sketching out on the weekly chart where successful retirees were or should be at various weeks in their lives. 

Thursday, May 8, 2014

A Great Free Resource

Imagine this:  you walk around the corner and find a $100 bill on the ground.  You snatch it up and look quickly around to ascertain that you don't have to be a good Samaritan.  What's next?  AN IRISH JIG!

Interestingly, it is fairly easy for most people with a little effort (a bit more than just walking around a corner and bending down) to add a significant amount to their retirement nest egg over the years; yet they pass it up!  The only one that can usually do this is themselves.  Hiring an expensive advisor will definitely build a nest egg, but usually it is the advisor's nest egg.

That everybody doesn't take the little effort to do this is, to me, one of the conundrums of behavioral finance.  What many people don't get is that they are up against an advertising juggernaut whose purpose is to take all of their income and more in current consumption.

The fact of the matter is that we have been put in charge of our own retirement.  Our father's defined pension benefit is becoming extinct.  Most people, whether they know it or not, need an owner's manual to understand how to proceed, how to build that all important nest egg efficiently.  Waiting to face this issue until one reaches the early 50s is too late.

Now there is an excellent owner's manual written by one of the clearest writers today on investment theory.  AND IT IS FREE AND CAN BE READ IN ABOUT 45 MINUTES!

Go to

 If You Can

scroll down slightly, click "acrobat," or one of the other choices.

William J. Bernstein makes special effort not to tout his books and recommends other reading.  I will add that his The Four Pillars of Investing should be added to the books he recommends.

Thursday, May 1, 2014

A Good Deed Opportunity

So, after reading

Understand Your Investments,

you took a look at your investments in your 401(k) and elsewhere and now have a better idea of whether you are invested in low-cost, market tracking indexes, load funds that charge an up-front commission in addition to high annual expenses, or some insurance product that has huge annual fees in addition to egregious surrender charges.  Most of you doing this for the first time will see the need to make changes, and these changes will be meaningful in the long run.

When I say "meaningful," I mean 6-figure income meaningful for younger people--once the light bulb goes on and they stop letting the financial services industry jerk them around and take over the reins themselves.  For most people to get to this point is easy.  Read

Millionaire Teacher by Andrew Hallam

or a similar book on the basics of low-cost investing.  I don't want to over-dramatize this issue; but, for many people, reading and understanding this book will put them on a path that will enable them to retire a few years earlier or live a fuller retirement, depending on what they choose.  Failing to understand the basic principles laid out by Andrew will mean a goodly portion of their "nest egg" will end up in the nest egg of the big 401(k) providers and reps of other investment banks.

So what else can you do once you get the basic points and you've set up your investments appropriately?  Well, here is your "good deed" opportunity.  I understand you aren't an investment advisor.  You haven't passed the Series 65 exam and haven't registered by filing the ADV form.  You are not in a position to provide investment advice and receive compensation for it.  But how about another step?  Why not recommend Andrew's  book to others?  When you hear people complaining about their investments or mentioning that their advisor doesn't return their calls, ask them if they know the importance of advisory fees and fund fees over long periods of time.  Suggest to them that they can possibly save a lot by doing the investing themselves and that it is not that difficult.  Again, recommend Andrew's book or one that is similar.

One way to introduce this subject to family members is to ask who their 401(k) provider is.  I will bet you that their response will be something like "My provider is Fidelity, but they have so many funds that I have no clue on which to choose and how much to put in each."  Sometimes this is followed up with "So, I just have all my funds in the money market fund."  Ooch!!!

For most people, taking 2 weekends and reading Millionaire Teacher will significantly improve their lives and they will thank you for recommending it.