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, December 6, 2015

Take Your Required Minimum Distribution (RMD)

If you were 70½ in 2015 or are older, then you need to take a required minimum distribution (RMD) from your qualified accounts (i.e., IRA type accounts).  If you turned 70½ this year, then the distribution must be taken by April 1 of 2016.  Otherwise, the deadline is 12/31/2015.

If you are a lot younger, skip to the last paragraph!

The custodian of your qualified accounts is required to notify you that an RMD is required on the balances you held with them on 12/31/2014.  If an account was rolled over during the year, you need to find out if the distribution was taken and, if not, the amount that needs to be taken.

Failure to take the required distribution results in a 50% excise tax penalty.  If you find yourself in this boat, you can get a waiver by first paying the penalty and then contacting the IRS and doing a triple somersault back flip through a hoop for them.  Recommendation:  take the distribution as required, on time.

If you have an IRA at Schwab, click "Balances":

Source: Charles Schwab


Near the top left, you'll see a dark blue box which contains your accounts.  Make sure you select your IRA(s) and then scroll down.  On the right hand side, you'll see this:

Source: Charles Schwab
As shown by the arrow, you want the "Remaining RMD To Be Taken" to be zeroed out.

To take the distribution ($13,298.36 in this example), you need to have the required amount in cash in your IRA.

Where do you put the distribution?
 This, of course, is up to you.  You can have it sent to you, or you can put it in your taxable brokerage account.

But what if you had an IRA transferred to Schwab in March, say, of this year?  Then, obviously, they won't know what your balance was at the end of 2014; and the previous custodian probably did not take the distribution.  But this is not a problem.  Schwab, as well as many others, provide easy-to-use calculators online to figure the distribution amount.  Here is Schwab's:  Schwab RMD Calculator.

IMPORTANT:  ALL OF THIS MAY NOT APPLY TO YOU BUT TO SOMEONE YOU KNOW.  You may want, for example, to casually mention to seniors (as a great conversation starter) that you just learned about the high fee the IRS charges if people miss their RMD.

Tuesday, December 1, 2015

A Couple of Good Reads

This is the time of year where financial writers like to recommend mutual funds for the coming year. Do you follow their recommendations?  If so, do yourself a favor and read The Best Mutual Funds to Buy Right Now! by Andrew Hallam.

Another good read is at MarketWatch by Robert Powell:  You may need less retirement income than you think.  The article illustrates to me that the whole subject of retirement planning is treated simplistically by researchers, and individuals should be aware of this.  Even going beyond the excellent points made in the study cited by Powell is the fact that individuals vary in the amount they spend during their retirement years.  Many spend heavily at first, doing the traveling or other expensive endeaors they have dreamed of, get it out of their system, and then settle in.  A decade then follows where spending may be somewhat less and even less than the 80% cited by Powell.  Closer to the end, or as Ed Slott is fond of saying "when the life insurance matures," medical costs ramp up.  The point is that spending in retirement is generally more complex than generally made out to be, and it is less cumbersome for researchers to just use simple percentage rate drawdowns.

Sunday, November 22, 2015

Wanna Be a Market Pundit?

If you want to be a market pundit, you need to explain why markets are doing what they are doing.  To the average person, this would seem to be complicated.  But it's not once you get the hang of it!

The last 2 weeks offer an excellent example.  Two weeks ago, the employment report for October was released; and it was much stronger across the board than expected.  Stocks were expected to rise but instead dropped sharply and continued to drop the following week.  Explanation?  CNBC pundits made it perfectly clear (after the fact):  the surprisingly robust employment data pushed the odds of the Federal Reserve increasing rates sharply higher, thereby increasing economic uncertainty.  And uncertainty is the one thing that markets are fearful of! 

The horrible week ended with the 11/13 Paris terrorist attack, and markets expected the sell-off to continue unabated.  What happened?  Last week stocks had one of the best weeks of the year?  Could it be explained?  Ask CNBC if they had any problems finding people to whom it was perfectly clear (after the fact). Their explanation:  the Fed was going to increase rates and finally uncertainty would be reduced.

The sad part of this is that the pundits believe that they are actually imparting valuable information.  Unfortunately, their audience may come to the same costly conclusion. 

As Nassim Taleb stressed in The Black Swan, pundits in the financial world are adept at creating a plausible narrative for events after they happen--making them seem obvious after the fact but notoriously poor at forseeing big changes in markets.

Thursday, November 12, 2015

100% in Stocks?

In an interesting MarketWatch opinion piece worth reading, "Why 100% of your investment portfolio should be in stocks," Jeff Reeves argues for investors all-in in the stock market.  The body of the piece, though, seems to argue, understandably, for that positioning for those in their 40s and below which still can be a stretch for many.

He cites the fact that, over the longer term, stocks have always moved higher.  Going back to 1926 and looking at 20-year rolling periods shows that the lowest 20-year return was a positive return of almost 11%.  It is important to note that rolling 20-year returns are obviously not independent.  By using rolling returns, analysts can cull many more data points as compared with periods that are wholly independent.

He also emphasizes the buy and hold aspect.  Jumping in and out can negate the potential positive outcome of an aggressive allocation strategy.  Furthermore, it is not easy to determine if you have the fortitude to stay the course in a really serious downturn until you've experienced one.  Whether you have the fortitude depends on personality and expectations on the use of the funds.  As I often tell people, I have seen individuals who literally have a good day when the market is up that day and are miserable when the market is down on the day.  For these people, no matter what their age, all-in is not a good idea. Actually, if you look at your account more than every couple of weeks, you should probably have some bonds for cushioning purposes.

To get a good feel for your risk tolerance, go back to the market in early 2009.  As most market observers recall, stocks were down approximately 35% in 2008.  What they may have forgotten is that the S&P 500 dropped another 25% over the first part of 2009 through the first week in March!  If you can put yourself back in this time frame, you can get a good assessment of your risk tolerance.  If you were calmly able to stay the course during this period, then your risk tolerance is high--you can readily withstand short-term down turns and focus on the longer run.

A final point to keep in mind as you read the article is that because-something-has-always-happened isn't a logical argument for it having a high probability to continue happening.  Ask the turkey, who is dutifully fed each day by the farmer, about this the day after Thanksgiving, as Nassim Taleb is fond of pointing out.

To me, the reason for aggressively allocating to stocks over the long run is the nature of our economic system.  It rewards innovation, creativity, and hard work.  The best and brightest among us are working 24/7 to bring us what we want in entertainment, the medical field, transportation, apparel, etc., etc.  This is what creates companies worth investing in over the longer term!

Wednesday, September 30, 2015

Nonsense Reporting

Read this article by Harold Gold of Marketwatch and see what's wrong with it:  "Opinion:  Baby boomers have no idea what they're doing with retirement planning."

I'll help.  The subtitle (referring to baby boomers) says "...over 80% of them have all of their money in equities." Eye popping, right?  Especially for me because I deal with baby boomers all the time; and I can tell you that, if Fidelity found that, then their study was wrong.  Period.

But, of course, headlines and sub-headlines are many times  misleading.  Later in the article, it says that Fidelity found that approximately one in ten 401(k) participants have 100% in stocks.

What is interesting to me is that it wasn't until the 6th commenter that this was pointed out.  When I first read the article and looked at the comments, I wondered if the commenters had actually read the article! I also wonder if the author proofed his own article, misread the statistics, or what?

One final point:  boomers have more than their 401(k) in retirement assets.  They have IRAs which they rolled over and taxable accounts.  Fidelity's study probably accomplished its objective of getting people to throw up their hands and say "OMG, do we need to sell, we have too much in stocks!"

The bottom line is that studies coming out of the financial services industry always need to be read with an eye to an underlying motive.

Friday, September 4, 2015

Get a Quick Fix on Markets

Here is a quick overview on how I get a quick fix on the markets.  You can, of course, spend all day following the gyrations of markets, tune into the never-ending flow of prognosticators expounding on the past and offering predictions of where we are headed, and even spend every waking hour reading provocative pieces intended to get your attention.

This isn't about this.  It is about spending 15 minutes in the morning getting a feel for where the market is and why it has performed as it has.  I believe this is the best way to understand markets.  But don't get too comfortable.  As Nassim Taleb has pointed out, humans are very adept at creating narratives explaining why markets have performed as they have BUT ARE POOR PREDICTORS OF WHERE WE ARE HEADED!  The housing crisis leading to the debacle of 2008 is a good example.  In hindsight, it is easy to explain what happened.  But how many people got rich predicting it?

Markets are affected by different things at different times.  This is one of the reasons it is difficult to outperform markets and why indexing is the best approach for many people.  Thus, the economic data points I follow today will be different from what I am following a year from now.  One of the tricks is to hone in on what is affecting the market at any particular time.

Here is what I do each morning.  I first go to and look at the following:

Note here that I have clicked on the "RATES" column.  From this column, I record the rate on the "U.S. 10yr," which is a benchmark for the U.S. bond market, and the rate for the "German 10y."  I then calculate the difference, known as the spread.  Here that spread is 2.14 - .69 = 1.45.  So, by investing in the U.S. 10-year Treasury note versus the 10-year German Bund, the global investor achieves a gain in yield of 1.45%.

Eyeball the other yields in the table, and you quickly see the superiority of the U.S. yield.  This simple exercise tells you a lot about why the pronosticators over the past few years have been dead wrong about interest rates.  Instead of going up, they have dropped and stayed low!

On my pad where I record data each morning, I can quickly flip back and see that this spread was 1.66 (or, as bond market people say -  166 basis points) back on 7/26/2015.  Thus, the spread is narrowing. Worth keeping an eye on.

Next, I click on the FX (foreign exchange ) column to get:

From this column, I record the value of the Euro 1.11 and the value of "WSJ $ IDX" at 88.75.  Currencies are a key to understanding global economics.  When a currency cheapens versus other currencies,it lowers the prices of the goods it sells on world markets. It is like two gas stations next to each other.  As you would expect, they typically have pretty much identical prices.  If one comes out and significantly lowers its price, the other will suffer a dramatic loss in sales.

Recently, China shocked the investment world by devaluing its currency.  Not surprisingly, investment market held its breath, concerned about a currency war breaking out.

In looking at the Euro, it is also worth noting that expectations play an important role in determining whether to buy the 10-year Treasury or the German Bund.  Investors need to  assess the spread and the likely future course of the currencies.  At the margin, the spread and the expected currency movements should make investors view the two bonds the same.

Again, flipping back, I find that on 9/26/2015 the Euro was at 1.08 and the WSJ$IDX at 88.59.  Global investors in the 10-year Treasury did well.  They got an attractive spread and an appreciation in the U.S. dollar. I ncidently, the dollar would be expected to appreciate in a scenario where the Fed is getting closer to raising short-term interest rates.

Next, I click the "FUTURES" column and record "Crude Oil" and Gold.

I also mentally note the DJIA and S&P futures markets to get a sense on how the market is likely to open.

Finally, I click on the "ASIA" column and record the overnight performance of the Shanghai stock market = 3160/-.21%.  On 9/26/15, this index stood at 3992.ooch!  This is a good example of an economic data item I wasn't following closely a few months ago but now am.

All of this takes longer to explain than to get the data.  Once you get it into a routine, you can easily record the data in 15 minutes or less; and I believe it will give you a bit of a fix on what is driving markets.  Also, you can add other items to your liking.

To get a further feel for the market day, I like to also go to CNBC and read the headlines of what they see as market relevant stories:

As you can tell at a glance, the big deal today is the employment report.  Markets will spend the day assessing the report and its impact on when the Fed is likely to raise rates. etc.


Thursday, September 3, 2015

Some Market Perspective (Part 2)

Yesterday's post focused on the performance of a particular asset allocation that fits many retirees, i.e. those who are drawing down their nest egg.

To get further perspective here are the returns on the underlying market indices for various periods:

                         last 3 mos.       y-t-d        1 year       3 years     5 years
S&P500           -8.90%          -5.75%     -2.49%      13.18%     14.50%
MSCI EAFE    -9.98%          -2.63%     -9.68%        7.65%       5.93%
Russell 2000     -9.43%          -5.59%     -2.68%       13.09%     14.05%
Barclay's Bond     .02%            0.54%      1.65%         1.56%       3.06%
3 mo. t-bill           .00%              .01%         .02%          .04%         .06%
S&P GSCI     -17.60%         -17,80%    -44.12%     -19.68%     -8.29%

The MSCI EAFE is an international stock index and the GSCI is the Goldman Sachs commodity index. Note that the bond index was positive in each of the periods. Note that it returned a positive 1.65% over the past year as the S&P 500 had a -2.49% return. This is what the bond portion of a portfolio is intended to do! It acts as a sort of hedge to the volatile stock portion. To be clear, understand that the low yielding cash portion doesn't typically do this well. Over the past 12 months it returned .02%.

People like to ask about the purpose of holding cash in a portfolio. After all, the other asset classes tend to outperform over the long term. For the retiree drawing down a nest egg cash (i.e. money market fund) holdings are a buffer for meeting drawdowns and not having to liquidate stock or bond holdings in a down market. Selling stocks and bonds in a down market would be a type of reverse dollar cost averaging!  For the younger person, holding cash would be dry powder to put to work in a market like we are having today.

For the record I don't recommend holding commodities separately for the simple reason that commodities are a part of the overall market. For example, the S&P 500 has a goodly representation from the oil sector. So holding a commodity fund would be like double counting. If you have a strong view on commodities you can hold a commodities Fund but understand that you are making an over-weighted bet.

The bottom line here is that investing is a long term prospect. Focusing on short term results and thereby letting your emotions skyrocket in up markets and dive in down markets is typically counter productive.                                                   

Wednesday, September 2, 2015

Some Market Perspective

The market has been hit hard. A whiff of panic is in the air. China is slowing down big time and  pundits are parading to the financial news networks to offer their disparate views. This is not new. Every correction feels the same. Every correction feels like the end of the world.

So how bad has it been to this point? Well, it depends. It depends on how you are positioned. Back in 2008 when markets were experiencing a much worse environment retirees talked of losing their life savings. This of course got investors who understand asset allocation principles to scratch their heads and wonder how this could be. After all retirees should have a decent representation of bonds in their portfolio and bonds had a positive return of greater than 5%!

I split the investor world simplistically into accumulators and decumulators. Accumulators welcome the current markets because they are building their nest eggs and thereby welcome the opportunity to buy shares at lower prices. The decumulators are primarily retirees drawing down their nest eggs or are close to drawing down their nest eggs. For them market downturns can be traumatic, especially if they don't understand asset allocation.

So, suppose you are a retiree and are decumulating or close to decumulating. Then one asset allocation you could reasonably consider would be basically 40% stocks/60% fixed income and cash. Here is a proposed allocation by Charles Schwab:

Large Cap Stocks          25%
Small Cap Stocks            5%
International Stocks       10%
Fixed Income (Bonds)   50%
Cash                             10%

A quick point on the percentages. Cash at 10% gives the retiree two and one-half years to weather a downturn assuming the usual 4% drawdown rate before even looking to dividend and interest payments.

So how has this allocation fared to date? Here are the numbers through the close of yesterday 9/1/15:

3 months              -3.68%
year-to-date        -1.71%
12 months           -0.90%
3 years               +5.77%
5 years                +7.02%     

The returns for 3 years and 5 years are average annualized returns. These returns on the overall asset allocation can be pretty closely matched using low cost well diversified index funds and avoiding high cost investment advisor services.

I'm not trying to sugar coat the market correction  but clearly anyone who has been in over the long term should see that the situation isn't as bleak as the fear mongers make it out to be. Surely it is worth recognizing that a one million portfolio has seen a $36,800 decrease in value over a short period and that is enough to cause people to lose a little sleep. Another point is that if someone bailed in 2009 and got back in in the last couple of years they must feel snake bitten. But the evidence shows that jumping in and out generally leads to significant under performance.

Wednesday, July 1, 2015

Update: Year-to-Date Performance of BlackRock Diversified Portfollio

Regular readers know my favorite investment chart is the BlackRock 20-year sector performance.  It details the relative performance ranking of asset classes on an annual basis as well as the performance of an easily replicated low-cost diversified portfolio comprised basically of 65% stocks, 35% bonds.  As can be seen by referencing the above link, the diversified portfolio returned 8.7% on an average annualized basis over the 20-years ended 12/31/20114.

The diversified portfolio allocation is an appropriate benchmark for many individuals in their 40s and even early 50s, depending on their specific risk tolerance.  The chart contains sufficient data, however, to construct a benchmark and analyze performance for any specific allocation; and, in fact, the allocation can be changed over time using the data in the table--as it should be as an individual ages.

Voluminous data from unbiased academic studies have been presented over the years showing that a diversified portfolio of low-cost funds outperforms upwards of 70% of active managers over the longer term, after all costs are taken into account.  These studies cover various time periods, countries, asset classes, and investment methodologies.  In line with this data, the low-cost diversified approach warrants consideration as a benchmark for investors.  It shouldn't go unnoticed that the approach economizes on the investor's time.

Below is an update showing the approximate performance of the diversified portfolio's sectors for the 6 months ended 6/30/2015.  Overall, the portfolio returned approximately 1.68%, down slightly from the 2.17% reported for the first calendar quarter.

For the 6-month period, sector performance was mixed with the international (EFA) doing best and large and mid-sized value (IWD) lagging.  The bond market (AGG) had a negative return as yields increased over the 6 months.

Weight (%)
Return (%) 6 months ended 6/30/2015
AGG (Barclay’s Aggregate Bond Index)
EFA (EAFE Index)
IWM (Russell 2000)
IWF (Russell 1000 Growth)
IWD (Russell 1000 Value)

Disclosure:  This post is intended for educational purposes only.  Past performance is not indicative of future performance.  Individuals should consult a professional or do their own research before making investment decisions.

Thursday, June 25, 2015

Dividend Data for DIYers

Here is a table adapted from Barron's 6/15 issue, page M47, showing the quarterly year-over-year dividend payouts of stocks comprising the Dow Jones Industrial Average:

March 2014
March 2015
Am. Exp. (AXP)
Apple (APPL)
AT&T (T)
Boeing (BA)
Caterpillar (CAT)
Chevron (CVX)
Cisco (CSCO)
Coca-Cola (KO)
Disney (DIS)
Du Pont (D)
Exxon (XON)
Gen Elect (GE)
Goldman Sachs (GS)
Home Depot (HD)
Intel (INTC)
John&John (JNJ)

Note that all except Visa increased their dividend.  Apple replaced AT&T, so their dividend experience isn't shown.  Overall dividends amounted to $103.65 compared to $91.94 a year earlier.  The yield increased from 2.22% to 2.25%.

For reference purposes, the yield on the 10-year Treasury is approximately 2.40%.

Tuesday, June 23, 2015

Retirement Calculator Review

Investor Junkie has written a nice review of Personal Capital's retirement calculator.  For those in retirement, or close to retirement, interested in a detailed analysis on whether they have enough to meet spending plans, the calculator appears to answer the outstanding questions.  Note that it is free but does require providing a lot of information.

For what it is worth, my approach is considerably simpler.  Take 4% on an inflation-adjusted basis, and check it every couple of years.

I was at an American Association of Individual Investors (AAII) a couple of years ago where a complicated Monte Carlo retirement analysis was presented.  One of the audience members stood up and said his approach was to do what he had done all his life - calculate a reasonable withdrawal rate and then adjust his spending so that he lived within his means.

The bottom line is that some people want more detail and, thus, the Personal Capital calculator may be exactly what they are looking for.  For others, the simpler approach will work better.  I also have to admit I am prejudiced against spreading bank info all over the internet - but that's just me.

Wednesday, June 17, 2015

Look Who's Indexing - Investment Pros

On 4/14 and 4/15, 1,280 Bloomberg terminal users were asked "what do you think is most appropriate for someone who is mid-career and trying to save for retirement?"  Bloomberg terminal users are professional managers.  The choices scored as follows:
  • 42% Passive index funds and etfs
  • 18% Actively managed mutual funds
  • 17% Individual stocks and funds
  • 14% Real estate
  • 3% Hedge funds
The study was reported by Charles Stein, Even Financial Pros Choose Indexing for Retirement Savings.

Sunday, May 31, 2015

Bond ETF Performance Update

The last update of bond funds was done on


The purpose here is to get a sense of how various parts of the fixed income market have performed year-to-date.  We are still in a world of historically low short-term yields heavily influenced by global Central Bank policy led by the U.S. Federal Reserve.  In fact, the number 1 issue in markets today is when the Fed will raise rates (we are beyond the "if" stage) and the path rates will follow from there.

Here are the total year-to-date returns through 5/29/2015 as reported by Morningstar.

The first point to note is that performance was fairly tight.  Not much, if anything, was gained from going off index, i.e. investing in other than AGG.

No advantage was gained by exploiting the yield curve as seen by the 1.68% return on IEI versus 1.66% on IEF.

Some incremental performance was garnered for investing in riskier funds as seen by the 3.03% return on the emerging market fund EMB and the 2.36% on HYS, a short-term high yield fund.

This data is provided for educational purposes.  My clients and I own some funds listed in the table.

Monday, May 25, 2015

Cheap Trick

No, this isn't about the 70's rock band (still apparently going strong).  It is about a financial services industry cheap trick.

The lady was from Texas and called with a bit of concern in her voice.  She was selling land that had been in the family for a long time and was getting approximately $13 million.  In hand, she had a proposal to manage the $13 million and was seeking a second opinion.

The proposal wasn't from an asset manager but actually from an advisor who finds asset managers.  In other words, an asset gatherer.  He was from a large network of advisors who gather assets.  He is a middleman.  In other words, if you were selling or buying a house, you can go directly to a realtor or you can go to an advisor who would recommend a realtor.  If people fall for it, the industry would put on as many layers as they could get away with!

The cheap trick, in my opinion (you can make up your own mind), comes in the fee proposal:

As you look at this fee proposal, recall one of the well-known tricks discovered by behavioral finance researchers.  It goes like this:  if you want someone to donate $1, first ask for $2.  Then, after a pause, when you say you have a lower level of participation ($1), you are likely to get it.

Here, when the client is shown the big discount, it looks like they are getting a good deal with the much lower proposed fee.  What needs to be asked is how many clients this advisor has paying the "Standard Fee."  I would be willing to bet he has nobody paying 2.90% and 2.70%, etc.

At 0.98% of $13 million, the fee for 12 months would amount to $127,000 FOR THE FIRST YEAR!
The next question to put to the advisor would be who gets what?  My guess would be that the investment managers would get approximately 0.60% and the advisor/asset gatherer would get a cool 0.38%.

The rest of the proposal is just as laughable (or sad, depending on how you are looking at it).  The asset allocation is based on an 8-question allocation questionnaire.  The end result is 2 asset categories specified to 2 decimal places.  To the uninitiated, it looks very scientific.

But none of the questions asks about her goal for the funds.  In a short conversation with me, she indicated she intended a chunk of the funds was earmarked to go to heirs.  Did the advisor explain to her that her heirs have a considerably longer investment horizon and, therefore, assets intended for them should be invested in other than municipal bonds (especially given the 0.98% investment fee)!