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.

Tuesday, February 24, 2015

FeeX - Understand Account Fees and How to Lower Them

I've hammered home again and again the importance of investment fees and how to lower them.  Now there is a free service, FeeX, that will analyze your accounts, identify the fees, and advise on how to lower them.

An overview of the service is provided by investorjunkie:  FeeX Review - An Investment Fee Reducer.

As explained in the overview, the service is still free, requires you linking them with your accounts, and examines the following fees:
  • Mutual fund expense ratios, which are present even on no-load funds
  • Exchange traded funds (ETF’s) expense ratios (even though they’re typically lower than what mutual funds charge)
  • Advisory fees (can be between 1.0% to 1.5% of an entire account balance)
  • Wrap fees
  • Sales loads
  • Redemption fees
  • Transaction fees
  • Account maintenance fees 
It also grades your fee structure versus similar investors.  The final step is to suggest ways to lower your fees.

A lot of this, of course, can be done yourself.  You can research the all-important yearly expense ratios, sales loads, and advisory fees.  As the article points out, paying 2% of assets per year reduces a retirement nest egg significantly.

Thursday, February 19, 2015

Getting to a Low-Cost Index Fund Strategy

Did you ever hear the old joke about the Maine farmer who was standing in his field when a car pulled up and asked if he knew how to get to a certain town.  He squinted, furrowed his brow, pursed his lip,s and then came out in his Maine accent with, "You know, I don't think you can get there from here."

That's how I feel sometimes when I meet with new clients.  We go over the principles underlying low-cost well-diversified index investing.  We cover the thinking behind different asset allocation models and the importance of sticking with an asset allocation strategy through the ups and downs of the market.

Then we look at their investments.  More times than not they include several bank accounts, multiple 401(k)s, IRAs and taxable accounts.  The taxable accounts include inherited stock, and they look at me quizzically when I ask about cost basis.

The Funds they hold include front load, back load, and everything in between.  Some hold private collective funds on which it is difficult to understand the management fees.

The bottom line is we need to go from a smorgasbord of investment vehicles to a well-structured basic asset allocation comprised of low-cost index funds.  Sometimes I feel like the Maine farmer.

But usually it is best to proceed slowly.  Take one account at a time.  Know exactly where you are headed and take baby steps if necessary.  Understand each investment.  If it's a taxable account, look at capital gains - are they long term or short term?  Look at the Funds - are they load Funds?  Does it make sense to hold for a while to lessen the deferred charge?

If moving accounts to a new broker, can the Funds be moved "in kind"?  If not, how will your overall asset allocation look over the transition period?

Sometimes it pays to have an advisor take over during this set-up period.  An advisor knows how to get from where you are to where you want to go on a tax-efficient basis.  In many instances, once the account is finally set up so that the asset allocation is clearly understood and assets are invested in low-cost index funds, the advisor can bow out and the client take over.

Saturday, February 14, 2015

An Important Read

The best book I've read so far this year is Being Mortal by Atul Gawande.  The book is an easy read but isn't an easy read.  How so? Well, it is very well written and filled with anecdotes and real world cases.  Thus, most readers will breeze through in a fairly short period of time.  Where it is not an easy read is that it deals with a subject matter most people find unpleasant, to put it mildly.

Being Mortal is about the shortcomings of the medical profession in dealing with end-of-life situations.  Many times, terminally ill patients aren't given all the choices and trade-offs.  Sometimes people may prefer to forego chemo, multiple medicines, and other drastic measures to prolong life if they can get a much higher quality of life for a shorter period of time. Understanding the trade-offs is important.  Doctors are trained to prolong life as long as possible and, thus, don't always consider the wishes of the patient in terms of quality of life, goals, etc.

As I say, this isn't a pleasant topic; but, for many, it is valuable information which will change their perspective when dealing with this subject.  It is important for individuals as they themselves age but also in the all-important and difficult role of caregiver.  By the end of the book, you will have some important guidance on how to converse with a person who has been given the terrible news that they are terminally ill.

I understand that this goes a bit afield from the overall investment program; but, from a life-planning viewpoint, it is very valuable information for at least someone in every family to have.

Friday, February 13, 2015

Are Men or Women Better Investors?

Here's a cute piece on data from SigFig which aggregated and anonymized (whatever that means!) 2.5 MILLION PORTFOLIOS  "Is your Valentine a better stock picker than you?" by Eric Cheni.
Total assets amounted to $350 billion, and the bottom line was women had a return of 4.7% and men had a return of 4.1%. The finding that women tend to perform better as investors is fairly consistent because they trade less and generally are more patient. Plus they don't have an exaggerated opinion of their investment prowess!

But what about the most patient, non-stock-picking approach of all?  Pull out again the BlackRock chart and find that, in 2014, the Diversified Portfolio achieved a return of 8.1%!  This portfolio is 35% Barclay's Aggregate Bond Index, 10% MSCI EAFE Index, 10% Russel 2000 Index, 22.5% Russell 1000 Growth Index, and 22.5% Russell 1000 Value Index.  This portfolio is easily replicated.  In fact, it could have been set up on 1/1/2014 and you could have enjoyed the rest of year leaving the stock picking and market timing to those with the big egos!

Saturday, February 7, 2015

Updated BlackRock "Asset Class Returns"

Source: Capital Pixel
updated "BlackRock Asset Class Returns"

two-page chart is out.  This is my favorite investment chart.  It shows 20 years of investment returns for 7 different, color-coded, asset classes including fixed income, international stocks, cash, and various stock sectors.  Most importantly, it shows a diversified portfolio comprised essentially of 65% stock and 36% fixed income and cash.  The actual composition is given in the very last footnote of page 1.

It cuts through all the nonsense and shows vividly that diversification reduces volatility.  It also shows that chasing the hottest sector can be damaging.  Consider, for example, 1998 and 1999 where Large Cap Growth was at the top of the column.  If you would have run into someone claiming that they were hitting the ball in the upper deck with their Large Cap Growth Fund, you would probably have been sorely disappointed in 2000, 2001, 2002 as this sector was near, or at, the very bottom.

Page 2 shows line graphs of each sector over the 20 years.  As you look at this roller coaster experience, recall 9/11, the bust, and last (but not least) the 2008 housing crisis.  While you are at it, you can recall the ongoing geopolitical problems as well as the periods where it looked like even the U.S. government was on the verge of breaking down.  As you recall all the reasons for grabbing your wallet and seeking a fast exit, grab your smart phone, your laptop, and even your iPad.  You didn't have these 20 years ago.  For that matter, you couldn't get a genome sequencing.

The bottom line is that the constant preaching of stalwarts like Warren Buffett, John Bogle, and Burton Malkiel to ignore the noise and get an asset allocation paid off.  As shown on page 2, the diversified portfolio turned $100,000 into $531,326.  The average investor over this period did considerably worse - especially those trying to pick stocks and/or time the market.  This includes the parade of pontificators on CNBC, mutual fund managers and even the largest college endowments in the country.

I like to track the BlackRock diversified portfolio and

estimated the 2014 return

on New Year's Day at 7.96%.  As shown on the chart, it was 8.1%--so I was off by only.14%.