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.

Monday, January 11, 2016

Target Date Funds Comparison

Here is a nice article on Target-Date Funds by John Presto at MarketWatchOpinion:  Target-date retirement funds may miss the mark for investors.

This is the type of article that is mostly not read by investors who need to read it because, by definition, most target date Fund investors are in these types of Funds because they don't want to make their own decisions on which Funds to buy and how to allocate their overall assets.

The article emphasizes the important points to consider.  First, you want to ascertain that index funds, as opposed to actively managed funds, are used.  Secondly, you want to understand the asset allocation, i..e., the percentage in stocks and bonds.  Is 87.1% or 89.5% the right percentage to be invested in stocks?  Only Dr. Who knows; and he is in a cave at an undetermined location--so forget trying to figure that out.  And thirdly, you want an idea of the "glide path," that is, how the Fund becomes more conservative over time.
You do however, want the Fund to have a decent "glide path."  Moving through the years from being 30 years from retirement to retirement should result in a substantive increase in bonds and a consequent reduction in equities.  The table in the article showing only a slight equity exposure reduction for the Fidelity Fund was puzzling.

Another consideration is the risk tolerance of young people.  In an ideal world, young people should be aggressively invested, contribute on a regular basis at least 12% of gross income, and ignore the market value of their Funds as well as financial news.  Financial news, like news in general, is biased to be negative and will cause some younger people to stress out over the ups and downs of their portfolio as well as the potential for such based on pundits' assessments of financial events.  Young investors can easily dampen the volatility by utilizing a money fund in conjunction with the target-date Fund or choosing a Fund 10 years prior to their retirement date.

The bottom line on target-date funds is that they are better than investing in money funds, as the article points out.  Also, they have in this regard been a positive, in that they are the right vehicle to opt employees into the company 401(k). There also can be some exploitation of investors by adding Funds that a Fund provider is trying to build up in terms of assets under management, and they are a bit more expensive compared to constructing the same basic allocation with the lowest cost index Funds.

Sunday, January 3, 2016

Estimated 2015 Performance of BlackRock Diversified Portfolio

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 12/31/2014.

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 estimated performance of the diversified portfolio's sectors for the 12 months ended 12/31/2015.  Overall, the portfolio returned approximately -.03%. This was a year pundits labeled "violently flat."  Although there were big up and down moves, well-diversified portfolios tended to be unchanged.

For the 12-month period, sector performance was mixed with small growth stocks doing best, followed by the investment grade bond market which eked out a small gain.  Small cap value stocks did especially poorly.  Commodities, including oil, had an especially horrendous year and were responsible for weighing down the broad averages.

Weight (%)
Return (%) 12 months ended 12/31/2015
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.