Investments

Portfolio construction begins with the most basic allocation between investments that offer a greater chance of appreciation (stocks) and those that provide portfolio stability (bonds). There is no such thing as a safe investment that pays market rates of return.

Emerging market bonds are an attractive way to get a higher yield, but historically they have come with higher volatility and a high incidence of default. But that has been changing.

David John Marotta was interview on radio 1070 WINA’s Schilling Show discussing why you shouldn’t hold gold or cash, how governments can destabalize economies, and what investments you should hold instead.

Huge financial incentives motivate a newly minted public stock to attempt to keep their best foot forward just long enough for the early investors to maximize their profits.

I was on the radio today and someone called in claiming that Vanguard Emerging Market ETF (VWO) had done nothing but go down in value.

Precious metals will, on average, just keep up with inflation, but your after tax return would mean you fell behind inflation by the 28% tax you must pay.

When growth is relatively cheap it should outperform value.

Currently large is relatively cheap and small cap is relatively expensive. For that reason, the R1000 or S&P 500 should outperform the R2000 small cap.

A low P/E 10 bodes well for the next 20 years of investing, whereas a higher P/E 10 suggests a lower expected return.

The Shiller P/E ratio is computed by taking the current price and dividing by the average inflation-adjusted earnings from the previous 10 years.

The highest peak for the regular P/E was 123 in the first quarter of 2009. It was much higher than the historical mean of 15, yet it was the best time in recent history to buy stocks.

What we would really like to measure are the changes in price (P) that cause a company with a good long-term track record to look relatively cheap. Economist Robert Shiller created just such a measurement.

The Marotta allocation method is a proportionally weighted allocation based on the square of each Sharpe ratio. Squaring the Sharpe ratio drastically reduces asset categories in proportion to their distance from the efficient frontier.

Q: Do you recommend dividend-paying stocks? If not, what investment strategy do you recommend for retirees like me who are seeking income from our portfolios?

Crafting portfolio asset allocations is a combination of art and engineering. Just as a blending of colors can produce cerulean, so a blending of indexes produces a unique shade of risk and return.

Dividend investors are too easily lulled into the temporary comforts of portfolio income.

Starting in 2013, pending further legislation, the capital gains tax will go up to 20%.

The efficient frontier measures all investments on a scale of risk and return. Risk is commonly placed on the x-axis, and return is placed on the y-axis.

Buffett estimates that he has a 60% chance of winning. This is in line with statistics suggesting that low cost funds beat high cost funds more than half the time.

The qualified dividend tax rate is currently at a maximum of 15%, as are capital gains. Starting January 1, 2013, dividend tax rates will go up to the investor’s ordinary income rate.

A stock’s valuation is measured on a continuum from “value” to “growth” In broad strokes, value stocks are cheap and growth stocks are expensive.

The second factor of investing is size as measured by a stock’s total capitalization. Over time small cap will outperform large cap even after factoring out measurements of volatility.

Modeling investment returns seeks to find an equation to predict your expected returns as much as possible. The simplest equation for the markets would be “Return equals 11.71%.” This has been the average return from 1927 through 2010, the zero factor model.

Once you buy this product, you’re stuck. All structured settlement transfers must take place through a court order…

Now at year end, I will review how freedom investing fared in 2011 and in the decade since 2002.

I had a dream in which I saw a map similar to the one above and I heard myself explaining why 2011 was not a financial mulligan

Much of the recent conversation about ETFs has to do with the hidden risks of “synthetic ETFs,” risks which are not present in their mundane relatives known as “physical ETFs.”

We compute an asset allocation deviation or “out of balance” number for each household’s primary retirement assets and rebalance to lower this number.

“Successful active management is a fantasy stoked by the financial services industry.”

Q: I am a 65-year-old retired widow and I have a large IRA. How should I invest if I don’t need this money?

“Many investors think active managers can shift out of stocks in time to stem losses in bear markets. Not true.”

The world markets groaned as the burden of the rising American debt and the European deficit weighed down more productive countries.

Learn about the index preferred by the person who invented index funds with the Vanguard S&P 500. And no, it isn’t the S&P 500.

“A blindfolded chimpanzee throwing darts at The Wall Street Journal can select a portfolio that can do just as well as the experts.”

“One of an advisor’s greatest challenges? Directing client expectations – and meeting them with portfolio performance.”

When Gordon Murphy, an investment banking veteran, was told he only had six months to live, he decided to use his last days to write a book aimed at changing the way most individual investors think about investing.

“Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.”

Q: I would like to see a portion of my investments make a difference in the world. Can you suggest an approach to socially responsible investing?

New rules go into effect January 1, 2012 which change the way you need to compute the cost basis for mutual funds if you use average cost accounting. We recommend you change the method you use to something which allows better tax management.

In the midst of this turmoil, especially after this past summer’s sharp drop, many investors wonder if they should put all of their investments into something safe and avoid the markets altogether.

Although the house does not pay me any money on an ongoing basis, I think it will represent a very good return on my money invested should I decide to sell.

Just because something costs a lot doesn’t mean it is an investment. An investment is something that pays you money.

Q: Is it now time to short Treasuries? What do you think about using inverse ETFs to play the inevitable bear market for U.S. bonds?

There are four minor advantages to using exchange traded funds instead of mutual funds.

Investors in this year’s fund IPOs should be protesting. Investors who got suckered by brokers have been massacred by fees and poor performance. Their total losses — hard to believe — total about $1 billion.

Q: I just hit the big 5-0, and my retirement date is now in the foreseeable future. How do you suggest I assess the performance of my 401(k) and investment accounts? Do you have any benchmark recommendations? I would like … Read More

I’m in my 20s and I’m just getting started in the working world. I’m also looking at a Roth IRA. Is there a certain Roth you recommend?

I’m in my 20s and I’m just getting started in the working world. Which of the attached 401(k) investment choices do you recommend?

I’m in my 20s and I’m just getting started in the working world. I would love to start funding my Roth and 401(k), but I have no idea where to begin!

What advice do you have for someone who is considering a strategy shift toward fixed income?