Monthly Archives: February 2011

Retirement: Is Consistent Saving More Important Than How Much We Withdraw?

We, and loads of others, have written about the importance of understanding safe or sustainable withdrawal rates when saving for retirement. How much will I be able to take out of my savings each year and not end up eating cat food should I be lucky enough to live to 80? Assumptions about this are key to the retirement calculators you find online, for example. The most commonly cited rule of thumb is 4%.

But what if we’ve all been worrying about the entirely wrong thing? Continue reading

Actively-Managed ETF’s Next Iteration: A Short Fund

John Del Vecchio’s new Active Bear Exchange Traded Fund, HDGE, is the opposite of what you’d expect: it’s relatively expensive in a category dominated by low-cost funds, it’s transparent in a field (shorting) that’s all about secrecy, and though it was only launched a month ago, it’s  already collected $37.7 million in assets under management.

ETFs have grown into a $1 trillion asset class largely because they’re a cheaper version of index mutual funds. But HDGE is part of a new breed of ETFs, funds that are not just passive plays on an index, but are instead actively managed, requiring expertise and research, and carrying higher fees.

Like their Index-shadowing bretheren, actively-managed ETFs trade throughout the day like any stock does, while mutual funds can only be bought and sold at the end of the day. ETFs also must list their holdings at the close of the day, unlike funds which disclose that information quarterly. That’s an especially interesting wrinkle for HDGE, given the secrecy in which shorting stocks is generally conducted. Continue reading

Retirement Solutions: Target Date Investing

Investors Have Lost Their Way

The aggregate performance numbers and evidence suggesting that most investors are holding inappropriate asset allocations foretell disaster for the investors who are relying on their 401(k) plans as the primary source of their retirement income.

There is little question that the average investor would benefit from some help in portfolio construction and maintenance.  Continue reading

Arguing with Mark Cuban on Asset Allocation

After reading Mark Cuban’s January post on his well-read “blog maverick” painting asset allocation as Wall Street hucksterism, I wondered if others had responded to his arguments. I found several interesting pieces, one that took Cuban’s tirade as a jumping off point for a discussion of the importance of understanding and believing in your allocation on My Money Blog and another on Darwin’s Money that made its point of view clear in its title: “Mark Cuban is Dead Wrong.” Continue reading

Energy Stock Investing: Interview with Argus’ Phil Weiss

Investors looking at energy stocks always have a lot to sort through. At the moment tensions in the Middle East, including over the Suez Canal (left), are top of mind. Egypt controls the Suez Canal, the route by which much of Europe’s oil is moved from the Middle East. At first there were concerns about the impact of instability following the demonstrations in Tahrir Square, today tensions between Israel and Iran have the canal top of mind. Geopolitical risk is only one factor. Environmental issues loom large for the energy industry as well. The effects of BP’s Gulf Oil spill, last year’s biggest energy story and environmental disaster, linger and likely will continue to for some time to come.

All that’s before you even start to dig into the details of any particular company’s prospects.

For insight on investing in this complicated sphere, Portfolioist caught up with Phil Weiss, a senior analyst with Argus Research. Weiss has been following the energy sector for almost five years and is ranked by both Bloomberg and the FT/StarMine survey as one of the top analysts for the sector. He’s also a Certified Public Accountant who earlier in his career worked at Deloitte & Touche, so he enjoys drilling into his company’s financial reports. Continue reading

Jim Grant’s Alternative to Muni Bonds: REITs

In a recent interview with Bloomberg (video below) bow-tie wearing linguistics lover and bond market expert Jim Grant made it quite clear he’s not a buyer of municipal bonds. Instead, he likes certain REITs specializing in the purchase of mortgage backed securities, some of which are pretty good businesses he thinks and offer yields north of 10%. Continue reading

How to Pick an Investment Advisor (Part 3): Carl Richards’ 3 Key Questions

Carl Richards may be best-known for his regular writing at the New York Times Bucks Blog, Daily Worth, and his own Behavior Gap newsletter. But Richard’s (other)  day job is running his investment advisory firm Prasada Capital.

Partly because he writes a lot about financial matters, and partly because he just gets the question all the time, Richards has thought a lot about how to find a great financial advisor. He defines a good advisor as  someone who will really help clients meet their goals. “My standard is where would I send my mom,” he explains. His term for them, the “Secret Society of Real Financial Planners,” acknowledges that these people are not easy to find. Though he knows planners “having a really positive impact” he also acknowledges that for every good egg, there are probably 10 you’d be better off avoiding. (Video of the full interview with Richards is below.) Continue reading

How to Pick an Investment Advisor

It’s a question financial experts get all the time: how should I chose an investment advisor?

The number of people offering some form of financial advice is growing fast. According to Smart Money, “the ranks financial planners, college aid advisers, mortgage brokers and more are expected to increase by 30% by 2018, to 271,200” per the Bureau of Labor Statistics.

Obviously some of those 271,000 people will be better than others. So how do you find the right advisor? Continue reading

How Much Income in Retirement?

One of the most important questions that investors need to understand is how much income they can expect to safely draw from their portfolios over a long time horizon.  This income problem is often characterized as an attempt to determine a safe or sustainable withdrawal rate (SWR).

I have written about sustainable withdrawal rates in a range of articles, as well as in detailed case studies.  While there are many variations on the theme, the most commonly discussed outcome from SWR studies is what is called the ‘4% rule,’ which states that you can safely draw an inflation-adjusted income equal to 4% of the value of your portfolio in the year of retirement.  If you retire with $1 Million, you can draw $40,000 the first year, and then increase this amount each year by 3% to keep pace with inflation.

Questioning the 4% Rule

To begin any discussion of SWRs, it is important to understand the assumptions that go into the 4% rule. Continue reading