Category Archives: Financial Advisors

The Challenge of Long-Term Income: Part II

In Part I of this article, I explained why I have issues with the traditional idea that individuals should provide for their required level of retirement income (beyond what is provided by Social Security and any pensions) entirely with assets with zero risk of loss of principal (e.g. Treasury bonds).  In Part II, I discuss the alternative approaches.

There are two investments that have zero loss of principal: traditional Treasury bonds and Treasury Inflation-Protected Securities (TIPS), which are Treasury bonds with embedded protection against inflation.

I agree with the notion that people need to save and invest so as to be able to provide a very reliable and consistent income stream in retirement.  Zvi Bodie has presented a compelling argument that investments in stocks do not become less risky as you hold them for longer periods, so that investors cannot rely on stocks as part of their required income stream.  I have performed detailed analysis of Bodie’s argument and I agree with his argument: the magnitude of loss that you can face with an equity-heavy portfolio increases the longer you hold the portfolio.  As I noted in Part I, William Bernstein has recently advocated for a portfolio in which all of your required income is provided by Treasuries and annuities, largely consistent with Bodie. Continue reading

The Challenge of Long-Term Income: Part 1

Portfolio Income: The Trouble With Treasury Bonds

The current economic environment is making it very hard for investors to generate reasonable levels of income through traditional means such as bond ladders.  While it is always dangerous to suggest that ‘it’s different this time,’ I believe that we are facing some unprecedented conditions that require new approaches.  Income-seeking investors with low risk tolerance—those who have traditionally favored government bonds—are in the most difficult situation.

The problem of low savings and investment rates in the U.S. is huge.  I have written about this in the past, along with many others.  Every study on retirement savings notes that Americans need to save more.  Having the ability to support yourself from a portfolio of savings is not, however, just about the amount that you save.  There is also the issue of how much income you can derive from each dollar in your portfolio.  Today, with historically low yields on government bonds, retirees and others seeking to live on the income from low-risk investments are faced with an enormous challenge that compounds the savings rate problem.  To be able to live on the income provided by very low-risk investments, the necessary savings rates increase dramatically relative to savings rates when investors are willing to bear some risk. Continue reading

Tax Loss Harvesting: Five Tips to Keep More of What’s Yours

Here at the Portfolioist, we frequently turn to Steve Thorpe, founder of Pragmatic Portfolios, LLC to share his insights on the topic of Tax Loss Harvesting. Here are 5 of his Tax Loss Harvesting Tips to help keep more of your money when tax time rolls around.

It’s impossible to reliably predict future changes within the investment markets, however there are numerous ways for investors to favorably influence their own results. Important areas to focus on include developing an investment plan, saving regularly, diversifying widely, adhering to an appropriate asset allocation, and paying attention to all forms of costs – including taxes. For many investors, tax loss harvesting can improve their after-tax bottom line, sometimes to the tune of thousands of dollars per year. Continue reading

Financial Products are Sold, Not Bought

Guest post by Contributing Editor, Robert P. Seawright, Chief Investment and Information Officer for Madison Avenue Securities.

Critics of the financial services industry (often with good reason) frequently remind consumers that financial products are typically “sold” rather than “bought” and implore them not to fall into that trap.  The concept here is that financial products are “sold” — pushed upon a consuming public that doesn’t understand them or perhaps even want or need them.  Instead, the alleged basis for their continued vibrancy and ongoing sales is that advisors get paid big bucks to sell them. Continue reading

The Power of Effective Diversification: Part II

Last week, I posted an article discussing how diversification is one of the most misunderstood concepts in investing. In today’s post I continue with the second half of this two-part series titled, “The Power of Effective Diversification.”

In Part I of this article, I discussed the difference between naive diversification (holding lots of stuff in a portfolio) and real diversification (combining assets in a portfolio to create risk offsets).  I also showed how a well-diversified portfolio can maintain the ability to participate in market rallies while still mitigating risk.  In Part II, we will explore what an effectively diversified portfolio looks like today. Continue reading

Tried and True Money Advice from Warren Buffett

Guest post by Contributing Editor, Janet Al-Saad, Mint.com.

When it comes to financial wisdom, few people merit as much attention as Warren Buffett. The man renowned as the “Sage of Omaha” built a billion-dollar empire from scratch, all the while maintaining modest spending habits that are the envy of every frugal person everywhere. Liz Claman of the Fox Business Network spoke with Buffett recently, and shares some of his wisdom with Mint Life: Continue reading

Sector Watch: Low-Beta Stocks

Financial theory suggests that risk and return go hand-in-hand:

Small company stocks tend to be riskier and outperform large company stocks. Long-term bonds tend to be riskier and outperform short-term bonds. Corporate bonds tend to be riskier than Treasury bonds (with comparable terms) and outperform Treasuries over time.

However, there is one group of stocks that has consistently defied this risk/return relationship: Low-beta stocks. A low-beta strategy involves selecting stocks that have a lower-than-average beta value. (Beta is a measure of the stocks’ volatility and adding low-beta stocks to your portfolio can help investors build a diversified portfolio.) The good news for investors here is that Continue reading