When investors ask me to review their company’s 401(k) investment options, I can’t get over the lack of bond fund choices offered by the plans. More times than not, the choice is between a bond fund with a maturity too many years out for my comfort level, and one with credit risk that is far too high. Unfortunately the retirement plan advisors that put these plans together are more interested in conformity than coming up with a formidable bond lineup for participants. According to a study released in October from BrightScope Inc., the PIMCO Total Return Fund was the most popular bond fund … [Read more...]
Up 30% with GNMA
You’re right to be concerned about higher interest rates and a decline in bond prices. Yet it would be a shame to miss the boat on the wonderful returns coming from bond funds with short-term maturities. The Vanguard GNMA fund, for example, with an average maturity of less than two years, has returned 7.6% YTD. For income investors, GNMA provides a relatively attractive yield of 3.27% compared to other short-term bonds like Treasuries. The Vanguard Short-Term Treasury, for example, yields only 0.30%. And compared to stocks, the Vanguard GNMA fund was up 7.2% in 2008 while the S&P 500 … [Read more...]
A Must-Have MLP Fund
You don’t want to miss the boat on master limited partnerships (MLPs) especially now that the asset class is receiving more press. A recent Wall Street Journal piece by Tom Lauricella and Carolyn Cui, “Frenzy in Energy Partnerships,” shed more light on the relatively unknown natural resource pipeline market, which has been attracting billions of dollars owing to its attractive 6%–7% yield. In fact, as the article points out, through the beginning of this month, MLPs rallied 15% on the year and 11% per year over the past 10—as measured by the industry benchmark, the Alerian MLP Index—for … [Read more...]
An Investment Strategy Guaranteed to Win
In investing there is only one variable that an investor can control, and that is cost. Cost is vital to your long-term investment success. Lower costs necessarily result in higher returns. There is no disputing this fact. As an example, take two funds with the same gross return, Fund A and Fund B. Fund A has a 1% expense ratio and Fund B has a 2% expense ratio. After fees are deducted, Fund A will return 1% more than Fund B. Anybody capable of basic arithmetic should be able to figure this out. Yet, millions haven’t. The mutual fund industry is jam-packed with high-expense-ratio-load funds … [Read more...]
Vanguard CEO’s Biggest Worry
You can probably count on one hand the people you trust to give you sound investment advice. For a number of reasons, talking about money even with them isn’t always the easiest thing to do, and often it’s worse than talking about religion and politics. Trust is paramount. Two companies that have gained the trust of individual investors are Vanguard and Fidelity (disclosure: Richard C. Young & Co., Ltd., invests in some Vanguard funds and uses Fidelity as a custodian for client accounts). Billions of dollars have poured into both firms while less desirable firms have dealt with net … [Read more...]
Stop Losing Money in ETFs
You may be thinking about using fixed-income ETFs to fill out your portfolio. Don’t. I continue to avoid fixed-income ETFs, as should you. The low liquidity of many bonds creates wide discount/premium gaps between the price and the net asset value (NAV) of the funds. If you buy the fund at a premium, you’re whacking yourself with a notional loss right out of the gate. For quick proof, take a look at my chart of the iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD). The top part of the chart shows the price and net asset value (NAV) of the fund. If you buy the fund when the price is … [Read more...]
Earn Safe Profits from Takeover Candidates
There are two strategies that can be used to profit from takeover candidates. Most investors are familiar with the strategy of investing in speculative takeover candidates. Buying takeover candidates just prior to a merger announcement can be highly rewarding. Returns of 30–50% in a matter of weeks are possible, but there is also significant risk. If not done with discipline, investing in prospective takeover candidates can be a perilous strategy. To safely profit from takeover candidates, you want to buy companies that are the target of a publicly announced merger. This is called merger … [Read more...]
90 Million Emotions Wreak Havoc
With the market in a correction and off 10% this quarter, emotions are running high. I want you to take a minute this weekend and get your bearings. Clear your head of the emotions that hinder sound analysis and get yourself on the road to the investment success you deserve. A lesson worth remembering is that, without fail, investors tend to miss out on the market’s biggest gains, getting sucked in when the big money has already been made, and suffering from its biggest losses. I know this from studying money flows, and in part thanks to the 2010 edition of the Investment Company … [Read more...]
A Strategy for Picking ETFs
Since the first ETF was launched in 1993, assets under management have increased to $830 billion as of April 30, 2010. Over the last 10 years the compound annual rate of growth in ETF assets has exceeded 30%. The remarkable success of ETFs is grounded in their many advantages over actively managed open-end mutual funds. ETFs offer intraday liquidity; open-end funds can only be purchased once per day at the closing price. ETFs disclose their entire portfolio daily; open-end funds are only required to disclose their portfolios semi-annually. Through the use of in-kind transfers, ETFs are able to … [Read more...]
Emerging Market Stocks Up Over 110%
Emerging market stocks are up over 110% since hitting lows in March of last year. Net flows into foreign stock funds, much of it into emerging market funds, have been positive for 11 months in a row while U.S. stock funds have seen outflows in six of the last seven months. Those investors liquidating U.S. stocks and piling into emerging market stocks could be disappointed over coming quarters. Our relative strength chart shows that emerging market stocks have a very toppy look vs. U.S. stocks. Individual country and issue selection in emerging markets is now more important than ever. … [Read more...]