You have more opportunities for success today with your 401(k) than ever before. The reason why is that more and more plans are offering a managed account option. A managed account is one for which you can hire a professional to do the investing for you. No more worrying about what funds to buy or getting hit by big mistakes. The biggest mistake I see is that too many young professionals have their 401(k) invested in their company stock. I like the confidence—I realize it’s hard to diversify (sell company stock) when you believe in your company—you should believe in your company. But … [Read more...]
How Much can you Lose in the Stock Market?
If your portfolio isn't properly diversified, the answer is a lot, but even if you craft a diversified equity portfolio your losses can be substantial. How substantial? Most would agree than an S&P 500 index fund qualifies as a diversified portfolio, so let’s look at the maximum losses sustained on an investment in the S&P 500. In the chart below, I show the drawdowns of the S&P 500 (not counting dividends) over the last 65 years. Drawdown sounds a bit jargony for a Friday. What does it mean? A drawdown is simply the maximum loss on a portfolio or an index from the prior … [Read more...]
Ski the Light
Have you ever skied at night? The guys over at Sweetgrass productions have. They did it to promote Phillips Ambilight TV. As you will see, the snowflakes glow in the dark. Isn't it amazing how every snowflake is different? You may have had this conversation before with a friend or loved one sitting on a chairlift folded into yourself for warmth. It hits home when you're staring at each unique crystal land on your gloves and melt. Then you look up and all you see is the same color of white blowing across the mountain. The art that is each tiny little snowflake is hard to comprehend. As … [Read more...]
Wisdom from a Market Veteran
Below are some excerpts from a speech that Bob Rodriguez, the CEO of First Pacific Advisors gave at a recent CFA event. Rodriguez isn’t a household name like Warren Buffet, but he achieved one of the most successful mutual fund records in history. Rodriguez managed the FPA Capital fund from 1984 until 2009. During this period, FPA Capital outperformed various measures of stock market performance by 400 to 600 basis points and was the #1 diversified equity fund for that period. Rodriguez takes a more concentrated approach than is appropriate for many investors, but his insights on investing … [Read more...]
Year-End Market Update
I was on the phone with a client Wednesday morning when another line lit up indicating someone was being buzzed into my office from the locked foyer area. I was surprised not only to have a visitor but to see that it was my mother. She and my dad just got back from a trip to Europe and I wasn’t expecting to see them until Thanksgiving, which we’ll spend up in the White Mountains of New Hampshire. She was in town for an appointment and stopped by afterwards and we grabbed some coffee at Starbucks. If you’ve ever been inside our Newport office then you’ll know what my mom is talking about when … [Read more...]
Free Lunch Alert
The Wall Street Journal did a piece on troubled stockbrokers this week. It shows how certain areas of the country are loaded with brokers that prey on the elderly. They offer a free lunch or dinner followed by a high pressured sales pitch. Most often these charlatans are pushing annuities. A couple I know were hounded for months following the dinner they attended. They also had to endure a follow-up meeting at their home. The stockbrokers in my example were friendly and seemed nice to my friends. They mailed me the stockbrokers' proposal. After I dissected the 1,000 page prospectus, I let … [Read more...]
Where Not to Die
Here you get the picture for estate and inheritance taxes: … [Read more...]
How Long Can Your Nest Egg Last?
I clicked through this lifespan calculator offered by Northwestern Mutual. Just click here to calculate your lifespan. Drawing down 1% per quarter (4% annually) from a portfolio is a good way to help avoid outliving one's money. Take a look at the chart below to see the effects a lower withdrawal rate will have on the lifespan of your savings. A $10,000 investment in 1945 would have lasted 54 years at a 4% annual withdrawal rate, but an 8% annual withdrawal rate would have burned through the nest egg in a mere 16 years. That's not enough for today's retirees who are living longer and … [Read more...]
Do This to Avoid Catastrophic Portfolio Losses
If you are retired or soon to be retired, you know firsthand how the stress of managing money rises as retirement becomes a reality. Time, once your closest ally is now a nagging foe. The security blanket of steady wage income to get you through down markets is gone. Your primary source of income in retirement is your portfolio. If you suffer a catastrophic portfolio loss, you don’t just lose money, you lose your livelihood. The prospect of suffering a catastrophic loss can be nerve-racking. Every stock market correction is met with fear and angst. Is this the big one? Should I pull my … [Read more...]
Market Collapse: Last Mango in Paris
“If the phone doesn’t ring it’s me” -- Jimmy Buffett Are we having fun yet? Since peaking at 17,279.74 on September 19, the Dow Jones Industrial Average Index has lost 6.6% of its value. If you haven’t been investing very long, this is what it’s supposed to feel like. During bull markets it’s easy to say “I’m a contrarian” or “I’m in it for the long-term.” It’s harder to actually do. I manage investments for successful Americans like you— the real people—for a living. You may be surprised to hear this, but my phone hasn’t been ringing a lot over the last couple of weeks. I’ve spent many … [Read more...]
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