The Four Horsemen of Your Portfolio

The Four Horsemen of Your Portfolio

By Larry Swedroe A common axiom is that those who fail to plan, plan to fail. And while most people would never start a business without a business plan, many investors manage their money without an investment plan that identifies their ability, willingness and need to take risk, sets goals (such as the rate of return they require their portfolio to generate), and includes an asset allocation and rebalancing table to provide discipline. Compounding the problem of a failure to plan is that even a well-thought-out investment plan is only a necessary condition for success, not a sufficient one. Even the “perfect” investment plan can fail for reasons that have nothing to do with its investment results. Examples of how plans can fail for noninvestment reasons include the premature death of a family’s main income earner combined with insufficient life insurance, forced early retirement, the lack of sufficient personal liability insurance (such as an umbrella policy), poor estate planning (such as neglecting to keep beneficiary designations updated), the lack of appropriate medical insurance (such as long-term care coverage) and even living longer than expected. This is why the right approach is to create a fully integrated estate, tax and risk management plan. These issues have always existed. However, today’s investors, whether they’re planning for retirement or already in the withdrawal phase, face four hurdles that their predecessors didn’t. If these hurdles aren’t planned for, the odds of ending up without sufficient assets to maintain a desired—let alone a minimally acceptable—standard of living can greatly increase. In Biblical tradition, the Four Horsemen of the Apocalypse are a quartet of immensely...
Fixed Income Quick Take: In-State vs. Out-of-State Bonds

Fixed Income Quick Take: In-State vs. Out-of-State Bonds

By Steve Wiechel In-state or out-of-state municipal bonds? Fixed Income Advisor Steve Wiechel explains how the fixed income desk determines which is best for each individual client. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. © 2017, The BAM ALLIANCE View the original...
A Long-Term Perspective on the Stock Market Downturn

A Long-Term Perspective on the Stock Market Downturn

By Jared Kizer Prior to Feb. 2, 2018, the stock market had been through a remarkably tranquil period. Since that date, the U.S. stock market has experienced multiple days with drops of 2 percent or more in a short period of time. Here, though, we will focus on the long-term investing concepts investors should keep in mind, as well as historical context for market moves of this magnitude. Short-Term Forecasting Markets are notoriously difficult to forecast over any horizon, and this difficulty is only amplified over shorter periods of time. Nevertheless, this won’t stop some market “professionals” from trying. Investors would be wise to ignore these forecasts in their own decision-making. Yes, markets are currently extremely volatile, but that volatility might not continue, and no one can reliably know whether stocks will move up or down from here. In fact, no one can even clearly know what caused the drop over the last week. Some commentary we have seen points to inflationary concerns, while other pundits blame anxiety around the U.S. budgetary process. Still others believe the market is concerned the Federal Reserve may raise interest rates too quickly. Who’s to say which, if any, of those explanations are correct, much less what that implies going forward. What we do know, though, is that over the long term, investors can expect to be rewarded for investing in a low-cost, diversified portfolio of stock funds. The recent past shows us just how wrong consensus, short-term forecasts can be. Two recent examples are the post-financial-crisis prediction of higher interest rates and the expectation that the stock market would decline following the...
Rising Interest Rates and the Impact on Bond Portfolios

Rising Interest Rates and the Impact on Bond Portfolios

By Larry Swedroe As director of research for Buckingham Strategic Wealth and The BAM Alliance, one of the most-asked questions I’ve been getting lately involves bond portfolios and the impact of rising interest rates. It’s not as if investors didn’t already have enough to worry about with U.S. equity valuations at historically very high levels (the CAPE 10 ratio is above 34 as I write this), a dysfunctional Congress (that led to a brief government shutdown) and plenty of geopolitical risks (such as North Korea and the Middle East). Now investors have to worry about rising interest rates, and the impact they could have on their bond holdings. Among those sounding a warning was highly regarded Wharton professor Jeremy Siegel, who in late 2016 called bonds “dangerous.” On Jan. 9, 2018, the “bond king,” Bill Gross, declared a bond bear market was confirmed. Also on Jan. 9, 2018, highly regarded bond investor Jeffrey Gundlach of DoubleLine Capital warned in a conference call that if the 10-year yield reaches 2.63%, it will then accelerate higher, “spooking” equity markets. As I write this, the 10-year yield is 2.66%. Finally, on Jan. 24, 2018, hedge fund manager Ray Dalio said that the bond market has slipped into a bear phase, warning that a rise in yields could trigger the biggest crisis for fixed-income investors in nearly 40 years. So what, if anything, should investors be doing about the rising risks in their bond portfolios? Information Vs. Knowledge Perhaps the most important thing to do is to not confuse knowledge with value-added information. In investing, there is a major difference between information and knowledge. Information is a fact, data...
Expect Volatility

Expect Volatility

By Sue Stevens The past two years have seen an unusually low level of volatility in the stock market. That can lead to complacency. Last week, we started to see bigger “air pockets” emerge, which can be jolting to your system. To put Friday’s market drop in perspective, the Dow fell about 2.5 percent. It was down 4.1 percent last week. Monday saw an additional 4.4 percent drop for a total of 8.5 percent down within a week. A 10 percent drop is normal. We’re just out of practice. Don’t let the media throw you off balance. So What Happened? The jobs report came out and showed more people are working. That sounds good, right? But some people read that to mean that the Fed will “tighten” more quickly — or raise interest rates more often. The prediction is that it will do so four times this year. We already knew that. It’s basically a sign of an improving economy. No real problem there. But that can mean inflation can be on the move, too. It’s not a problem now. And most projections show it picks up, but not dramatically so. Bond interest is rising as well. Again, that was expected. Last week the 10-year Treasury jumped to paying 2.85 percent. This week, we’re back closer to 2.6 percent. We’ve been waiting for it to rise above 2 percent for quite a while. Economists predict it may hit 3 percent by year-end. 4 percent is more of a historical level, but 3 percent is more likely in this environment for some time. What Should You Do? Right now, do...
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