Category Archives: Asset Allocation

How do you know Gold is in a bubble? Gold Vending Machines!

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My Comments: In Germany you can now buy gold out of vending machines in the subway.  Gold is a funny asset that many people believe is the only real hedge against inflation.  The problem is you will always need willing buyers and sellers and during panics it usually goes up and during periods of normalcy everyone forgets about it.  It is the wrong asset to buy and hold for decades, but can provide some diversification benefits during periods of uncertainty.

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Filed under Asset Allocation, Commodity Prices, Economy, Humor, Inflation, Personal Finance, Stock Market

Bullish Investors Maybe Wrong or Premature

My Comment: As market observers we have to wonder how much of the jobless losses is factored into the economic data that is coming out.  I saw a statistic that for every 6-10 jobs lost adds up to one more foreclosure.  Also, the recently announced car dealership closings will have a serious negative impact on the jobs numbers.  It feels like the “crisis” may be over, but the economic pain may have a ways to go.  We may be in for a long recovery, if measured by jobs, home prices or wages.

Krugman Says Bulls Have It All Wrong

 By: Dan Weil

 

Nobel laureate economist Paul Krugman says financial markets have overestimated economic strength in their recent rallies. Continue reading

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Filed under Asset Allocation, Credit Crisis, Economy, Personal Finance, Stock Market

Will municipal bond buyers rotate into stocks?

2009 muni vs sp

The recent run-up in stocks have some investors wondering if municipal bond buyers rotate into stocks.  On balance, I don’t think so.  Granted, some investors used muni bonds as a “safe haven” while the stock markets declined, however, most muni bond buyers are long term buyers.  Munis remain attractive for the following reasons:

  • Personal income tax rate outlook (Taxes are going up)

  • Perceived level of safety (Lower volatility than stocks)

  • Competitive tax equivalent yields

  • Not as interest rate sensitive as some other types of bonds

  • Historically low default rates

  • Demographic reasons

Chart Source: www.bloomberg.com

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Filed under Asset Allocation, Death and Taxes, Personal Finance, Stock Market

Conventional wisdom is wrong: T-bills beat stocks over the last 40 years

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My Comment: The popularity of 401(k) and other retirement savings vehicle has skyrocketed over the last 20 years.  Society shifted to a stock focused retirement strategy (away from pension plans).  We are living through the problem with that strategy, volatile stock prices and dismal returns.  This puts in jeopardy people’s retirement and savings plans.  If individuals are going to be responsible for their own retirement planning should the financial education be more widely available and even required in high school or college.  It’s like giving everyone a loaded gun without any safety or shooting training. 

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Filed under Asset Allocation, Economy, Personal Finance, Stock Market

Insight into today’s Consumer Sentiment reading

consumer-sentiment

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Filed under Asset Allocation, Credit Crisis, Dividends, Economy, Personal Finance, Stock Market, Stock Picks

Target date asset allocation funds miss the mark!

 

In theory I have always been excited about target date asset allocation funds because I have seen the bizarre and down right scary portfolios individual investors have constructed.  I get asked by inexperienced investors how they should allocate their retirement accounts and usually start with telling them to take a look at target date funds.

 

However, I was wrong.  This bear market has shown these funds to be disappointments. Target date funds providers are cheating!  Shorter target date funds are much too heavily invested in stocks.  For example, those retiring in 2010, which is about a 1 year time horizon have anywhere for 59% to 48% percent of their portfolio in stocks.   Why would these fund families allocate so much to stocks?  Mutual fund shops sell performance numbers and the marketers realize in bull markets you get better performance numbers by investing in stocks compared to boring old bonds.  As a group, target date fund providers invest too much in stocks because they need competitive performance numbers. Without strong performance numbers what will those NFL halftime commercials of the guy rowing a boat, riding a bike or climbing a mountain have to tell you about how their funds?

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Filed under Asset Allocation, Investment Ideas, Personal Finance, Stock Market, Stock Picks