The Investment Scientist

Archive for June 2011

[Guest Post by Christopher Guest] I have stated numerous times in my newsletters, I am not an automatic proponent of creating trusts for people. I will tailor an estate plan for a client depending on the needs of the client. However, many times creating some form of trust is necessary. The basics of trusts can be found by clicking here. One of the most important roles in the success of a trust is the trustee. Thus, making sure that the correct person is named trustee and that the trustee understands their role, responsibilities and whether a corporate trustee should also play a role in your trust is vital to ensure the settlor’s intent.

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Why Physicians Are Not Wealthy my latest contribution to KevinMD.com

How Complex Derivative Products Imperils Seniors’ Retirement Security by John Wasik

Financial Wealth – It’s Time, Not Money by Allan Roth at MoneyWatch.com

CME Pushes Managed Futures: Wealth With Little Risk by Allan Roth at MoneyWatch.com

Why the Economic Recovery is Lagging by Richard Posner

Three Reasons to Avoid Corporate Bonds by Larry Swedroe at MoneyWatch.com

Will FINRA Stop the Structure Product Insanity? by Seth Lipner at Forbes.com

Random Views on US Default by Menzie Chinn at EconoBrowser.com

Forecasting Commodity Prices by Menzie Chinn at EconoBrowser.com

[Guest post by Andrew Platou] Who qualifies as a plan’s fiduciaries? Fiduciaries are generally those individuals or entities who manage an employee benefit plan and its assets. A plan must have at least one fiduciary, a person or an entity, named in the written plan, or through a process described in the plan. The named fiduciary can be identified by office or by name. For some plans, it may be an administrative committee or a company’s board of directors. Employers often hire outside professionals, sometimes called third-party service providers, or use an internal administrative committee or human resources department to manage some or all of a plan’s day-to-day operations. Even if an employer hires third-party service providers or uses internal administrative committees to manage the plan, it still has fiduciary responsibilities. A key point to note is that fiduciary status is based on the functions the person performs for the plan, not just the person’s title. Using discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of that discretion or control.

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Recently, a high-net-worth investor came to me for my portfolio review service. What caught my attention was that a large chunk of his money was allocated to various commodities trading advisors (CTAs).

CTAs are folks who are licensed to take your money and speculate with it in the futures markets. In 2008, managed futures reportedly returned a total of 14%, beating the equity market by 50%. Since then, CTAs have been heavily promoted by major Wall Street brokerages and wealth management firms as an alternative non-correlated asset class.

But is managed futures an asset class?

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[Guest post by Jeremy Bendler] Few people realize that, even though they may have a modest estate, their families may owe hundreds of thousands of dollars in estate taxes because they own a life insurance policy with a substantial death benefit. This is so because life insurance proceeds, while not subject to federal income tax, are considered part of your taxable estate and are subject to federal estate tax.

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MZ Capital 50/50 Portfolio Model

This report shows the construct and performance of a 50/50 model portfolio.

Asset Classes and Fund Selection

There are six asset classes in this portfolio model. The asset allocation is implemented using DFA funds, as shown in the table 1. I explained why DFA funds are superior here. 

Table 1: Asset Class Funds
Asset Class Percentage Funds
US Equity 20% DFFVX – US Targeted Value Fund
International Equity 10% DISVX – International Small Cap Value Fund
Emerging Markets 10% DFEVX – Emerging Market Value Fund
REIT 10% DFREX – Real Estate Securities Fund
TIPS 25% DIPSX – Inflation-Protected Securities Fund
Treasuries 25% DFIHX – Short-Term Treasuries Fund

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

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