Author Archive
Tax Planning for College
Posted on: August 23, 2011
[Guest post by Jeremy Bendler] 
It’s back to school time! Many of our clients are wondering how to properly plan for higher education expenses. If your children are younger you may be wondering how to efficiently save for college. If your children are already college age, your goal is to pay for current or imminent college bills. I’d like to address both of these concerns by suggesting several approaches that seek to take maximum advantage of tax benefits to minimize your expenses. (Please note that the following suggestions are strictly related to tax benefits. You may have non-tax-related concerns that make the suggestions inappropriate.)
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Not satisfied with its downgrading of U.S. Treasury Debt and Fannie Mae, today S&P downgraded Google’s stock from “Buy” to “Sell,” sending GOOG tumbling by 3.3%.
In case you don’t remember, yesterday Google announced that it would purchase Motorola Mobility for a whopping $12.5 billion in cash – a decision that prompted S&P’s downgrade of Google. According to S&P’s equity analyst, Scott Kessler:
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Trustee Powers
Posted on: August 13, 2011
[Guest Post by Christopher Guest] Last month, I discussed the questions a settlor, or creator of a trust, needs to ask before selecting a trustee. Once a trustee is selected, a settlor needs to determine the trustee’s powers with respect to the trust.
The trustee is charged with caring for and managing the trust property. To do this, the trustee must have the ability to control the property, and, depending on the property, the trustee can be given a vast array of powers. A few of those powers could include the power to: Read the rest of this entry »
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Harry Markowitz
The common approach to dealing with a market correction is trying to get out of the way at the first sign of trouble before the big one hits, like getting out after a 5% dip before the 30% drop hits. This approach requires perfect foresight. God can do that, not you, and certainly not a financial advisor who needs the job to make a living. (FYI, only one out of every thirty 5% dips turns into a 30% fall.)
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US Credit Downgrade: Stock Market Panics, Bond Market Thumbs Its Nose at S&P
Posted on: August 9, 2011
On the first trading day after the US credit rating was downgraded, the markets seemed to suffer from bipolar disorder.
The stock market was a bloody mess: the Dow Jones was off 634.76, its worst ever decline since the credit crisis in 2008!
The bond market, especially the treasuries market, which was supposed to take the brunt of S&P’s downgrade, responded positively. In fact, the 10-year treasuries yield dropped to a record 2.38%. The yields on long-term municipal bonds also dropped, to below 4%. This actually makes government borrowing costs lower, not higher. In a way, the bond market just thumbed its nose at S&P: to hell with your downgrade, we like US bonds even more.
Why the bond market reaction is important
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Market Correction
As of yesterday, the market had dropped more than 10% from its recent peak on 5/2. Many investors are very concerned. I am too.
Whenever I find my emotions are unsettled, I study historical data. That has always given me a perspective unavailable from the tick-by-tick reporting of the real-time financial media.
The following table summarizes the frequencies of market declines of various magnitudes.
| Magnitude of market decline | Frequency of occurrence |
| >5% | Every year |
| >10% | Every two years |
| >20% | Every five years |
| >30% | Every ten years |
| >40% | Every twenty-five years |
| >50% | Every fifty years |
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Portfolio Rebalancing Returns
Posted on: August 5, 2011
Asset Class Rebalance
In one of my previous posts, I showed how diversification across asset classes is superior to momentum and contrarian strategies. Today, I am going to show how disciplined rebalancing adds to returns. I will first demonstrate this using a stylized example and then through historical returns.
An example of two asset classes
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Assets without Physical Form
Posted on: August 2, 2011
[Guest Post by Anthony Carducci] Do you own a domain name . . . you know, a web address? How about a Facebook account? What about an easily recognizable email address or a Twitter handle? Are any of those things valuable and worth passing on to your loved ones? If so, have you made arrangements to have ownership of those assets transferred upon your death?
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10. Google’s Revenge: Morgan Stanley Downgrade Fiasco
9. America’s Top Financial Advisors: How Are They Made?
8. Italian Debt Crisis + US Debt Ceiling: Now What for Stocks?
7. Variable Annuity Fees You Don’t Know You Are Paying
6. The 2011 Estate Tax Changes
5. Why Asset Class Diversification is Superior
3. Bonus Depreciation – Congress Wants Businesses to Invest in 2011
1. Profit From Harry Dent’s Prediction? Thank Again
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Today, I received an economic commentary from WisdomTree that includes a piece written by Professor Jeremy Siegel. He is a University of Pennsylvania professor and author of several books totting stocks as long-term investments. His piece covers four subjects: economic slowdown, US default, European debt crisis, and corporate earnings. Below, I have excerpted key passages for readers.
On economic slowdown
“Estimate of GDP growth in the second and third quarters have been marked down significantly over the past three months, mainly the result of lackluster consumer demand …US consumer sentiment has plummeted. Much of that is due to the continued stalemate on the budget deficit and politicians talking about curtailing Social Security and Medicare benefits.”
On US default
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I asked my PhD analyst John Want to pull the Harvard Endowment 13F filing for the first quarter of 2011 and find out what has changed sinceour last examination three months ago. From the table of the top 15 holdings that is attached, we can see three changes:
1. The iShare S&P 500 Index ETF is no longer among the top 15 holdings. Though there are still a number of individual U.S. stocks among the top 15, their relative weights have decreased. Does that signify Harvard is a tad less bullish on U.S. equities over all?
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MZ Capital 40/60 Portfolio Model
This report shows the construct and performance of a 40/60 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 better than Vanguard funds here.
| Table 1: Asset Class Funds | ||
| Asset Class | Percentage | Funds |
| US Equity | 10% | 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 | 20% | DIPSX – Inflation-Protected Securities Fund |
| Treasuries | 20% | DFIHX – Short-Term Treasuries Fund |
| Muni Bonds | 20% | DFSMX – Short-Term Muni-Bond Fund |
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On July 8, Morgan Stanley downgraded Google. Their reasons?
Given Google’s aggressive hiring plans, rising compensation costs and heavy advertising spending on Chrome and other products, the company’s EBITDA margins will decline this year and next year.
Morgan Stanley said Google is on pace to add 7,000 new staffers this year, well above the previous estimate of 4,000 new hires.
Investors, presumably including many of Morgan Stanley’s own wealth management clients, promptly sold off GOOG, causing its stock to tumble 3% that day.
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If the recent headlines make you feel like the international financial order is heading toward a cliff, I would not blame you. Apparently, the Europeans have managed to spread their sovereign debt crisis from Greece to Italy, a far more significant country for the world economy. Here in the US, politicians are engaged in high-stakes political brinksmanship regarding raising the debt ceiling, without which the US will go into default for the first time in its history.
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Recently, I came across a 20 Year Periodic Return Table prepared by Black Rock. I want to share this with you since this table illustrates the investment principles I have been emphasizing: 1) asset class diversification; 2) disciplined rebalancing; and 3) small value tilt. Today’s focus is on 1); the other two points will be discussed in future articles.
20 Year Asset Class Returns
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9. Is Managed Futures an Asset Class?
8. Recession and Stock Market Performance
7. Will Greece Sink Your Portfolio?
6. The 2011 Estate Tax Changes (by Christopher Guest)
5. America’s Top Financial Advisors: How Are They Made?
4. Variable Annuity Fees You Don’t Know You Are Paying
3. Bonus Depreciation: Congress Wants Businesses to Invest in 2011 (by Jeremy Bendler)
1. Profit From Harry Dent’s Prediction? Thank Again
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