Archive for the ‘Wealth Management’ Category
Recession Stock Market
Three years ago, at the onset of the recession, I performed research analyzing the previous nine recessions after WWII and wrote an article “Recession and Stock Market Performance” based on that research.
Given that I am not clairvoyant – unlike many market pundits and some fellow financial advisors – I can’t see the future. I can only use my research of the past to frame my perspective of the future.
I came away with two conclusions:
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Tom making his new year resolution
[Guest Post by Tom Warburton] How’s this for a New Year’s Resolution – repeat after me – I Resolve That I Will Abandon Personal Stock Picking And I Will Not Permit That Foolishness To Be Foisted Upon Me By Stock Brokers, Money Managers Or Financial Advisors.
New evidence shows up every day suggesting that it makes more sense to invest in index funds than to personally pick stocks, invest in hedge funds, invest in actively managed mutual funds or let a money manager pick stocks for you.
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Roth Conversion
As 2010 comes to a close, one time sensitive wealth management move affluent individuals and families should consider is converting an existing traditional IRA into a Roth IRA.
It is not a trivial decision, and there is no one-size-fits-all answer. What I hope to accomplish below is to give you a framework to help you make the best decision for you and your family.
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A Simple Investment Principle
Posted on: December 5, 2010
MZ Capital 40/60 model vs S&P 500
Just like two sides of a coin, the capital market is made up of capital demanders (businesses) and capital suppliers (investors). What for businesses are costs of acquiring capital are for investors rewards of supplying it. It is a simple truth that
Costs of Capital = Expected Returns
Looking through this lens, many capital market phenomena can be explained.
Why small stocks tend to have higher returns than large stocks?
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Managing Investment Risks
Posted on: November 11, 2010
MZ Capital 60/40 model vs S&P 500
Once I asked a prospective client how he managed investment risk.
“Well,” he intoned, “I try to get in before the market rallies and get out before it tanks.”
It is not just lay investors who have this misconception about risk management; many financial advisors equate risk management to market timing as well. One only needs to watch those advisors talking on CNBC to see that many of them are in the fortune-telling business.
So how do I manage risks? There are three steps.
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Active Money Manager Blah Blah
Posted on: October 12, 2010
Going Somewhere?
[Guest post by Tom Warburton] Most of us who have survived and thrived in the money management industry were trained under the traditional model of ‘getting in front of somebody and making a pitch’. Our ‘pitch’ was designed to make us look smart and normally started out with something like “our best idea right now is blah blah”.
Thanks to our persistence and personal charisma we succeeded in winning a few clients that referred more clients and ultimately created a book of business from which we could make a living. So off we went with more ‘best ideas right now’ and more ‘blah blah’.
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Taking Investment Risks
Posted on: September 30, 2010
Investment Risks
Risk taking is an integral part of investing, yet most investors are blissfully unaware of the risks they are taking, let alone managing them well. In this post, you will quickly learn the good, the bad, and the ugly of investment risks.
Nine Types of Risks
Idiosyncratic risk is defined as risk that is specific to a particular company. This type of risk can be eliminated simply by holding a well-diversified portfolio; therefore, taking this kind of risk is not compensated by the capital market. Examples of taking idiosyncratic risk include investing in individual stocks and buying annuities as investment.
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Who Should You Trust
Posted on: September 8, 2010
[Guest post by Tom Warburton] Almost every single day a buddy calls us to discuss the “Investment Pornography” coming from the brokerage houses or from the mouths of the talking heads on CNBC. Last week was different – almost all of our buddies only wanted to talk about Goldman-Sachs and the Senate Hearings.
The crux of the issue was proffered by Knut A. Rostad, Chairman, Committee for the Fiduciary Standard. His quote from Wealth Manager “Goldman Sachs, Suitability and the Fiduciary Standard”, April 21, 2010
“The Case Highlights The Wide Gap And Opposing Roles Of A Broker Who Is Permitted In Law To Further His And His Firm’s Interests At The Expense Of Customers, And A Fiduciary Who Is Required In Law To Put His Clients’ Interests First. This Is At The Core Of Why The Fiduciary Standard Is Important.”
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Will Greece sink your portfolio?
Posted on: May 6, 2010
In the last few days, news of Greece’s bankruptcy has rattled the markets. Pundits are predicting a spiraling debt crisis spreading to other PIIGS (Portugal, Ireland, Italy, Greece, and Spain) countries. Investors are worrying out loud that the crisis is going to sink their portfolios, again.
Not if they have a balanced portfolio. Here is why …
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Is China a big bubble?
Posted on: April 1, 2010
What a difference eighteen years have made.
Eighteen years ago, I was awarded a scholarship to study mathematics in the U.S. The China I left behind was very different from the China of today:
- Then there was no private ownership of automobiles; now China boasts the world’s largest car market.
- Then there was no private ownership of houses; now there is little public housing left.
- Then China had a grand total of 28 kilometers (17 miles) of expressway; now China’s expressway network is second only to the U.S.
- Then there was no high-speed train service to speak of; now China has the fastest high-speed train service in the world covering the equivalent distance of New York to Chicago in three hours.
- Then China’s economy was the 13th largest; now it is the second largest.
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Guest author: Mike Piper
“Much rides on how you take your money out, not simply how much you have in.” –Lee Eisenberg in The Number
It’s true. Yet, for whatever reason, there’s much more written about strategies for accumulating assets than about strategies for intelligently spending down your assets.
Investors nearing retirement have a lot of questions, and so far they’ve gone more or less unanswered by mainstream financial media.
Asset Allocation in Retirement
During the accumulation stage, the goal when crafting a portfolio is simply to achieve the maximum return over the period in question without giving yourself a heart attack due to volatility.
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“Good intentions” doesn’t cut it
Posted on: January 25, 2010
Guest author: Mike Piper
There are inherent conflicts of interests between for-profit mutual fund companies and the investors in funds run by such companies. For example:
- Investors benefit from low expense ratios. Fund management benefits from high expense ratios.
- Investors benefit from plain-English, thorough disclosures regarding costs and conflicts of interests. Fund management benefits from poor disclosures.
A reader (we’ll call her Martha) recently asked me if such problems could be avoided by using mutual fund managers who have the interests of their investors at heart.
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Roth IRA conversion examples
Posted on: January 17, 2010
There is one important rule to keep in mind when it comes to converting a traditional IRA to a Roth IRA – you need to pay federal income taxes on any portion of the conversion that you haven’t already paid taxes on.
Example 1
For example, let’s say you started to fund traditional IRAs in 2006 and by 2010 you’ve got $20,000 in your account. Furthermore, let’s say this account consisted of four years of $4,000 non-deductible contributions – a total of $16,000 in non-deductible contributions and $4,000 in account growth.
In this example, you’d need to pay income taxes on the $4,000 in fund growth when you convert to a Roth IRA. But the good news is you’ll never have to pay income taxes on this account again.
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‘The Investment Scientist’ or ‘The Investment Fiduciary’: Help me Choose
Posted on: January 17, 2010
When I started this blog 30 months ago, my only goal was to disseminate the best investment research done in academia.
Much of the so-called investment research produced by the financial industry (aka Wall Street) and purveyed by the media is nothing more than advertisement in disguise. The truly rigorous and unbiased research is often done in the nation’s best universities, like Yale, Harvard, and the University of Chicago. This research is not accessible to the vast majority of investors who are not academically trained. My blog was meant to change that, thus the title “The Investment Scientist.”
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How not to ruin a 60/40 portfolio
Posted on: January 6, 2010
This past Christmas, I had the distinct pleasure of calling several of my clients in retirement and telling them their portfolios are back to their pre-crisis level and their financial freedom is safe and sound.
Their portfolios are variations of the so-called 60/40 portfolio – about 60% in equity-like investments and 40% in bond-like ones.
Many other 60/40 portfolios have been decimated by this crisis. Even with recent gains, they are still far from recovering all their losses. How did I manage to pull even for my clients? There are a few key lessons I’d like to share.
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Lack of time
“Life is short, time is never enough!” lamented a lawyer client of mine. With intense pressure to meet billable hour requirements, some attorneys don’t even have time for their spouse and children, let alone their personal finances. It also doesn’t help that the financial world is becoming increasingly complex.
Professional stress
Believe it or not, law practice is one of the most stressful jobs – despite the great pay. No other job is as focused on the adversarial aspect of life as law practice. Martin Seligman’s research shows that 52% of lawyers are unhappy. When people are stressed and unhappy, they can’t do proper financial planning.
The Investment Scientist 