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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How to Pick a Trustee
Posted on: June 30, 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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June Wealth Management Roundup
Posted on: June 30, 2011
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
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[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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Is Managed Futures an Asset Class?
Posted on: June 17, 2011
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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Irrevocable Life Insurance Trust
Posted on: June 16, 2011
[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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10. Top Wealth Management Google Ranking
9. Shall You Sell in May and Go Away?
8. Variable Annuity Fees You Don’t Know You Are Paying
7. The 2011 Estate Tax Changes
6. America’s Top Financial Advisors: How They Are Made?
5. Asset Allocation Return Report: 60/40 Portfolio Model
4. A Balanced Portfolio to Avoid (i): Annuities Are Not Safe Investments
2. Bonus Depreciation – Congress Wants Businesses to Invest in 2011
1. Profit From Harry Dent’s Prediction? Thank Again
Get informed about wealth building, sign up for The Investment Scientist newsletter
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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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I was called a “wing nut” by a commenter for pointing out all the malpractices of insurance companies. Indeed, I could go nuts seeing how they mislead their customers into financial peril. They know full well that their customers are not going to read beyond the first few pages of their hundred-page contract, so they put all the goodies on the first page and keep the disclaimers on the back pages.
The following is an actual annuity contract a client of mine purchased a few years ago, much to his regret now.
On the first page of the contract, all the warm and fuzzy keywords are used: “GUARANTEE”, “fixed”, “annualized interest rate of 5.75%”. Pay attention to the following line though: This rate is subject to change each month.
Annuity Contract Front Page
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