Posts Tagged ‘Financial Planning’

Vindication ?

The Wall Street Journal

Announces

The Worst Decade For Stocks EVER!

“The U.S. stock market is wrapping up what is likely to be its worst decade ever.

In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s.

Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade.”  TOM LAURICELLA WSJ digital December 20,2009.

I started aggressively moving clients out of Stocks and into T-Bills during the 2000-2001 market blow-off and then again in late 2007.

This appeared foolish to my clients, family and friends many times during the last nine years.

But my evolving

Asset Allocation Model

has kept my client’s investments and retirement plan assets SAFE.

BUT NOW

“Danger Will Robinson, Danger!”

The Worst Is Yet To Come!

So Stay Tuned.

Remember Gentle Reader – the best strategy is still:

Every Gambler knows the secret to survival is “knowing what to throw away and what to keep”

The MDD4 is meant to help you know what to throw away and what to keep.

No Dear Reader, Investing is not Gambling.   But most people who think they are investing really are gambling.

Gambling has a negative mathematical expectation.  Ergo, you lose in the long run! It is what keeps the lights on in Las Vegas and pays the massive bonuses on Wall Street.  .

But becoming a serious card player in games such as Texas Hold’em has many, many valuable lessons to teach investors about money management and the psychology of investing.  In investing, you are your own worst enemy.

If you feel you could use my help please drop me a line.

This alarming ABC expose is a MUST watch.

When I was directing clients OUT of Real Estate 3 years ago,  THEY thought I was crazy ! 

That is why professional guidance is so important.  NO dear reader, “guidance” from a SALESPERSON doesn’t count.

It is incredibly hard to go against the herd at the proper time or for sales people to go against their commission instinct.

Watch this You Tube and enjoy.

On late night TV they are again saying —-  ” Now is the best  time to invest in Real Estate !”

Are the Real Estate Gurus right?

If the answer to this question  is important for you – Let’s chat

Real Estate ALWAYS goes UP!

But I vas just following everyone’s orders.

Remember, there is a time and season for every  MDD4 quadrant of your portfolio.

What is Real Estate’s season now?  Don’t be a stooge – ask.

Yes Dear Reader, Silver and Gold rallied after the COT Sell Signal.

One of the advantages of following the COT reports is to help determine which breakouts are the beginning of a new trend and which are not.  With the COT reports providing a sell signal on Silver, I give this rally low odds.

Also, The Commercials (insiders) set up their positions early and against short term trends.  Patience, patience

The odds still favor a failed rally attempt in the precious metals and not the start of the next major leg up in a bull market move.

FYI – while Gold and Silver represent a significant part of the Core holdings in our portfolio right now, they were acquired at substantially lower prices.

What Are All Those XXXX’s and OOOO’s on the Charts?

( No Dear Reader They Don’t Represent Hugs n Kisses! )

Several readers have indicated that they are not familiar with the point and figure charts that I use for illustration purposes in the blog.  John Murphy (world class technical analyst) provides an excellent overview of Point and Figure charting on his web site StockCharts.com.  If anyone is interested in why I use these “old fashioned” P and F charts drop a comment requesting additional information.

Do not get the idea that you can trade or make investment decisions from my blog entries.  These are an introduction to my services and do not constitute investment advice.

Repeat 20 Times – 90% of Portfolio Performance Comes From:

Asset Allocation!

“Dramatic support for the importance of asset allocation is provided by a study of 91 large pension plans covering the period 1974 through 1983. 1  The study sought to attribute the variation in total returns among the plans to three factors: asset allocation policy, market timing, and security selection.  The study dramatically supports the notion that asset selection policy is the primary determinant of investment performance , with market timing and security selection both playing a minor role.  The study was subsequently updated with additional data and once again arrived at the same conclusion.2  The pie chart shows the results: asset allocation policy explained 91.5 % of the variation in total return among the pension plans.  The selection and market timing factors, by contrast, explained only 4.6% and 1.8% of the variation, respectively.” 

Excerpted from: Asset Allocation, Balancing Financial Risk, Second Edition, Forward by Sir John Templeton and written by Roger C. Gibson, pages 12 and 13.

If you haven’t read the recent blog entry titled Avoid the “Life-Cycle Investing” Trap! please do so now.

Footnotes:

1. Gary P. Brinson, L Randolph Hood, and Gilbert L. Beebower, “Determinants of Portfolio Performance,” Financial Analysts Journal, July-August 1986, pp. 39-44.

2.  Gary P. Brinson, Brian D. Singer, and Gilbert L. Beebower,
“Determinants of Portfolio Performance II: An Update,” Financial Analysts Journal, May-June 1991, pp. 40-48.

The Second Article in the Silver Phoenix series has been published.

To read it just look for the Ezine widget towards the bottom of the right hand column.

In Your Humble Partner’s Opinion Demanding “Coin Metal Silver” Is THE Most Revolutionary Act That Can Be Performed At This Time To Move The U.S.A. Back To Sound Money.

Share Your Thoughts

Financial Fulcrum May Edition

Click to enlarge

Dear Reader I have briefly covered the La Vida LOCA (as a concept – but not all the applications yet) and would appreciate your reviewing the above checklist and let me know which item you would like me to cover in my next financial planning article.  So please drop me a comment with your requests.

The Inflation vs Deflation debate rages all over the Web – So who is right ?

Last years deflationary collapse was revealed by a break out of a 2 year consolidation of the Gold/Silver ratio.  After burning itself out temporarily and yielding to the current mini bail out bubble the Gold/Silver ratio has once again entered a consolidation formation.  The breakout should indicate which tide will overwhelm the markets over the next 9 to 18 months.  My guess is that you will not find this insight anywhere else on the web.

Vide !

How does this work?  Silver was demonetized a century or so ago and now a large part of its demand comes from the industrial/jewelry sector (although the monetary demand is growing again).  Therefore it is more sensitive to a deflationary collapse.  Although the central banks and governments of the world have worked tirelessly to demonetize gold, it still is part of the monetary base of most central banks.  In spite of blatant manipulation by central banks and governments it still is less sensitive to deflation.  If the Bernanke/Obama bail out/stimulus printing presses overwhelm the collapse of toxic debt and we head into another inflationary/hyper-inflationary period, gold and silver will both break out to new highs but silver will run faster.  As the price of silver outpaces gold on a relative basis, the Gold/Silver ratio will decline.

Why should you care dear reader?

The next tide of either Inflation or Deflation will have a massive impact on your investments and wealth.  Knowing which one will dominate should dramatically alter the composition of your investments and impact your financial decisions.

The Gold/Silver ratio is one of the key indicators that I watch.

We don’t have to guess or predict the outcome of the Deflation / Inflation tug-of-war.  We just have to be alert to what the markets are telling us and reallocate our portfolios accordingly.

You saw it here first.  So, Stay Tuned ! ! !

Fibonacci Financial Portfolio Prism vs  Life-Cycle Investing

Life-Cycle Investing is a primary model for asset allocation in most financial planning performed in the U.S.A.  It is aptly described in a Social Security Policy Brief titled “Portfolio Theory, Life-Cycle Investing and Retirement Income”. The Policy Brief says “The life-cycle funds described here create portfolios that are heavily concentrated in stocks at the beginning of the work life and gradually shift holdings to bonds as retirement nears“.

The following table from the SS Policy Brief demonstrates this shift away from stocks as one ages:

This rigid/mechanical model relieves the Financial Planner of the burden of making market allocation decisions other than the fine tuning of these bench marks based on the clients special needs, goals, experience and expectations.  This model implies that intelligent decisions about asset allocation based on the markets is impossible.  Most Americans have bought into the Life-Cycle Investment  model as demonstrated by the next table which also comes from the same  SS Policy Brief.  Are you caught in the Life-Cycle Investment trap?  A first hint would be that your 401K is down 40-60%.

This table illustrates actual investor preferences as revealed in a study performed by Bodie and Crane (1997).

Remember – 90% of Portfolio Returns come from Asset Allocation decisions !

Therefore, if we get our allocations wrong it has tremendous impact on our wealth and retirement options.  Each quadrant (Cash, Lending, Investing, Tangibles/Intangibles) has its own seasons, cycles and dynamics.  Yes sometimes these cycles are correlated but sometimes they are not.

I will not explore the fallacies behind the stock portion of this model until a latter article.  But one chart will provide sufficient information to bring the “Bond” (aka Lending quadrant in FF Model) portion of the Life-Cycle Investment model into serious question. Vide !

Click to Enlarge

The above chart of 10 Year Treasury Bonds shows that there have historically been long periods of rising interest rates and long periods of declining interest rates.  Why should we care?  When interest rates rise the value of Bonds fall – ergo – you loose money!  When interest rates decline Bonds values go up!  As shown in the chart, interest rates have been declining for more than 25 years and as one would expect this was a period of rising bond values.  BUT interest rates are very low now.  Given past history, we are likely to see a 25 to 30 year period of rising interest rates begin in the near future – ergo – 30 years of losing money in bonds (except for a very few speculators).  These rising interest rates will devastate bond portfolios!  So, does it make sense to move older clients into this rising interest rate Bond Bear market trap? NO!, NO!, NO!

The Dynamic Fibonacci Financial “Portfolio Prism” Debut!

Without going into a complete explanation of the Fibonacci Financial portfolio development process, let me introduce the Portfolio Prism a dynamic approach to asset allocation.

The first step in the FF Portfolio decision process is to maintain an Asset Allocation Map of the market.  The result of our current assessment of the markets is displayed on the M.D.D. (Market Decision Dashboard).  The current recommended position in Bonds can be found in the “Lending Quadrant”.  Currently long term bonds are not under accumulation but are rather being liquidated in anticipation of a potential 30 year bear market in bonds.  But for illustration purposes, let pretend that Bonds are anticipated to be entering a 25 year bull market and will be under accumulation.  The next step in the FF Portfolio decision process would be to gather information about a client and to develop a client profile.  The final step would be to develop a portfolio based on the market profile and the client profile.  If bonds are deemed appropriate, regardless of the client’s life-cycle position, either conservative or more aggressive bond investment vehicles would be chosen.

The M.D.D. ( Market Decision Dashboard) in full display looks like:

(Caution the following view of the M.D.D. is for demo purposes only)

As a reminder, the underlined items in each quadrant will indicate that additional history, fundamental, technical and investing information is available when you click on the item and drill down.

So dear reader, should the aging Baby Boomers mechanically shift their decimated stock portfolios into bonds as recommended by a dominant portion of the financial planning community based on the static Life-Cycle Investment model ?

What do YOU think?  Please comment.

Feedback on the new Portfolio Prism would be greatly appreciated.