April 1, 2016


Dear Friends,
Two weeks ago, I was interviewed (via Skype) by Doug Goldstein, CPA, author and host of a financial podcast,  Goldstein on Gelt, on Israel National Radio. The show was titled “How to Make Good Investment Choices.” I spoke about my favorite topics: how to make investment decisions that aren’t based on emotions, which are the best sources of financial information, and how can you find a financial advisor you can trust? You can listen to the interview  here.
On the topic of ‘who can you trust with your financial investments?’ Most of you are aware that I’m critical of the brokerage industry and protective of people who follow my work. More often then we’d like, the industry is the enemy of investors’ long-term returns. It cannot be in your best interest if a commission is involved. Every week I read what’s going on in the industry – a $12 million Ponzi scheme, brokers who’ve been fired and are back in the industry, etc.
If you want to develop a good defense, I invite you to understand why I’m so critical by reading two online trade publications, which are available to the public: Financial Planning and  Investment News. The latter is partially focused on information about many of the dastardly deeds of greedy salesmen in the industry. There are often even cases of investment advisors who are supposedly fiduciaries who have put their own profitability ahead of their clients.
I think you’ll be shocked at all the fines and penalties of those who’ve been caught. Yet, unfortunately, more brokers and advisors don’t get caught than do. Often, people who are victimized are embarrassed and don’t report their losses. I hope you’ll read and store these documented stories in back of your mind so next time you receive “an amazing sales pitch,” you’ll remember, and not be taken in. In contrast, I’ve been looking for any situation where investors have been cheated by investing in a major index fund or ETF.  So far, not one example.
New Audio
Here are a couple more chapter podcasts from my book, Financial Fitness Forever. I hope you enjoy  Will you try to beat the market? and  How much risk will you take?. You can listen to  all podcasts on my website or subscribe via iTune, Stitcher or RSS feeds.
New Q&A’s
Thanks for all your questions. I have only included 5 Q&A in this newsletter as I am working many hours on a video that will be available in June. I am very excited about the video as it will give me an opportunity to share my work with many more investors, including 1000’s of CPAs across the country. Thanks for your understanding. My wife thinks I have gone back to work fulltime. I assure her, and you, this is only temporary.
To Your Success,
Q: Can you send me a link to the podcast and charts for the “Four asset classes?”

I remember a podcast sometime ago regarding Four Funds. I know one was Small Cap Value, but I can’t remember the other three. You also mentioned charts you had created showing growth of the four funds over a very long period. This is for my grandchildren. I feel more confortable diversifying with four funds vs. all Small Cap Value. I have searched the website and just can’t find it.

A: Here is the article with the tables for the 4 asset classes. You’ll find other useful articles on performance here. If the grandchildren are old enough I hope they will read two of my  three free e-books: First-Time Investor: Grow and Protect Your Moneyand  101 Investment Decisions Guaranteed to Change Your Financial Future.

Q: How would you manage a 70/30 portfolio in retirement, assuming no other assets to draw income from? 
Last year was not a good year for the stock market.  Since bonds did better than stocks last year, would you take out 4% of your net worth from the bond part of the portfolio?  If we have another bad year for equities this year would you once again sell your bonds to meet your cost of living?  I am a little uncomfortable with the idea of continuing to sell the safest part of our portfolio.
Thanks for your podcasts.  I have been sharing them with friends.
A: Your question poses one of the most unsettling decisions for many investors, especially retirees. When stocks have had a good year, most investors have little problem with the idea of liquidating a portion of the risky part of their portfolio to meet their distribution needs. On the other hand, taking money from the bond part of the portfolio, after a losing year in the stock market, suggests liquidating the very asset class that provided a defense against loss during the stock market decline. Doing that once is usually acceptable, but doing it two or three years in a row is very uncomfortable.
Thanks for sharing my podcasts with friends.  That is the best way for more people to find out about our site.
Q: Would you recommend a Vanguard ETF over a mutual fund because of lower expenses?
A:  For investors who have enough to qualify for Vanguard Admiral Shares, I recommend funds over ETFs. On average, the expenses are lower and there are no spreads (bid-ask spread) to pay, as mutual funds are bought and sold at the same price. It is also possible that when buying the ETF, you could pay more than the N.A.V. (net asset value) and receive less than the N.A.V. when selling.
For investors who can’t meet the minimums for the Vanguard Investor Shares, ETFs are the only choice if you want to spread the investments across all the asset classes.
Q: As DIY investors, how do we find a simple process for investing?
We’ve been with a fee-only financial advisor but we did not have a very good experience. I’ve always been interested in finance so I’ve tried to learn as much as I could and become a do-it-yourself investor. We want a simple process for investing. We’re comfortable with 50/50 or a 60/40 stock/bond allocation is what. We don’t make a lot but we are frugal. My husband has a $50,000 annual pension and disability from the military and so we think of that as kind of a cushion if the market is not doing well.
A: I normally don’t call people after receiving questions, but I did in this case. I called because I needed to get a sense of the likelihood that the investor would be willing and able to do the work to maintain a broadly diversified group of mutual funds.
My concern is what happens if owning 10 or 12 funds is too much to manage.  After speaking with her, I determined that she (don’t know about her husband) would probably find dealing with many funds more than she would want to want to take on. I suggested she build a portfolio equally balanced between the Vanguard Wellesley (40/60) and Wellington (60/40) funds, which creates an approximately 50/50 balance between equity and fixed income. I think it will earn slightly less than a 50/50 using a more broadly diversified portfolio, but there will be almost nothing to do as the funds are automatically rebalanced. Yes, in the long term she will be slightly over balanced to Wellington (more equities), as it should make a slightly higher return, but not so out of balance she has to worry about it.
Q: Would you share more of the theory and applications of timing?
I am surprised to hear that half of your portfolio is in timing. This seems contrary to the many blogs and your books’ message.
A: I will address in a future podcast. My timing portfolio is 70% in equity funds and 30% in fixed income funds.Each fund is individually timed. I have about 36 funds and ETFs when fully invested. Most of the portfolio is managed using trend following systems, with a small portion in an asset class rotation strategy. The rotation portion adds about .5% a year to the return. Unit of return of 70/30 is a little better than 50/50 buy and hold with about the same standard deviation. The timing portion did much better in bear markets and the buy and hold portion did better in bull markets. My old firm is the only one I know that will combine buy and hold and timing strategies. I hope that helps.
The emotional and psychological risks of investing
Most people aren’t eager to think about risks. Wall Street certainly doesn’t want us to focus on what can go wrong after we invest.   More



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