Thank you very much for doing the Financial Fitness Forever, 2016 video presentation! I have learned a lot from that presentation and will go back to it from time to time to get more specific details and references. I think there’s a good analogy to be made here with real estate (“location, location, location”) and for your sound retirement investment strategy it is “defense, defense, defense.” As we all know in football, offense may win games but defense wins championships. – Austin T.
Happy New Year, and thank you for your continued interest in learning to be an ever-better and smarter investor! While wisely investing money is important for a life of less stress and more freedom, life is not just about making and spending money. For many of us – retired or still working – a part of our life is devoted to helping others. For example, my wife, Zan, spends countless hours serving on the board of the Bainbridge Island Land Trust. I spend a major part of my retirement working on my own foundation as well as serving on the boards of the Bainbridge Community Foundation and Global HELP.
I start each Monday morning with a cup of coffee and a free Movie Mondays video on how to make your non-profit organization more effective. Each short video, produced by Chris Davenport, offers valuable information on finding more donors, retaining current donors and inspiring board members to do more for their cause. If you are involved in any not-for-profit organization, I suggest you sign up for free Movies Monday.
As a business owner or manager, you may also find many of these ideas applicable to your organization, so I encourage you to also check out free Movie Mondays.
The huge unexpected return for helping others. There is no question that the checks that my wife and I write are helping, and that feels good. There is no question the time we spend on helping these organizations is of some value to the causes, and that feels good.
Studies conclude that one path to more happiness in retirement is to surround yourself with good friends. Helping these organizations help others leads to meeting some of the nicest people, with the biggest hearts, you are likely to know. And the studies also conclude that those friendships have more impact on happiness than a lot of money. Watching the Movie Mondays suggest ways I can be a more effective at helping others, and that feels good. I hope they will give you some new ideas on improving what you are doing, or have considered doing, for others.
Here is the email from the most recent Movie Mondays by Chris Davenport:
This week’s video features four different fundraising professionals from various nonprofit organizations. You’ll hear why each one of these folks love working in the nonprofit sector.
Watch the video here: http://moviemondays.com/celeb-nonprofits
I am pleased to present a new article by our financial fluency expert, Joline Godfrey: Financial Parenting and “Good Enough” Practices:
Parents who aspire to be effective financial mentors to their kids are likely to encounter two obstacles that can feel insurmountable: time and talent. Let’s face it – some days it’s a triumph just getting kids out the door with their clothes on and teeth brushed. Extra time to offer a financial mentoring session is pretty elusive. And since most parents got short-changed them selves when it came to getting good financial mentoring, passing it on is not a walk in the park.
I can share a lot about best practices in financial education in families, and am always happy to do so with any family that’s interested. But lately I’ve been thinking about good enough practices – financial mentoring that makes impact without making parents feel inadequate or leaving kids financially illiterate.
Good enough practices aim to build a consciousness that lingers in a young person’s daily life, while creating a platform they can enhance on their own… or use as a base when the need becomes urgent. (For example, independent travel where financial awareness may equal safety; or college where it will pave the way to independence).
With this in mind, I’ve been working on two good enough practices: how to manage an allowance and how to raise a generous child. I’ll be introducing these methods at a workshop on Bainbridge Island later this month but in the meantime, here’s a preview of my thinking. Continue reading this article by clicking here.
Questions & Answers
This month, with much on my plate and planning an exciting project we’ll announce soon, I will not be doing an “Ask Me Anything” session at Scutify.com. Below are some recent Q&A’s from the December 2016 session. Hundreds of Q&A are available at my website and I urge you to go here and find answers to many of your questions. You can also use the “Search” function on that page to specify your topics.
Wishing you a healthy, prosperous and satisfying 2017,
Q: When do you recommend doing an annual rebalance and when will you be revising your Vanguard ETF recommendations?
A: There are studies that suggest it is best to rebalance during the January to March period. I usually recommend once a year, but for young people it’s okay to go 18 to 24 months. I have new ETF recommendations – beyond the commission-free ETF portfolios – coming by the end of January. At that time I will also review the present recommendations at Vanguard, Fidelity, Schwab and TD Ameritrade.
Q: Regarding your personal approach to “timing” the market – with half of your holdings using a trend systems to move to cash – have you back-tested or considered utilizing a short ETF when the sell signal occurs rather than moving to cash?
A: When I was active in the business, my firm did a lot of back-testing using the short side when on a sell signal. The conclusion was that the unit of return per unit of risk was not worth the extra risk. I have also tracked the returns of many other newsletters (through The Hulbert Financial Digest) and found there has not been one example that justified the higher risk of trying to add profits by taking the short side. Remember, the long-term trend of the market is up (two-thirds of the time), so any attempt to take advantage of the short side is going against the trend. Also, the move from something volatile to cash is much less risky than moving from something volatile to something else (short side) that is just as volatile. So if the returns of the strategy that went to cash were better than the strategy of going to the short side, it means you took more risk for a lower rate of return. Not a good idea!
Q: What are your thoughts about having a portfolio that mirrors global market geographical exposure (of course low fees, value-oriented, dollar cost averaged, etc.) vs. what you are suggesting with 50:50 split of domestic international, with regard to highest likelihood of historical returns?
You’ve recommend having a portfolio of 50% international and 50% domestic assets; however, total market value of the world is now more like 80% International (outside of U.S.), with 20% Domestic U.S. This is from an Investopedia article. I’m thinking of tilting towards more international than domestic.
A: I am not advocating capitalization weighting the portfolio. Cap weighting the portfolio would have most of the investments in very large companies and very large countries. Instead, my recommendation is focused on equal weightings of approximately 10 different asset classes, all of which have had terrific long-term records. My own portfolio has all these asset classes and about 15,000 companies in the portfolio.
Q: What asset classes you’d recommend for money that is being put away for the short to mid-time period (2-5 years)?
I am 30-year-old and already have the Ultimate Buy and Hold portfolio implemented with automatic investing and dollar cost averaging, but have some additional money that I’d like to save for a larger purchase in a few years. I don’t necessarily want it to fully correlate to the market in case we enter a bear market.
A: For short-term periods (2-5 years), I suggest short-term bond bunds (I use the Vanguard Short-Term Investment Grade Bond Fund). If you can commit to 5 years, you might consider half in short-term corporate bonds and half in Vanguard Wellesley. Wellesley is 40% equity. That would mean 20% of the short-term portfolio would be in equities. That additional 20% in equities might produce an additional 1% return.
Q: I am going to open a Fidelity 529 Plan for my daughter (age 7), should I go with one of their age-based portfolios or manage myself with a two-fund or four-fund portfolio you outline?
A: The four-fund portfolio is okay but you will have to build your own glide path from all equities to balances of equities and fixed income as your daughter gets ready to go to college.
Q: In your recommended portfolios, why don’t you include ETFs for international small cap value, small cap emerging markets, emerging markets value and other similar asset classes? If we want to include these which ETFs do you recommend?
A: I have recommended DLS (international small/mid cap value) for many years. I will make recommendations for the other asset classes in the coming weeks. I suggest you subscribe to my free newsletter (paulmerriman.com) so you will be alerted to the new recommendations.