Mutual Funds

MBA Course: Investing & Portfolio Management-Class 2

MBA Course: Investing & Portfolio Management-Class 2

By in Bond, Investing, Mutual Funds | 6 comments

Do I Need Bonds in my Portfolio? “The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelope our future” John Maynard Keynes One of the foremost economists of the last century succinctly states a reason to invest. Learn the simple principles of investing through this MBA series taken directly from the graduate course I recently taught in Investing & Portfolio Management. Don’t be intimidated, grasp this important investment concept in an easy to understand format. After reading this article you will gain a usable investing skill. As I mentioned previously, please follow these steps before beginning any investment program. Click here to get Invest and Beat the Pros-Create and Manage a Successful Investment Portfolio. Perfect if you’re interested in building wealth with investing. What Are Bonds?  Last class we talked about risk versus reward. In investing, the greater the risk, the greater the opportunity for reward or a high return.  Risk means that your investment is going to go up and down in value; with higher risk investments exhibiting greater volatility. The recent stock market plunge shows why you may want to temper investment volatility.  Before investing, it’s always important to understand what you’re investing in. So, what is a bond? A bond is a loan to a corporation, municipality, or government. When you buy a bond you are making a loan to the bond issuer. In exchange for the loan, you receive an interest payment. The amount of interest you are paid is directly related to amount of risk you are taking. (The interest in bonds is called a coupon payment). Buy a corporate bond from a corporation with financial troubles, you get a high interest rate because if that company goes bankrupt, you might lose all of your initial investment. Buy a U.S. government bond, you get lower interest rate, because your money is invested with a secure government who will pay you back your original investment when the bond matures. A government bond is the safest bond to buy; it also has the lowest interest rate. Riskier bonds pay higher interest rates. Bonus; Would You Invest in a 100% Muni Bond Portfolio? Why You Need Bonds in Your...

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How to Benefit from Cyclical Investment Markets-MBA Lecture Recap

How to Benefit from Cyclical Investment Markets-MBA Lecture Recap

By in Advanced Investing, Economics, Investing, Mutual Funds, Stocks | 10 comments

Can You Benefit from Cyclical Investment Markets? In today’s market, a short term interest rate of 1% is highly coveted and difficult to find. The annualized 10 year total return on the S & P Market index of 7.60% during the last ten years is 2% below the historical returns of the 1928-2014 time period. In spite of the juicy market returns of the past 3 years, you may wonder, where are the average stock market returns of 9%? What happened during the first decade of the new millennium to bring down returns and can you benefit from cyclical investment markets? Here’s a taste of some of the global events that impacted stock market prices: Recession Mortgage Meltdown  Sub Prime Lending Crisis European Debt Crisis 911 Wars in the middle east Growth of China as a major world competitor There are always outside forces that play on our economy and investment returns. These forces are called systematic or market risk. This risk is unavoidable and plagues all market participants. No matter how diversified your portfolio is, you cannot avoid systematic risk. Read more; Is Buy and Hold Finished?>>> What is an investor to do about the cyclical investment markets? In reviewing the stock market returns from 1928 to 2014 one could assume that rates went smoothly upward at 9.6% per year. Actually, that average hides a bumpy road. Returns on stocks over that time period ranged from annual double digit losses to annual double digit gains. Growth in investing is fraught with ups and downs. Not unlike life itself. Click here for Free micro book-How to Invest and Outperform + Wealth Tips Newsletter Is There a Pattern to Economic Growth and What it Means for You? Economic growth typically follows a path that looks a bit like a roller coaster, with gradual increases, leading to a high point of strong economic growth, followed by slowing GDP and usually a recession. This type of growth is certain, where the mystery comes in is the “when”. Cyclical growth is a given; but when the trend changes is unknown.   This pattern means several things to investors. Investing is a long term endeavor. Don’t even think about investing any money you will need within...

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MBA Class; Use Net Present Value to Make Investment Decisions

MBA Class; Use Net Present Value to Make Investment Decisions

By in Advanced Investing, Asset Allocation, Investing, Mutual Funds, Retirement | 15 comments

Investing Solutions (part 3) Welcome to Investing Solutions Week at Barbara Friedberg Personal Finance. Don’t miss parts 1 and 2. Investing Solutions (Part 1); Why You Must Start Saving Now Investing Solutions (part 2); Six Investing Solutions Six Dangerous Investing Myths I’m in the midst of teaching a Corporate Finance class for MBA students at a local university. Some of the concepts, although rather complicated, have important real world applicability. an extremely important concept is, how to use net present value (NPV). It is a method to put a dollar amount on future cash payments. It’s great if you win the lottery and want to determine whether to choose the lump sum payment or monthly option. Or what if you or your folks want to determine the present value of their monthly social security or annuity checks.    When reading one of my favorite blogs, Consumerism Commentary, Luke had to decide whether to take a lump sum payment of his retirement account or monthly payments for the rest of his life. After reading the article, I was curious about which choice would lead to a greater present value for Luke. Here’s how to use net present value to decide whether a lump sum or annuity payment would be worth more. Here was Lukes’s situation: He could receive a lump sum payment of $18,000 or $65 per month for the rest of his life. Before I tell you which one he chose as well as the alternative most of his readers recommended, I’m going to introduce you to a systematic way to decide whether to take a lump sum payment or an annuity. Read more: Should I Invest in an Annuity?>>> How to Calculate and Understand Net Present Value You need to make an assumption before figuring out which alternative is better. The assumption is this; what percent return do you think you can get on your investment? I chose 7% because historically, an investment portfolio containing about 65% stocks and 35% bonds approximates a 7% return.  To calculate how much a regular payment which continues indefinitely is worth today, all you need is this perpetuity formula: Annual cash flow/Interest rate = Present Value If Luke were to receive $65 per month, then he gets $65 x 12 or $780 per...

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Is Buy and Hold Finished? Read What Hulbert Says About Market Timing

By in Advanced Investing, Asset Allocation, Automatic Saving, Bond, Investing, Mutual Funds | 15 comments

Market Timing versus Buy and Hold Investing; The Gloves are Off Is it wrong to delight in “proof” that my investing practice and writings are correct? Mark Hulbert, long time author of the Hulbert Financial Digest and Wall Street Journal (WSJ) columnist asked, “Can Market Timers Beat the Index?” in the July 20, 2013 week end edition of the Journal. He answered this frequently attempted practice with raw data! Who is Mark Hulbert? First, some background on Mark Hulbert. He empiricallly evaluates the trades recommended by 200 prominent newsletter authors. You know who they are, the investment scions who purport to know what holdings to buy and sell and when, in order to beat the market. These investment gurus sell investors their recommendations in published newsletters. Hulbert evaluates their recommendations with back testing and reports who offers the best advice during each period. In the above referenced WSJ article, Hulbert calls out Bob Brinker’s Market Timer. Brinker successfully counseled his readers when to sell their stock holdings in January, 2000. Those who followed his advice about when to exit and next when to get back in (October, 2002) missed the bear market at the beginning of the century. So you think, this must be the man to watch. Unfortunately, Brinker completely missed predicting the 2007-2009 bear market. You already see where this is going. It’s not easy to consistently time the market. Click here for Free micro book-How to Invest and Outperform + Wealth Tips Newsletter If you are still interested in market timing and want to know which newsletter will bring you riches, ask Mark Hulbert, or better yet, subscribe to the Hulbert Financial Digest. What is Investment Market Timing? Market timing is an investment strategy which advocates buying and selling securities based on external signals in an attempt to attain market beating returns. The factors to observe could include technical signals such as the 30 or 90 day moving average of a stock. Fundamental metrics, such as the price earnings ratio (PE) could also be used in market timing. For example, when the PE ratio or Shiller PE surpasses its historical average a market timer might believe that his stock investments are becoming overvalued and decide to...

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What Not to Do With an 401(k) Rollover

What Not to Do With an 401(k) Rollover

By in Advanced Investing, Asset Allocation, Automatic Saving, Investing, Money Management, Mutual Funds, Retirement | 0 comments

The 401(k) Saga-Don’t do This! Financial professionals frequently suggest rolling over your 401(k) into an IRA when you leave a job. The down side of leaving your retirement account with the old employer means you’re subject to their fee structure and investment options. If you rollover your 401(k) into an IRA-you gain control! Advantages of a 401(k) Rollover into an IRA You choose; where to house your money. Already have an account with Schwab, Fidelity, Vanguard, ETrade or another discount broker? You can transfer the funds into the same company. You may make money rolling over your account. We got a $600 bonus from the discount broker when I transferred my husband’s old 401(k) into a new discount broker. Make sure to ask, these types of benefits may not be widely advertised. What investments to choose? If you like ETFs, you can buy them for the account. Prefer low cost index mutual funds? Choose whichever variety you prefer.  Click now to get a low cost plan to cut investment fees to the bone and manage your own investments. You can control costs buy purchasing a low cost product. Disadvantages of a 401(k) Rollover Into an IRA There may be fees when you leave the former company 401(k). Some holdings may need to be liquidated before you can transfer them out. There’s some paperwork and oversight, and you must make sure to do a ‘custodian to custodian’ rollover to avoid taxes and early withdrawal penalties.  401(k) Rollover-Don’t Do This We (okay, I) make a mistake in rolling over my husband’s 401(k) into a Roth IRA when he left his last job.  In 2011 my husband switched jobs. We moved across country, from Pennsylvania to California. If the stress of a cross country move wasn’t enough, we sold our house too fast and so had 3 months with nowhere to go before our new house in California was slated to be available. So, those 3 months in Mom and Dad’s basement were the beginning of a big new adventure. But, I digress. We had a lot to do and I didn’t worry about the Pennsylvania employer 401(k). It was invested well and there was no urgency to do anything. Eventually, we...

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Rebalance Your Asset Allocation Guide

Rebalance Your Asset Allocation Guide

By in Advanced Investing, Asset Allocation, Bond, Investing, Mutual Funds, Personal Finance, Stocks | 13 comments

Earn More by Rebalancing Your Asset Allocation Raise your had if you want an extra one quarter percent return on your portfolio every year? It takes about an hour and you can get this extra return every year. I know, it’s not much, but with interest rates in the basement, every little bit helps. Before you learn how to rebalance your asset allocation, let’s review a bit of investing background. What is Asset Allocation? “Don’t put all of your eggs in one basket.” This old adage describes  the best way to boost investment returns. Diversify your investments among stock and bond index funds and you’ll cushion the volatility and boost returns. Imagine, over the last decade if you invested only stocks, your returns would have been in the low single digits. If you added some bonds to your portfolio, your investment returns go up a few percent. Modern investing portfolio theory recommends determining your risk profile and then divvying up your portfolio in line with your risk level. In other words, if you can handle a bit more volatility in your investment returns, you want more stocks in your portfolio. Terrified of the cyclical ups and downs in your investment value, invest a greater percent in bonds. Click now to get a low cost plan to cut investment fees to the bone and manage your own investments. Asset allocation is the investors personal decision about how to divide up your investments among basic asset classes. In general, investors divide their assets between stock and bond type investments. Younger folks, with more time until retirement and a longer working life frequently benefit from an asset allocation more heavily weighted toward stock investments. A guy in his 50’s facing retirement in fifteen years and risk averse, may choose 55% stock investments and 45% bond investments. A young woman with a high paying secure job and a high risk tolerance chooses 75% stock investments and only 25% bonds. Following is an image of 34 year old Carter’s, moderately aggressive investment portfolio: 33% in a broadly diversified United States stock index fund 33% in a broad diversified International stock index fund 34% in an inflation protected bond fund   Rebalance and Increase Returns A recent Wall Street Journal article...

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