PBS Documentary – The Retirement Gamble Facing Us All

Take a good look at this PBS program. While listening, please be aware that, at Portfolio Wisdom:

  1. We are a fiduciary, legally required to put your interests first. Your broker, insurance agent, and 401k advisor are probably not held to that high legal standard. Industry lobbyists have defeated every attempt to hold the big financial firms accountable in this way;
  2. As a Registered Investment Advisor (RIA) we can, and do, actually actively manage client 401k’s for them on a fee-only (no-commission) basis.  Your broker, insurance agent, or 401k provider do not. They are sometimes actually instructed by their compliance and legal people to avoid the liability, since they are not getting paid commissions or fees on your 401k;
  3. For those who can’t afford management fees, we provide free online help at www.portfoliowisdom.com to help you make the least expensive 401k choices available to you, and we help you manage risk by providing model portfolio’s of the lower cost choices.


Watch The Retirement Gamble on PBS. See more from FRONTLINE.

Precious Metals Crash

Well, last week I mentioned a mini-crash in Gold and Silver. Today, it became a full-blown crash. I also mentioned that when many people panic-sell at the same time, we usually are at or near the end of a downtrend. That’s just the way market psychology works. For 2013 YTD, GLD  is down approximately -19.1% and SLV is down -25.6% at the time of this writing. SLV is down about -50% from its highs of April 2011. There is often a cascading effect caused by group after group being forced to sell as a result of the previous day’s drop. Eventually this ends with many people dazed, confused and broke.

Be aware that this happened to stocks in 2008-2009 and can happen to stocks again.

Fortunately, when I conducted my methodology audit in Q1 2013, the resulting methodology refinements I made caused us to exit our Gold and Silver positions a couple of weeks ago. Last week, we began rebuilding the silver position and today we added to the silver position. We are still out of Gold.

Gold and Silver may or may not immediately snap back. As I said in last Friday’s blog, it doesn’t matter what one asset class will do in the near future. We do know that a good methodology followed with discipline will help us avoid the big moves in our portfolio which often lead to panic selling or buying at just the wrong time. Avoiding those big mistakes will lead to better long-term investment success.

Thanks for your trust.


Where Does the US Dollar Go From Here?

I don’t know if you’ve noticed, but the USD index jumped about 5% in Q1 2013… right when “everyone” was talking about the demise of the US dollar. Where does it go now? Well, in my opinion, the long-term, gradual decline of the US Dollar will continue.

I saw an interview with the Australian Prime Minister during which she celebrated Australia’s recent agreement with China, whereby they can directly convert currencies and conduct trade without using the US dollar as an intermediary (or reserve currency). This is just another step in the trend to remove the US Dollar as the global reserve currency. Without that status to bolster our currency, the economic fundamentals and our debts and deficits figures (which are not very good) will push the US dollar lower. Our positions in Canadian and Australian bonds have, in the last two weeks, recovered almost all the losses they experienced during Q1 when the US dollar was rallying, even though the US Dollar hasn’t really begun to sell off hard… Very encouraging for us.

Also, it looks today like we are having a mini-crash, or climax selling panic in Gold and Silver. These frequently come at or near the end of a downtrend.

Time will tell. Thanks for your trust.

Rolling Market Top? Or New Bull Beginning?

I saw a thought-provoking article by my friend and competitor Scott McPherson centered around this chart provided by JP Morgan Asset Management. The question raised by the chart is, “Are we about to see a new secular Bull Market run in the S&P500?”. After all, we have had 10 years of consolidation, including two severe Bear Markets, and are now poised at new historical highs in the Dow Jones Industrial Average and the S&P500. It’s a great question, one that time will answer.

As of this morning (4/5/2013), Year to Date, the S&P500 is up approximately 6.3%, the Nikkei is up 10.7%, Gold is down -7.4%, Silver is down -13.7%, US REITs (IYR) are up 7.0%, long term US Treasuries (TLT) are up 2.7% (2.2% just since yesterday), and Mortgage-Backed Securities (MBB) are up just 0.1%. So, an equally risk-weighted portfolio diversified between stocks, bonds and real assets is up modestly this year, but nowhere near the headline numbers of the S&P500 index. As you know, when the S&P500 fell -50% during the late 2007- early 2009 bear market, this type of diversified portfolio dipped about -15%, and it took until the last 60 days for the S&P500 to “catch back up”.

I propose that it doesn’t really matter in the long run if stocks go up or down from here unless you are all in stocks. I also suggest that, if you are properly diversified, it doesn’t matter (too much) where stocks go in the next six months. What does matter, is that your portfolio doesn’t swing too far up or down in a way that causes to you buy near the tops because you don’t want to “miss out”, or sell near the bottom, because you “can’t take it anymore”.

After 2012, I did a personal audit of my methodology and realized that the Sharpe Ratio of my approach (the Sharpe Ratio is a measure of portfolio return achieved per unit of risk taken) was between 2-4 times better than the S&P500’s Sharpe Ratio over the last two years. However, for most clients, I was taking too little risk (allowing too little portfolio fluctuation), and getting too little return because of that. I also realized that there was not really much need for me to intervene to manage risk by overriding the methodology, since it was already so conservative. Accordingly, I’ve made some adjustments to my methodology to allow for more risk-taking, and reduced my interventions vis a vis my methodology.

Q1 of 2013 has shown that these adjustments should be favorable over the long term, and I must say that it is very freeing to realize that, with a good methodology, you don’t have to worry nearly as much about what one asset class is going to do next!


Taking Chips off the Table

You’ve got to know when to hold ’em, Know when to fold ’em

Know when to walk away, Know when to run

You never count your money when you’re sittin’ at the table

There’ll be time enough for countin’ , When the dealin’s done.

Conservative accounts moving mostly to cash by the end of today. More aggressive accounts have stop loss orders on equity and real asset positions. A couple of young, aggressive professionals want to ride it out.

Right now, I think I’ll wait to see how the debt ceiling negotiations progress… I know they are a couple of months away, theoretically, but if all the money I’m managing were my own money, this is what I’d do.

Newsletter Allocations for 7/26/2012

PortfolioWisdom Recommended Newsletter Allocations7/25/2012
Fund NameFund SymbolConservativeConservative BalanceBalancedBalanced GrowthGrowthAggressive Growth
Equity IndexGEQZX5.6%7.6%8.2%10.1%13.3%19.4%
International EquityGIEZX3.2%4.4%4.7%5.8%7.7%11.2%
Global BondGGBFX15.1%18.1%17.8%16.5%14.4%10.5%
Extended Duration BondsGEDZX22.1%26.5%26.0%24.1%21.1%15.4%
Inflation Protected BondGIPZX24.6%29.5%28.9%26.8%23.5%17.1%
Real Estate SecuritiesGREZX6.8%9.3%10.1%12.5%16.4%23.8%
Small Cap EquityGSCZX3.7%4.5%4.4%4.1%3.6%2.6%