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There's a ton of other information on how horrible hedge funds, on average, perform. A very few each year will perform better than the index, but there's really no way to know in advance that the hedge fund you invest in will do better than the index (and usually, it won't). Proves that even the very rich can be stupid with their money.
Warren buffet even made a $1M bet that hedge funds would perform worse than the index funds. Here's the update:
Maybe I need to meet with a Fidelity advisor. I have a smallish portfolio with them and they keep calling to set up a meeting.
Anyway your approach may seem reasonable to you but to me it sounds complicated with lots more choices that I want to make. Beta, sector, index, overall volatility, tax optimized, etc, etc. All of that is way beyond my time and interest.
I have diversified stock funds which are largely classed as growth/value and are primarily large cap. My bond funds are short, intermediate. My sole concern is allocation. I want to be at a maximum stock allocation when the market grows. For me, I feel comfortable at a maximum allocation of about 60%. Before the next major downturn, I want to be largely out of the market, at 40% or less. All I need to do is decide when to change my allocation. Getting that right (or wrong) will have major consequences. I do not want to be in the large majority group that makes the wrong allocation moves.
There you go, your road to Rome has the sights you are comfortable with and the right speed limit. That is the critical thing. You are there. Pity the 25 year old who still is learning to drive and has a broken down car. Lots of time still to get there but.........
There's a ton of other information on how horrible hedge funds, on average, perform. A very few each year will perform better than the index, but there's really no way to know in advance that the hedge fund you invest in will do better than the index (and usually, it won't). Proves that even the very rich can be stupid with their money.
Warren buffet even made a $1M bet that hedge funds would perform worse than the index funds. Here's the update:
there are quite a few with amazing long term track records. hedge funds need volatility. in the years markets are volatile they average 11% better than the s&p and in years we are not they average about 3% less than the s& p as a group.
it is really a manager by manager issue. some have out performed by wide margins until the last few years when volatility fell off. even counting sub par performance the last few years the overall records are still far above the s&p's.
boy even with the crappy last few years had I been invested in the fund my daughter inlaw works for I would have been way way ahead based on the time frame I have been an investor.
Last edited by mathjak107; 11-26-2014 at 11:17 AM..
Ok, let's say you want to invest long-term, both lump-sum and monthly installments. What do you think is the best approach? Do you have something better not mentioned here in mind? -Thanks for all your input.
a) Buy and hold Berkshire Hathaway or baby-Berkshires like MKL, Leucadia, any other?
NOOOOOOOOOO!!! Undiversified = you could lose your shirt!
Quote:
Originally Posted by Potential_Landlord
b) Tactical asset allocation stocks, bonds, commodities, cash, REITs and annual rebalancing a la Mebane Faber
c) Eternal portfolio 50% bonds, 50% stocks, annual rebalancing
50% bonds is too much to have when long-term rates are at or near all-time lows!**
Quote:
Originally Posted by Potential_Landlord
d) Tactical asset allocation as in b) but annual rebalancing by relative strength
e) Buy and hold DWAS small cap momentum ETF (following Fama/French approach)
I understand it is not 100% passive as some approaches require annual rebalancing. I like to challenge my own approach from time to time. Thanks for your input.
I'd say some mix of small capitalization, total market, real estate*, international, gold ETF's***, and some bonds. Try to find mutual funds with low expense ratios and always remember not to hold high-turnover mutual funds in taxable accounts!
*as in, actual properties, not REIT's. REIT's are overvalued right now by all reasonable metrics. Find a cheap house or apt. and buy it with cash. The absence of a mortgage can be viewed as a "virtual bond" allocation. The advantage of the "no-mortgage" investment over a true bond allocation is, first, that mortgage rates usually exceed Treasury rates, and second, that it is fully hedged - you have zero risk of bonds being unable to pay your mortgage installments. In return for this hedging, you must give up some liquidity. For this reason you should also have some true bonds as well, even if it means you must have a somewhat cheaper property than otherwise.
**Long-term bonds with a high Macaulay duration are highly prone to losing value as rates rise. The Macaulay duration of a bond is never longer than its time to maturity. For zero-coupon bonds it is equal to the time to maturity and for coupon-bearing bonds it is less. The higher the coupon rate relative to the face value of the bond, the shorter the Macaulay duration since the earlier payments contribute a larger portion of the bond's value, or in other words, more of the dollars, relative to the initial investment, are returned sooner.
There you go, your road to Rome has the sights you are comfortable with and the right speed limit. That is the critical thing. You are there. Pity the 25 year old who still is learning to drive and has a broken down car. Lots of time still to get there but.........
I have a 27 yr old who doesn't have a clue but at least she asked me. She is putting aside some of her income into mixed allocation 401k funds. I gave her my best advice: pursue your career, enjoy life, keep contributing and leave it alone.
50% bonds is too much to have when long-term rates are at or near all-time lows!**
I'd say some mix of small capitalization, total market, real estate*, international, gold ETF's***, and some bonds. Try to find mutual funds with low expense ratios and always remember not to hold high-turnover mutual funds in taxable accounts!
*as in, actual properties, not REIT's. REIT's are overvalued right now by all reasonable metrics. Find a cheap house or apt. and buy it with cash. The absence of a mortgage can be viewed as a "virtual bond" allocation. The advantage of the "no-mortgage" investment over a true bond allocation is, first, that mortgage rates usually exceed Treasury rates, and second, that it is fully hedged - you have zero risk of bonds being unable to pay your mortgage installments. In return for this hedging, you must give up some liquidity. For this reason you should also have some true bonds as well, even if it means you must have a somewhat cheaper property than otherwise.
**Long-term bonds with a high Macaulay duration are highly prone to losing value as rates rise. The Macaulay duration of a bond is never longer than its time to maturity. For zero-coupon bonds it is equal to the time to maturity and for coupon-bearing bonds it is less. The higher the coupon rate relative to the face value of the bond, the shorter the Macaulay duration since the earlier payments contribute a larger portion of the bond's value, or in other words, more of the dollars, relative to the initial investment, are returned sooner.
you have those who have been saying avoid bonds with rates these low for years now.
with bond funds up almost 8% ytd in the intermediate term and 20% ytd on the longer end i see no reason not to have not been 50% or more in bonds at this point.,
in fact i am about 60% . the capital appreciation on them has been very good despite rates being this low. that does not mean i won't change if the big picture does which is why i say buy and die may be no longer the best way to go.
there is little pressure on bond rates taking a hit at least in the near term and there is still more room for capital appreciation if stocks take a hit.
i am not saying buy bonds instead of stock but i am saying if your allocation calls for it then do it.
if rates and inflation pick up and bond funds start to fall i would likely go inflation-proof securities -reit income-floating rate high yield -commodities with the bond budget.
avoiding bonds with money you want to keep at lower risk is not the answer at this point in my opinion.
Last edited by mathjak107; 11-27-2014 at 07:33 AM..
total return, not yield. my fidelity bond funds are up around 8% ytd. my fidelity corporate bond fund is up 7.77% ytd fcbfx. TLT LONG TERM TREASURY BOND FUND IS UP ABOUT 20% YTD. fidelity new market income is up 8.50% ytd. most of the intermediate investment grade range are up about 5.50- 6% ytd.
actually for someone who wanted to avoid stocks altogether they would have done okay with an etf portfolio like below and still may do fine for the next few years. even better if stocks take a hit..
25% iShares Barclays Aggregate Bond ETF (AGG) (Tracks a broad index of high-quality U.S. bonds)
25% iShares iboxx $ Investment Grade Corporate (LQD) (Tracks an index of the most liquid, long-term corporate bonds)
10% Fidelity Floating Rate High Income (FFRHX) (Invests in floating rate bank loans that automatically adjusts to rising short-term interest rates. It offers additional inflation hedge)
10% iShares MBS Fixed Income (MBB) (Tracks a broad index mortgage-backed securities)
7.5% SPDR DB International Govt Inflation-Protected Bond (WIP) (Invests in an index of non-U.S., inflation-linked bonds)
7.5% PowerShares Emerging Markets Sovereign Debt (PCY) (Tracks an index of emerging markets government debt)
7.5% iShares Barclays TIPS Bond (TIP) (Tracks an index of inflation-protected, U.S. Treasury securities)
7.5% iShares Iboxx $ High Yield Corporate Bond (HYG) (Tracks an index of high yield bonds)
Last edited by mathjak107; 11-27-2014 at 08:02 AM..
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