Category Archives: Investing Money

Where To Invest

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My Comments: There is a lot of fear these days about money. We all know that from time to time the markets experience a correction. Depending on how old you are and when you expect to use the funds you have, this fear is normal.

So how do you deal with it? Again, depending on your age and attitude about investment risk, you turn either to a trusted third party to make those decisions for you or you figure it out on your own. Or a little of both.

As a professional retirement income planner, I’ve got some experience with this question. But like everything else in life, I can only make an informed guess about the future. Here are some suggestions for you to consider.

By James Connington / Jun 26, 2017

With markets at all-time highs, investors are sitting on cash and struggling to decide how to use it.

The fear is that they will be investing at the worst possible moment, and face seeing investment values plunge if and when the market takes a downturn.
In Britain, seemingly unending political turmoil has been accompanied by a meteoric rise in the FTSE 100 index that many worry can’t continue.

When it comes to the US, neither active funds – which mainly fail to beat the market over any meaningful time period – or buying the incredibly expensive market, via an index tracker fund, look like appealing options.

Telegraph Money spoke to a selection of fund managers to help narrow some options that still offer a good balance between risk and reward.

All of these managers run multi-asset or multi-manager funds – all-in-one portfolios that contain a mix of shares, bonds, funds or other assets from a variety of sectors.

In theory, this should minimise the bias to a particular asset or region specialist managers may fall victim to.

Their picks include investment trusts specialising in property, European and Asian stocks, and the US energy sector.

Jacob Vijverberg, Kames Capital

Mr Vijverberg said he is less comfortable with assets that are dependent on earnings growth, such as regular stocks, because he thinks earnings expectations are too high.

Instead he highlighted global real estate investment trusts (Reits) as offering a good risk-reward balance.

A Reit is a listed company that owns and runs buildings to generate an income for investors.

Mr Vijverberg said: “We expect rates to stay low in the developed world, meanings Reits can continue borrowing cheaply. Additionally, rental contracts are generally linked to inflation, offering guaranteed income increases.”

He favours Reits that own properties used for logistical or industrial purposes, or hotels, rather than residential buildings.

In its multi-asset funds, Kames holds Tritax Big Box; this Reit invests in large warehouses and logistics facilities in Britain used by retailers such as Amazon. It charges 1pc.

Late last year, the Kames multi-asset team increased its investment in American Reits too, including Welltower, which invests in care homes and health facilities.

Welltower is listed on the New York Stock Exchange and is a part of the S&P 500 index. British investors should be able to access it via “fund shops” that offer international share dealing such as Hargreaves Lansdown and TD Direct.

John Husselbee, head of multi-asset at Liontrust

Mr Husselbee said that while stock markets continue to “shrug off” political events, “it’s hard to point to any sector that screams real value on a short to medium term view”.

He explained that diversification is therefore more important than usual, and so the best risk-reward proposition at present “lies in the developing markets of the Asia Pacific (excluding Japan) and emerging markets sectors”.

For Asia Pacific specifically, he said the region offers an “attractive and diversified dividend income”, which has value given many investors’ desperate hunt for income producing investments.

He highlighted Schroder Asian Income as one way to gain exposure, as it “provides a degree of safety in what can be a volatile market”. The fund charges 0.93pc and yields 3.5pc.

In the wider emerging markets sector, Mr Husselbee recommended Stewart Investors Global Emerging Markets Leaders. The fund charges 0.92pc.

Marcus Brookes, head of multi-manager investing at Schroders

Mr Brookes said European and Japanese stock markets offer better value than the US market at the moment.

This, he explained, is largely due to the lower valuations on offer, but also due to concerns that US company margins and sales “could be peaking”.
He said this would be a “worrying condition should the US experience an economic misstep”.

He explained: “In Europe and Japan we find relatively attractive valuations combined with margins and sales that are far from their peak.”

In his popular Schroder Multi Manager Diversity fund, Mr Brookes has around 6pc invested in the TM Sanditon European Select fund, and 4pc in the Man GLG Japan Core Alpha fund.

These charge 1.16pc and 0.9pc respectively.

Bill McQuaker, Fidelity

The US is the world’s biggest market, yet not all of its component sectors have been doing as well as the overall market.

Mr McQuaker picked out the energy sector as offering an investment opportunity.

He said: “The energy sector is down by around 20pc relative to the S&P 500 over the year to date, and would benefit from any rally in the oil price.”
This is something he views as likely due to global oil cartel OPEC’s extended production cuts, and the “overestimated” impact of US shale oil production on the global price of oil.

If you want to buy the whole US energy sector, BlackRock offers its iShares S&P 500 Energy Sector “exchange traded fund”.

The charge is 0.15pc, to track an index comprised of the S&P 500 stocks categorised as energy companies. Exxon Mobil and Chevron account for more than 40pc of the index.

The other option is a global energy fund that invests heavily in the US. Guinness Global Energy is often tipped by experts Telegraph Money speaks to. It is around half invested in the US, and charges 1.24pc.

Artemis Global Energy, Investec Global Energy and Schroder Global Energy are all between 40pc and 60pc US invested too.

A 60-40 Portfolio Could Return Less Than A Savings Account

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My Comments: How fast will your money grow?

An expectation of growing money at an annual rate of 7% to 10% going forward is probably unrealistic.

Interest rates and inflation rates are relatively low, and global economic growth rates are likely to slow down over the next two decades. See my earlier posts to understand this: http://wp.me/p1wMgt-1Rp and http://wp.me/p1wMgt-1Qz

June 30, 2017 • Christopher Robbins

Over the next decade, the traditional 60-40 portfolio will post average lower annual returns than many online bank accounts do today, according to a web tool from Newport Beach, Calif.-based Research Affiliates.

A portfolio consisting of 60 percent equities and 40 percent bonds will post average annual real returns of just 50 basis points over the next decade, said Jim Masturzo, Research Affiliates’ senior vice president, asset allocation, on a Wednesday webcast.

“Investing is hard, and this market will kick you in the teeth,” said Masturzo. “The focus should be on how do we create portfolios well-positioned for the future that are able to meet our future spending obligations. For a majority of investors, risk is failing to meet their long-term spending needs.”

Masturzo explained that most of the firm’s assumptions lie on projections for 50 basis points of annual growth from large-cap stocks. The S&P 500 is projected to produce an average annual dividend yield of 2 percent and long-term earnings growth of 1.3 percent, but lose 2.8 percent in valuation annually.

By comparison, annual percentage yields of 1 percent or more are available in online savings accounts from Ally and Synchrony, and online checking accounts from Aspiration.

The low return estimate might come as a shock to some investors, admits Masturzo. In equities markets, earnings growth has failed to keep up with rising stock prices, while fixed-income returns will continue to be muted by low short-term interest rates and monetary tightening by central banks.

Yet a 60-40 portfolio had returned 4.9 percent net of inflation year to date through May 31, said Masturzo, with the Bloomberg Barclays U.S. Aggregate Bond Index yielding 1.2 percent, while U.S. large-cap stocks have returned 7.4 percent—a “spectacular rise in the markets.”

“The most common question we hear is: ‘Can this continue?’” said Masturzo. “I don’t know, but history tells us that it is unlikely.”

During the webcast, Masturzo used Research Affiliates’ newly updated Asset Allocation Interactive (AAI) tool to visually demonstrate the firm’s projections for future returns across asset classes, geographies and factors.

Research Affiliates predicts that there is a less than 1 percent chance that a traditional 60-40 portfolio will be able to post real returns of 5 percent or more over the next decade. The company assumes that the portfolio will generate a 2.4 percent average annual net yield, but an average annual valuation change of 1.9 percent.

A portfolio offering a 5 percent average annualized return is still possible, said Masturzo, but advisors would be better off optimizing returns through diversification and rebalancing than by adding risk.

Masturzo said that advisors and investors will have to think beyond traditional investments to generate yield and growth.

“Opportunities do exist beyond mainstream stocks and bonds to take advantage of asset classes with lower valuations or attractive cash flows,” Masturzo said. Yet most advisors are diversifying within highly correlated areas of the market and not across asset classes. Higher returns might be found in credit markets, commodities, REITs and private investment opportunities, and within non-U.S. markets.

Investors might also consider active strategies to produce differentiated returns, said Masturzo.

“Alpha is an important part of this discussion, especially when you’re talking about expensive asset classes,” he said. “We’re big believers in adding value through contrarian trading.”

At the heart of the tool is a scatterplot of risk and return demonstrating historical data or expectations from Research Affiliates projecting an efficient frontier defining a normal distribution around a portfolio’s probable returns.

The AAI tool is an interactive web tool that provides expected return data across more than 130 assets and model portfolios. The tool allows advisors to create and customize their own portfolios, or to blend existing portfolios to view expected and optimized returns and risk across five different currencies, and to discover correlations within their portfolios.

AAI also allows users to view cyclically adjusted price-to-earnings (CAPE) ratios across equity markets and compare them with each other, or compare current valuations against the historical range for each market.

During his demonstration, Masturzo used the AAI tool to show that, based on the Research Affiliates projections, increasing the volatility of a 60-40 portfolio by 14 percent by diversifying away from bonds and U.S. stocks is still not enough for it to reliably post 5 percent average annualized returns.

“Increasing volatility tolerance is a bad approach to achieving 5 percent real returns,” said Masturzo. “For those who want to do so, we believe you should approach a maverick approach to risk and add value beyond a passive approach by accessing contrarian advice within asset classes.”

When Will the Bull Market End?

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My Comments: Be assured, I have no idea. But then, I don’t know what I’m going to have for lunch either. All I know is that I will have lunch and one of these days, this bull market will end.

The trick is to understand that it will end, and if you’re not ready to watch a ton of your money disappear, then you have to be ready. Some of you may have enough money that you really don’t give a damn. Good for you.

But if you worry about this, even a little bit, then you should talk with someone who has some answers. Someone you can relate to. I promise it won’t hurt much.

By Anne Kates Smith, Senior Editor @ Kiplinger, June 26, 2017

As the second-longest bull market in history makes its way into its ninth year, many investors are understandably asking: When will it end? We’d all be rich if there was a foolproof way to figure that out. But we can make some educated guesses.

One thing to remember is that bull markets don’t die of old age alone. Something’s got to kill them. And the surest weapon is a recession. That’s not always the case. There have been bear markets without a recession, as the crash of 1987 shows. But many of the worst downturns have been accompanied by a recession – or, more accurately, followed by one. The Great Recession that began in December 2007 was preceded by the start of a bear market in October of that year that went on to lop 57% off stock prices. The recession that began in March 2001 followed a March 2000 market peak that initiated a 49% stock decline.

False alarms are frequent, says economist and market strategist Ed Yardeni, of Yardeni Research. “The next bear market will start when the market anticipates the next recession – and turns out to be correct. The market has anticipated lots of recessions since 2008 that have turned out to be buying opportunities,” says Yardeni.

When recessions do pair with stock market peaks, they can do so immediately, as with the concurrent start of the recession and bear market of July 1990, or they can lollygag more than a year behind. On average, recessions begin 7.7 months following a stock market peak, according to market research firm InvesTech Research.

If we only knew when the next recession would begin. Well, Yardeni has a date in mind: March 2019. He bases his determination on the average number of months the economy has continued to expand after it has reached its previous peak, going back to the early 1970s. Counting from November 2013, which is when the economy finally surpassed its 2007, prerecession peak, Yardeni arrives at March 2019.

The date is not an official forecast, says Yardeni, who adds that it comes with no guarantees and plenty of questions. “What do we know today that suggests that March 2019 is a realistic date, or that a recession will come sooner or later? Right now, March ’19 looks realistic,” says Yardeni. “But if pressed,” he adds, “I’d say it might be later.” If the economic cycle sticks to the averages and if the stock market does, too – both big “ifs” – then investors should look for a market top around August of next year.

4 signs of recession

Sam Stovall, chief investment strategist at investment research firm CFRA, looks at four indicators when he’s searching for a recession on the horizon. Every recession since 1960 has been preceded by a year-over-year decline in housing starts, says Stovall. The dips have ranged from a 10% decline to a drop of 37%, and they have averaged 25%. The most recent report on housing starts showed a decline of less than 3%. “So we’re on yellow alert, not red,” says Stovall.

Consumer sentiment is another signpost. Before a recession kicks in, you’ll typically see an average decline of 9% in the University of Michigan’s monthly sentiment index compared with the previous year, says Stovall. Current reading: up 2.4%.

A drop over a six-month period in the Conference Board’s Index of Leading Economic Indicators means trouble, too, with declines of 3%, on average, registering ahead of an economic downturn. Latest six-month change: up 3%.

Finally, when yields on 10-year bonds dip below the yields on one-year notes – known as an inverted yield curve – look out, says Stovall. Ominously, long-term rates recently have been under pressure while the Federal Reserve pushes short-term rates higher. “We’re getting a flatter yield curve, but nowhere near an inversion,” says Stovall. His conclusion: No recession is in sight.

Before you fixate on the twin risks of recession and a bear market, ponder a third risk – exiting a bull market too early. The payoff in the final year of a bull market is historically generous, with returns, including dividends, averaging 25% in the final 12 months and 16% in the final six months.

Nonetheless, investors have every right to ratchet up the caution level at this stage of the game. Now is a good time to make sure your portfolio reflects your stage in life and your risk tolerance. Stick to a regular rebalancing schedule to lock in gains and maintain the appropriate balance between stocks, bonds and other assets, domestic and foreign. And whatever you do, make sure your portfolio is where you want it to be before you go on summer vacation next year.

Investing Defensively

My Comments: I posted recently that we had better revise our investment expectations downward if we are planning to use our retirement savings to sustain our standard of living for the next twenty years or so.

I attributed the likelihood of lower growth and investment return numbers on demographics and a rising interest rate environment. http://wp.me/p1wMgt-1Qz

The article below by James Hickman is long, full of charts, and technically ripe. You may easily get lost. But he echoes the same message as mine but mostly for those of you who are OK with playing the markets by yourself. If that’s not you, there are other ways to be defensive.

Below is his introduction to Part I of II. If you click on his name, you’ll also find Part II.

May 31, 2017 \ James Hickman

Retired Or Retiring In Next 15 Years? Better Get Defensive (Part I Of II)

Summary

  • Market timing is sensible in certain circumstances – like reducing US equities exposure now.
  • Always passively invest in public equities and fixed income – not alternatives – but asset allocation still requires active approach.
  • Financial healing power of “the long-term” is no remedy for max drawdowns in the retirement plan homestretch.
  • Portfolio implications of 3% ROI for another decade, 2% US GDP forever.

“Market timing is a loser’s game” is a misleading marketing slogan peddled by the long-only mutual fund machine. The mass cash movements in and out of public equity markets that cause market timing failure are rarely driven by disciplined, value-based decisions about asset allocation but rather by emotional investor capitulation to protracted trends at precisely the wrong times. The trite phrase is invariably trotted out when markets are most over-valued and risky – when investors should be selling but rarely are. Now is one of those times.

Recognizing that you should always use low-cost, passive vehicles in certain asset classes and pay for skill in others is not news. But the more important question is: How much should be allocated to each asset class? Asset class and investment strategy exposures, beyond just equities and fixed income, is critical to portfolio diversification and return variation (Brinson, Hood and Beebower – 1986; and Xiong, Ibbotson, Idzorek and Chen – 2010). But can asset classes be timed? The answer is yes.

The professional investment industry has always been animated by failed attempts to systematize alpha generation – to create a better mousetrap for delivering repeatable outperformance of the market and justify higher active management fees. Active managers continued their interminable streak of underperforming the broader markets in 2016. According to S&P Dow Jones Indices’ SPIVA US Scorecard for 2016, “Over the 15-year period ending Dec. 2016, 92.15% of large-cap, 95.4% of mid-cap, and 93.21% of small-cap managers trailed their respective benchmarks.”

Demographics and Money

My Comments: If you are in pretty good health today, chances are you’re going to live into your 90’s. Which begs the next question: “How are you going to pay for food, shelter, medical care, etc.”?

This is a global conundrum, brought about by medical advances and a reluctance on the part of people like me to simply roll over and die.

If you are starting the transition to what we euphemistically call ‘retirement’, you had better pay attention. There are existential risks out there which will determine if the last ten years of our lives will be ‘good’ years or ‘not so good.

My message here is for you to ignore those risks over which we have no control and spend your time and effort on mitigating the risks over which you do have some control.

Demographics Will Be The Biggest Driver Of Financial Markets Going Forward By Stephen McBride, May 25, 2017

Demographics are destiny, and unfortunately for Western economics, destiny isn’t on their side.

Speaking at the Mauldin Economics’ Strategic Investment Conference in Orlando, founders of Real Vision TV Raoul Pal and Grant Williams dissected the profound demographic changes now taking place and how investors should position their portfolios for those changes.

Most of the population growth in the past half-century has come from Middle-Eastern and Asian regions. In contrast, population growth in Western democracies has been in sharp decline.

What Are the Implications of Aging Populations for the West?

As people near retirement, they become more conservative in their spending. With consumption accounting for 70% of the US economy, this acts as a huge headwind to economic growth.

In fact, adverse demographics are a key reason why this recovery has been the slowest one on record in the post-war period.

Unfortunately, it’s going to get worse…

This year, the first Baby Boomers turn 70, and that’s significant for financial markets.

Due to the mandatory minimum drawdown laws for retirement plans like IRAs and 401(k)s, when you turn 70 ½, you are forced to withdraw at least 5% of the value of the plan each year.

This forced selling will flood the market with billions worth of equities and bonds, which will push down prices.

Another reason Raoul and Grant believe adverse demographics spell trouble for the West is that historically, debt levels have tracked median age.

In fact, for over four decades, the labor force participation rate has been highly correlated to the Federal Reserve’s balance sheet.

With over 3.5 million Baby Boomers turning 65 each year for a dozen years, Raoul and Grant believe economic growth will continue to be sluggish and debt levels will rise.

So, with demographics weighing down on the US, where should investors deploy capital based on these powerful trends?

India’s Potential

With an exploding population now accounting for over 17% of the global total, both Raoul and Grant are bullish on India.

To conclude, Raoul named his three top trades going forward: “Longer term, I think US Treasuries and Iran are a great play. Shorter term, I think being short oil could prove profitable.”

Asset Allocation Strategies That Work

My Comments: It’s not easy to make your money grow. And to make sure once it’s grown, it doesn’t disappear.

A long time truth involves a principal called asset allocation. It means spreading your money across different styles and kinds of assets. Some will always work better than others, not just when going up, but when going down also.

A good asset allocation mix perhaps means not hitting a home run, but also not striking out.

By Jason Van Bergen / January 2017

Establishing an appropriate asset mix is a dynamic process, and it plays a key role in determining your portfolio’s overall risk and return. As such, your portfolio’s asset mix should reflect your goals at any point in time. Here we outline some different strategies of establishing asset allocations and examine their basic management approaches.

Strategic Asset Allocation
This method establishes and adheres to a “base policy mix” – a proportional combination of assets based on expected rates of return for each asset class. For example, if stocks have historically returned 10% per year and bonds have returned 5% per year, a mix of 50% stocks and 50% bonds would be expected to return 7.5% per year.

Constant-Weighting Asset Allocation
Strategic asset allocation generally implies a buy-and-hold strategy, even as the shift in values of assets causes a drift from the initially established policy mix. For this reason, you may choose to adopt a constant-weighting approach to asset allocation. With this approach, you continually rebalance your portfolio. For example, if one asset is declining in value, you would purchase more of that asset; and if that asset value is increasing, you would sell it.

There are no hard-and-fast rules for timing portfolio rebalancing under strategic or constant-weighting asset allocation. However, a common rule of thumb is that the portfolio should be rebalanced to its original mix when any given asset class moves more than 5% from its original value.

Tactical Asset Allocation
Over the long run, a strategic asset allocation strategy may seem relatively rigid. Therefore, you may find it necessary to occasionally engage in short-term, tactical deviations from the mix to capitalize on unusual or exceptional investment opportunities. This flexibility adds a market timing component to the portfolio, allowing you to participate in economic conditions more favorable for one asset class than for others.

Tactical asset allocation can be described as a moderately active strategy, since the overall strategic asset mix is returned to when desired short-term profits are achieved. This strategy demands some discipline, as you must first be able to recognize when short-term opportunities have run their course, and then rebalance the portfolio to the long-term asset position.

Dynamic Asset Allocation
Another active asset allocation strategy is dynamic asset allocation, with which you constantly adjust the mix of assets as markets rise and fall, and as the economy strengthens and weakens. With this strategy you sell assets that are declining and purchase assets that are increasing, making dynamic asset allocation the polar opposite of a constant-weighting strategy. For example, if the stock market is showing weakness, you sell stocks in anticipation of further decreases; and if the market is strong, you purchase stocks in anticipation of continued market gains.

Insured Asset Allocation
With an insured asset allocation strategy, you establish a base portfolio value under which the portfolio should not be allowed to drop. As long as the portfolio achieves a return above its base, you exercise active management to try to increase the portfolio value as much as possible. If, however, the portfolio should ever drop to the base value, you invest in risk-free assets so that the base value becomes fixed. At such time, you would consult with your advisor on re-allocating assets, perhaps even changing your investment strategy entirely.

Insured asset allocation may be suitable for risk-averse investors who desire a certain level of active portfolio management but appreciate the security of establishing a guaranteed floor below which the portfolio is not allowed to decline. For example, an investor who wishes to establish a minimum standard of living during retirement might find an insured asset allocation strategy ideally suited to his or her management goals.

Integrated Asset Allocation
With integrated asset allocation, you consider both your economic expectations and your risk in establishing an asset mix. While all of the above-mentioned strategies take into account expectations for future market returns, not all of the strategies account for investment risk tolerance. Integrated asset allocation, on the other hand, includes aspects of all strategies, accounting not only for expectations but also actual changes in capital markets and your risk tolerance. Integrated asset allocation is a broader asset allocation strategy, albeit allowing only either dynamic or constant-weighting allocation. Obviously, an investor would not wish to implement two strategies that compete with one another.

Conclusion
Asset allocation can be an active process to varying degrees or strictly passive in nature. Whether an investor chooses a precise asset allocation strategy or a combination of different strategies depends on that investor’s goals, age, market expectations and risk tolerance.

Keep in mind, however, that this article gives only general guidelines on how investors may use asset allocation as a part of their core strategies. Be aware that allocation approaches that involve anticipating and reacting to market movements require a great deal of expertise and talent in using particular tools for timing these movements. Some would say that accurately timing the market is next to impossible, so make sure your strategy isn’t too vulnerable to unforeseeable errors.

Source article — http://www.investopedia.com/articles/04/031704.asp

What Is The World Coming To?

My Comments: What’s your poison? Politics? Money? Entertainment? Sports? Religion?

Well, this post is about economics and finance. Some of you will run and hide. That’s OK. It comes from Guggenheim Investments and is a quick and dirty look at the next few months…

With spreads tight in high-yield corporate bonds, loans, structured credit, and Agency mortgage-backed securities, we expect an uptick in volatility this summer. While we see some near-term weakness ahead, our positioning, informed by the long-term themes identified in the highlights below, should provide a sound footing for our portfolios. Our Sector teams, Portfolio Managers, and Macroeconomic and Investment Research Group discuss shorter-term, sector-specific tactics for managing through current market conditions in the pages of this edition of the Fixed-Income Outlook.

Report Highlights

▪ With the Federal Reserve (Fed) set to continue to raise interest rates—and at a faster pace than that which is priced in the market—positioning for a flattening yield curve will remain a major theme in our portfolios.

▪ In addition to two more hikes this year, we expect the Fed will raise rates four more times in 2018. The Fed is also plotting a strategy to reduce its balance sheet; this should pressure yields higher in the short end and belly of the curve, which is where most of the new Treasury issuance is likely to come.

▪ Our view on the global macroeconomic environment is positive, which should support strong credit fundamentals for several years. China has stabilized, Europe is recovering, and corporate earnings in the U.S. are rising.

▪ We are focused on the legislative complexities of passing President Trump’s pro-growth agenda. Failure to put his plans into effect in a timely manner may cause markets to realize that the Trump rally is long on promise and short on delivery.