Tag Archives: time

The Simplest And Most Effective Way To Build Your Own Investment Portfolio

Across the entire landscape right now, I believe Meb Faber has done more than anyone to bring some of the most important developments in asset management to individual investors. He has recently published a number of books that distill some of the secrets of the top investors in the world into easy-to-understand concepts that can be applied by even the most finance-phobic. The book referenced above, “Global Asset Allocation,” really tackles two major mistakes investors regularly make. First, most investors fall prey to “home country bias.” Because U.S. stocks are highly overvalued currently, based on their own history and against almost every other equity market on the planet, this is a real problem especially relevant to today’s markets. Second, while they may be well-diversified within certain asset classes most individual investors are not nearly well-diversified enough across multiple asset classes. This serves to create unneeded volatility in portfolios over the course of longer-term cycles. And unneeded volatility just makes it that much harder to stick to your plan when sticking to your plan may be single most important thing you can do. To demonstrate the value of greater diversification, I built the simple ETF allocation shown below based on the concepts in Meb’s book. I also compared it to the typical 60/40 portfolio along with one invested entire in U.S. stocks. Click to enlarge Charts via PortfolioBacktester.com Below are the backtested returns since 1973 (the first date PortfolioBacktester.com makes available). Notice that the returns are fairly comparable across all three but the more diversified portfolio (#1) greatly reduced your “worst year” and “maximum drawdown” when compared to the other two. Not bad, eh? Click to enlarge Charts via PortfolioBacktester.com Now this is not in any way designed to be specific advice. These are, however, terrific tools for individual investors to use in designing a portfolio allocation that suits their own unique goals and risk tolerance. Combine this with commission-free ETFs at places like Schwab, Vanguard and Fidelity and it amounts to an incredibly low cost and effective way to build your own investment portfolio and in a way that the greatest minds in the business would approve of. Many thanks to Meb for putting this all together. It’s very exciting to me to see that individual investors now have these sorts of tools, knowledge and opportunities that were previously only available to institutional investors. If you’re interested in learning more about this stuff, buy Meb’s latest book and you’ll get “Global Asset Allocation,” among others, for free.

The Timeless Wisdom Of Sir John Templeton

By Tim Maverick Sir John Templeton (1912-2008) may be gone, but he’s still remembered as one of the greatest investors of all time. For one, Sir John popularized the idea of investing globally for U.S. investors. He launched his flagship Templeton Growth Fund when most didn’t even think of investing outside U.S. borders . That pioneering fund racked up an enviable track record, returning an average of 13.8% annually from 1954 to 2004. To this day, many of Templeton’s timeless investing principles still apply. Indeed, some of his principles have shaped how I approach investing. Below are a few of them. They come courtesy of the Franklin Templeton website and the Templeton Foundation. #1: Buy Low Seems obvious, right? But in reality, many investors do the opposite. They chase hot sectors after dramatic moves higher. Sir John always scoured the globe for bargains. He told investors to buy when everyone else is selling, when things look darkest, when all the experts say a certain investment is too risky. Templeton advised us to “buy when others are despondently selling and sell when others are avidly buying.” He would often say, “People are always asking me where the outlook is good, but that’s the wrong question. The right question is: Where is the outlook most miserable? The obvious application of this concept in practice is to avoid following the crowd.” I wonder what Sir John would think of today’s market, where the elite tech and biotech stocks are loved and everything overseas and commodities-related is detested? #2: Invest for the Long Term Hand in hand with value investing is investing for the long term. Templeton said, “Experience teaches us that one of the most common errors in selecting stocks… is the tendency to emphasize only the most obvious factor – namely, the temporary outlook for sales and profits of the company.” In other words, ignore Wall Street’s emphasis on quarterly earnings reports. Too many investors spend too much time looking at the short-term market outlooks and trends. #3: Diversify Sir John didn’t believe that one specific investment is always best – although over the long term, stocks do outperform. More importantly, no one can predict the future. If you’re focused too much on one company, sector or country, your portfolio is at risk. Sir John advised us to diversify by risk, industry, and country. He would say, “In stocks and bonds, as in much else, there is safety in numbers.” #4: Learn From Past Mistakes Everyone makes mistakes investing, even Sir John. As he said, “The only way to avoid mistakes is to not invest – which is the biggest mistake of all.” Instead, Templeton advised us to not become discouraged by loss and especially not to take even greater risks and try to recoup our losses all at once. He believed that the difference between successful and unsuccessful investors is that successful investors learn from their mistakes and the mistakes of others. Relatedly, you should run for the hills anytime you hear someone on CNBC say it’s a new era or that it’s different today. According to Sir John, “The investor who says, ‘This time is different,’ when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing .” #5: Don’t Be Overconfident In other words, always question your investment approach. Is it still valid? Sir John wrote, “Everything is in a constant state of change, and the wise investor recognizes that success is a process of continually seeking answers to new questions.” A great example of this is how much the investment climate has changed surrounding energy MLPs. Investors poured tens of billions of dollars into funds investing in the sector, only to see losses of up to 35% on some funds this year. Other Templeton Insights Of course, there are plenty more insights to be gleaned from Sir John’s vast experience. He wasn’t a fan of trading – “The stock market is not a casino” – or of index funds – “If you buy the same securities everyone else is buying, you will have the same results as everyone else. By definition, you can’t outperform the market if you buy the market.” He also gave other common sense tips for investors, such as remembering inflation and taxes when investing, doing your homework, and always monitoring your investments. If readers wish to look at a number of Sir John’s investing tips, here’s a link: Templeton Wisdom . Keep in mind that they were written in 1993, so some of the data is very outdated. The insights, however, are timeless. Original post

New Dow-Based Dividend ETF For Yield-Hungry Investors

There have been some concerns over dividend ETFs lately, thanks to the Fed liftoff in December and the possibility at least four more hikes throughout 2016. Yet is still plenty of interest in income ETFs. And with the long-term U.S. treasury yields not budging much even after the Fed rate hike, some have started to believe that lower rates are here for a bit longer, suggesting that dividend ETFs may be solid plays. There is surely a plethora of options in the dividend field, but newer approaches are always welcomed. Probably, this is why Guggenheim recently launched a new income fund, namely the Guggenheim Dow Jones Industrial Average Dividend ETF (NYSEARCA: DJD ). DJD In Focus This new ETF looks to give investors a way to target higher-income-producing securities in the U.S. market. This is done by tracking the Dow Jones Industrial Average Yield Weighted index, which is price weighted. The ETF will charge 30 basis points a year in fees for the exposure. In total, the ETF will hold 30 stocks in its basket. The stocks are selected on a yield-weighted technique. Only companies having a history of steady dividend payment in the last 12 months get an entry into the index. The portfolio of the ETF is focused on industrials (18.4%), information technology (18.1%), healthcare (12.89%), consumer staples (1211.59%) and energy (10.7%) while the top holdings include Chevron (NYSE: CVX ) (6.44%), Verizon (NYSE: VZ ) (5.11%) and General Electric (NYSE: GE ) (4.79%). The index also has a pretty decent yield of 3.01% and so looks to be a good income destination. How Does It Fit In A Portfolio? This ETF is an intriguing choice for investors seeking a new take on income investing. Investors should note that the Dow Jones index is under pressure lately on oil price worries. The only silver lining in the index is its dividend-rich nature. Plus, among the dividend-loaded stocks, a focus on the top-yielding could be better trading options. This technique is often known as the Dogs of the Dow investing theme, which considers the top 10 dividend-paying blue-chip stocks of the Dow Jones Industrial Average (DJIA). Investors should also note that the “Dogs of the Dow” technique has historically outpaced DJIA several times. ETF Competition Needless to say, the divided ETF investing area is packed with products. So, from that perspective, the newbie is likely to face tough times ahead. However, we believe that the Guggenheim Dow Jones Industrial Average Dividend ETF’s real competition will be with other ETFs following the Dow Jones Industrial Average index. There is already an exchange-traded product revolving around the “Dogs of the Dow” theme, namely ELEMENTS DJ High Yield Select 10 ETN (NYSEARCA: DOD ) . The product provides investors pure play to the 10 highest dividend-yielding securities in DJIA in equal proportions and charges 75 bps in annual fees. So, from the expense ratio point of view, the newly launched fund enjoys greater advantage. Notably, the regular Dow-based fund SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) lost 1.2% in the last one year (as of January 4, 2015) and 3.1% in the last six months while the yield-heavy fund DOD advanced over 1.5% in the last one year and over 2.1% in the last six months. These data clearly explain the need and the expected success of the newly launched ETF. Original post