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If you have a good portfolio – i.e. did the “right” things and diversified internationally, tilted to value, etc. it hasn’t worked well recently.  This is where the mettle of quality advisors is tested. Can we keep clients on-board and on-track, continuing to do the right things even when it hasn’t worked for a while? …

Recently Anitha and I were talking about whether someone we knew was “good with money” and we disagreed. We were momentarily confused until we realized our definitions of that phrase were different. When I said “good with money,” I meant behaviorally. For example, we know a couple who are a perfect example of the point …

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Summer 2019

ESG investing (avoiding investments with “bad” Environmental, Social, or Governance aspects) is becoming more popular but has been around a long time. The approach was previously known as SRI (Socially Responsible Investing) or colloquially as avoiding “sin stocks”. A quick note on terminology first. If I talk about a “good” or “bad” investment, it isn’t …

I have been thinking for a while about how much umbrella liability coverage someone should have.  The rule of thumb that people should carry an amount equal to their net worth seems too simplistic. To simplify the analysis, assume for the moment that: The insurance is priced at the pure cost of insurance.  In other …

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Spring 2019

This will start a little technical (and seemingly off-topic), but should quickly get relevant and may cause you to see some things in a new light. To begin, we need to discuss synthetic securities, and I will use stocks as the easiest one to understand. Suppose you have a non-dividend-paying stock that is trading at …

By default we set up every taxable (i.e. non-retirement) account to have margin but we almost never use it. (You don’t want retirement accounts to have debt at the account level because it gives rise to UBTI – unrelated business taxable income – which is taxed at the high trust rates, but you get no …

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Winter 2019

The optimal savings vehicles are client-specific, both in what they may have available to them, and in what would be prudent for their specific situation.  Nonetheless, in general, this is usually the right order (exceptions and other issues at the end) for a typical client who expects to be in a lower tax bracket in …

Fixed income is held for risk reduction, not return enhancement. It is the ballast that allows the ship of your portfolio to withstand the financial storms that periodically roil the markets. It is conventional wisdom that “correlations go to one” in times of stress, but this is incorrect. Correlations between risky investments go up, but …

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Fall 2018

No advisor is perfect, but there are a few rough indicators (also see The Quality Advisor’s Alpha/Gamma/Sigma and How to Evaluate an Investment Advisor) that I use to recognize the quality of another advisor.  Below are three examples in each category (this is not an exhaustive list), with my favorite simple indicators in bold: Does …

The reason to diversify internationally is not because expected returns are higher on foreign* investments, but because they will be different. Diversification is about risk reduction, not return enhancement. Hedging currency risk is optional in equities but essential in fixed income. The belief that foreign holdings are unnecessary because domestic companies have large foreign sales, …

My latest quarterly ramblings to my Financial Professionals list are out: Financial Professionals Summer 2018

The title of this piece is “guaranteed” to make financial regulators hyperventilate and plaintiff’s attorneys salivate, but I think you will find it hyperbole-free. Of course, as Benjamin Franklin famously observed, “in this world nothing can be said to be certain, except death and taxes” but I think these rules come very, very close. Before …

This is an excellent list of how to evaluate scientific evidence.  Almost all the issues are applicable to evaluating whether a manager or investment approach will demonstrate outperformance in the future.  To wit: Differences and change cause variation – that outperformance is subject to a very high level of sheer randomness. Bias is rife – …

In my head I have had a hierarchy of items I disseminate: Quick simple thoughts or forwarding of things to my coworkers via email. If it is a little more interesting also share (via email) with my consulting clients. (These are other RIA firms that have me on retainer for my perspective.  If you are …

John Bogle has cautioned, “Too many investors-individuals and institutions alike-are constantly making investment decisions based on the lessons of the recent, or even the extended, past.” Here is a chart of the major asset classes sorted by the differences between the penultimate downturn and the last one: Asset Class 8/2000 – 9/2002 10/2007 – 2/2009 …

Suppose a client is going to contribute $X per month.  A trade could be done every month, incurring a transaction fee, or every other month, or every third month, etc.  When is the optimal time? It depends on the spread of expected return of the asset class to be invested in over the expected return …