I have little confidence even in the ability of analysts, let alone untrained investors, to select common stocks that will give better than average results. Consequently, I feel that the standard portfolio should duplicate, more or less, the DJIA.

Benjamin Graham

Risk

• Long Term – lose everything

• Short Term – Investments are down and we need cash now, forced to take losses

Liquidity – Where?

• T-bills: minimum $1,000 face value maturities of 4 weeks, 3,6,12 months. Exempt from state and fed taxes

• www.treasurydirect.gov --- don’t buy in secondary market

• Aggregate Bond funds: SCHZ, BND, LAG

www.treasurydirect.gov

• TIPs

• i-Bonds

• Preferred Stock*ETF: iShares S & P U.S. Preferred Stock Index

(PFF) 302 Preferred Stocks

Preferred stock is like a bond that never matures. Well not quite, since many have call provisions.

• REITs*

Vanguard VNQ (ETF)

Schwab SCHH (ETF)

Bond Index Funds

• Aggregated Funds*

• Government*

• TIPs* – for tax advantaged accounts – inflation hedge, diversifies the portfolio with real return

Bonds – Indexes, sort of

• High-Yield (Junk)

• Foreign

• Emerging Market

• Real-Estate

Bonds?

• Vanguard offerings in your Text

• Fidelity on their website

• CEF Connect for others including PIMCO funds

• Schwab on Handout

• Munis – 2 weeks ago

Index Bond Funds?

• Index funds are purportedly available for all bond asset classes

• S&P 500– 400 to 480 companies rarely leave the index– Top 100 companies comprise 80% of the

index

Index Bond Funds?

• 8,000 to 20,000 bonds in an asset class– Simulation and Manipulation

• Those in the Government bond arena which is somewhat uniform, traded actively, and lends themselves to modeling

• Bond Mutual Funds Only

Aggregate Bond Funds

• Underperform almost all managed bond funds

• U.S. Gov‘t bonds that they comprise 70% of the market cap of all bonds issues

• Low risk low return government bonds

• Very stable

• How much – what can you afford

Finding Bond Funds

• How to evaluate bond mutual funds:

• Look at some Examples•  

• Not a recommendation

Close Ended Bond Funds

• Trades like a stock on a market exchange

• Holdings are selected by the fund manager

• The price of a unit is determined by the market and is seldom = NAV

• May be leveraged

• CEF Connect

CEF Connect

• 6 Pages of information

• What use Morningstar?– Quintiles– Change with time– Good for firms, not funds, generally

Morningstar Fund Family Ratings   Domestic

StockInternational Stock

Municipal Bonds

Taxable Bonds

Vanguard 4.0 3.0 4.0 3.5

Schwab 3.9 2.8 3.0 2.7

Fidelity 3.7 3.7 3.6 3.5

PIMCO 4.4 3.2 2.1 3.7

Nuveen 2.8 2.1 4.0 3.5

Blackrock (iShares)

3.1 2.8 4.1 3.8

State Street (SPDRs)

3.9 3.0   3.0

Morningstar Fund Family Ratings

• All Index Funds average between 3.0 and 4.0 in any asset class and do affect the ratings.

 

• http://quicktake.morningstar.com/fundfamily/0C00001Z4B/all-fund-family.aspx

Two Portfolios?

1. Tax deferred (IRA) investments

2. Taxable investments

• Weighted toward Munis and Equities

• Cap Gains and Dividends

4 Abilities Needed By Successful Investors

1. An interest in the process

2. More math ability than manipulating a spreadsheet.

3. A firm grip on financial history

4. Emotional discipline to execute their planned strategy faithfully

Hire an Advisor

• They charge me 1% or my assets

• I expect income of 6% return on my portfolio, I am paying them:

 

• 1/6 of my income or 16% of my expected income, realized or not.

Hire an Advisor

• Put you into a conservative, balanced, or aggressive portfolio

• Along with any other clients with the same profile

Robo-Advisors

• The cost is less than for a personal advisor

• The portfolio may have more personalization

• Work done by computers

• Vanguard and Schwab

• Not Fidelity (August 2015)

Robo-Advisors

• Vanguard– $50,000 minimum – 0.4% of your assets as an annual fee

• Schwab– $5,000 minimum with no annual fee

Schwab Intelligent Portfolios

1. Go to https://www.schwab.com/public/schwab/client_home

2.  Select Schwab Intelligent Portfolios

3.  Answer 12 multiple choice or simple information questions to get suggested asset allocation portfolio.

4.  Examine results.

Schwab Intelligent Portfolios

• No obligation to sign up or open an account.

• Uses ETFs, primarily index funds

• Rebalance the account when needed

• You do all the entry of the information to determine your asset allocation

• You transfer in or out cash.

Schwab Intelligent Portfolios

• No advisory fees, commissions, or account service fees.

• So how does Schwab make any money?– Operating expenses on the index funds – Use of cash in the account that is placed in

their bank

If you can keep your head when all about you are losing theirs…

Yours is the Earth and everything that’s in it…

--Rudyard Kipling, If