Looking to Improve Knowledge re: finance/economics

[murdoc9]

My knowledge of economics and finance is poor, and would like to start learning more. I've start looking at white coat investor which seems like a good starting place. Are there any manageable introductory books that people would recommend? What do people tend to read on daily/weekly basis, ex WSJ, economist, etc?

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[deleted547339]

My knowledge of economics and finance is poor, and would like to start learning more. I've start looking at white coat investor which seems like a good starting place. Are there any manageable introductory books that people would recommend? What do people tend to read on daily/weekly basis, ex WSJ, economist, etc?

If you look through that site, he has a few books he recommends as starting points.

 

[pgg]

by Ferri - All About Asset Allocation

The Bogleheads forums and getting started

 

[murdoc9]

by Ferri - All About Asset Allocation

The Bogleheads forums and getting started

Thanks, I will check these out.

 

[G0S2]

Finance for Dummies

 

[gasdoc77]

Krugman if you wanna understand inflation. For stocks you will want to read a book on fundamentals and one on technicals. Know that diversity is much more than just equities from different sectors. It's real estate, equities, buying debt, even (gasp) commodities!

 

[deleted126335]

whitecoatinvestor.com

I also second pgg's recommendations

 

[chopes31]

If you like lectures, coursera.org has great classes

 

[yappy]

Investopedia website.

also, MIT has great open courses you can take [not for credit] for free. Check out their macro/micro econ courses.

 

[BLADEMDA]

William Bernstein- He is the man.

http://www.efficientfrontier.com/aa/


Consider this: If over the past 10 or 20 years you had simply held a portoflio consisting of one quarter each of indexes of large U.S. stocks, small U.S. stocks, foreign stocks and high quality U.S. bonds, you would have beaten over 90% of all professional money managers and with considerably less risk. The amazing truth is that over a long enough time period almost any reasonably balanced indexed strategy will best the overwhelming majority of "professional" managers.

 

[deleted50478]

William Bernstein- He is the man.

http://www.efficientfrontier.com/aa/


Consider this: If over the past 10 or 20 years you had simply held a portoflio consisting of one quarter each of indexes of large U.S. stocks, small U.S. stocks, foreign stocks and high quality U.S. bonds, you would have beaten over 90% of all professional money managers and with considerably less risk. The amazing truth is that over a long enough time period almost any reasonably balanced indexed strategy will best the overwhelming majority of "professional" managers.

Exactly. You now know everything you need to know. 1) diversify, 2) don't hire a financial advisor

 

[BuzzPhreed]

William Bernstein- He is the man.

http://www.efficientfrontier.com/aa/


Consider this: If over the past 10 or 20 years you had simply held a portoflio consisting of one quarter each of indexes of large U.S. stocks, small U.S. stocks, foreign stocks and high quality U.S. bonds, you would have beaten over 90% of all professional money managers and with considerably less risk. The amazing truth is that over a long enough time period almost any reasonably balanced indexed strategy will best the overwhelming majority of "professional" managers.

This is friggin' solid advice right here.

Play stocks only if you like to gamble.

 

[BLADEMDA]

This is friggin' solid advice right here.

Play stocks only if you like to gamble.

Yes. And I like to the roll the dice if the odds are in my favor. This means buying undervalued stocks or ETFs selling at a discount to fair value. For example, look at the energy sector right now. I "bet" that a $20K investment in the Vanguard Energy ETF would be worth 30% more in 2 years. The sector has been decimated by traders/sellers the past few days. XOM, CVX, COP, etc are all on sale courtesy of short term traders and hedge fund managers. Do you really think Gas is going to stay at $2.50 per gallon for very long?

The last time this sector got hit in '08 I bought $50K worth and made a bundle.
Vanguard Energy ETF
VDE

 

[deleted126335]

Yes. And I like to the roll the dice if the odds are in my favor. This means buying undervalued stocks or ETFs selling at a discount to fair value. For example, look at the energy sector right now. I "bet" that a $20K investment in the Vanguard Energy ETF would be worth 30% more in 2 years. The sector has been decimated by traders/sellers the past few days. XOM, CVX, COP, etc are all on sale courtesy of short term traders and hedge fund managers. Do you really think Gas is going to stay at $2.50 per gallon for very long?

The last time this sector got hit in '08 I bought $50K worth and made a bundle.
Vanguard Energy ETF
VDE

VDE did not substantially outperform any major large cap index. over this time period. The benefit was from increasing equity exposure during a sell off. Whether by luck, or skill, or having a plan that called for automatic rebalancing.

 

[Mman]

My knowledge of economics and finance is poor, and would like to start learning more. I've start looking at white coat investor which seems like a good starting place. Are there any manageable introductory books that people would recommend? What do people tend to read on daily/weekly basis, ex WSJ, economist, etc?

Benjamin Graham, The Intelligent Investor

A wonderful introduction to value investing concepts. His teaching formed the basis of Warren Buffett's education into becoming the most successful investor in American history.

His basic tenet is that any prediction of the future is no more likely than chance to be correct and he believes the key to investing is finding investments that are significantly underpriced relative to their inherent value (i.e. buying a dollar for 50 cents)

 

[BLADEMDA]

VDE did not substantially outperform any major large cap index. over this time period. The benefit was from increasing equity exposure during a sell off. Whether by luck, or skill, or having a plan that called for automatic rebalancing.

The 2 sectors which have been crushed by WallStreet are the precious metal miners and energy. One doesn't have to be the Oracle of Omaha to understand that good values occur when there is blood in the street. Right now the assumption is gas will remain at $2.50 or below per gallon and Gold, Silver, Platinum will not rally anytime soon. If you disagree with those assumptions then you can buy the stocks of these companies at distressed prices. For someone who believes in reversion to the mean the energy and miner stocks are worth acquiring right here.

 

[BLADEMDA]

Benjamin Graham, The Intelligent Investor

A wonderful introduction to value investing concepts. His teaching formed the basis of Warren Buffett's education into becoming the most successful investor in American history.

His basic tenet is that any prediction of the future is no more likely than chance to be correct and he believes the key to investing is finding investments that are significantly underpriced relative to their inherent value (i.e. buying a dollar for 50 cents)

Exactly. Right now those 2 sectors are selling at less than 70 cents per dollar of fair value. Maybe you should start nibbling at those companies?

Rebalancing is fine but there is no reason not to take advantage of mispricing in a sector by Wallstreet. The "street" has a tendency to overdo a sector on the way up and crush it on the way down. The question is has the street finished beating up the energy sector yet?

 

[RxBoy]

My knowledge of economics and finance is poor, and would like to start learning more. I've start looking at white coat investor which seems like a good starting place. Are there any manageable introductory books that people would recommend? What do people tend to read on daily/weekly basis, ex WSJ, economist, etc?

Read, learn, educate yourself. But at the end of the day there are 2 simple rules you have to follow:
1) Don't try to time the market.
2) Don't pick individual stocks.

What to do:
1) Once a month, same time every month, use a cheap online broker account to invest in VOO (vangaurd s&p 500 index fund). Preferably invest the same amount each month. Put away as much of it as you can before you spend it.
2) Dont ever sell the stocks, and even in a down market you keep buying every month. Never change that strategy.

Do this for 30 years and you'll have a nest egg worth millions. When you get closer to retirement you can start converting those stocks to bonds.

If you follow this strategy, do not get a financial advisor... especially one that charges percentage points on commission. The 2 percent they take now, would be potential millions in 30 years.

Everything else in equity investing is fairy dust.

 

[deleted126335]

The 2 sectors which have been crushed by WallStreet are the precious metal miners and energy. One doesn't have to be the Oracle of Omaha to understand that good values occur when there is blood in the street. Right now the assumption is gas will remain at $2.50 or below per gallon and Gold, Silver, Platinum will not rally anytime soon. If you disagree with those assumptions then you can buy the stocks of these companies at distressed prices. For someone who believes in reversion to the mean the energy and miner stocks are worth acquiring right here.

http://forums.studentdoctor.net/threads/blade-opines-on-money-and-anesthesia.732938/

You posted the following May 2010:

My stance on savings/investment is simple:

1. Gold- at under $1500 an ounce I would be a buyer of gold. It deserves a place in a diversified portfolio (10-20%).

2. Bonds/CD- Again, the risk of the market is huge so this should be an important part of a portfolio (20-30%)

3. Commodities- You need a real hedge against possible inflation. Yes, we are deflating now but inflation is real risk going forward.

4. Stocks- It is a trader's market. Over the next few years the market is likely to gyrate a lot and go nowhere. So, those who trade well have a big advantage over "buy and pray" investors.

Also from the same thread: "I argue the real asset bubble is the U.S. Dollar."


----------------------------------------------------------------------


Let's see how four and one half years later these calls worked out:

1. Gold: Under $1,200 /oz

2. Bonds/CDs can't argue with that.

3. Pimco Commodity Real Return Strategy 3 year return -5.35.% 5 year return -0.45% (annualized). Vanguard Energy (open end mutual fund) +7.55% 3 year. +5.01%. 5 year annualized

4. Dow Jones close that day 10,136. Today 17,828.

5. US Dollar index. That day it closed at 86.5. Today it is 88.4.

Think how a simple total stock plus total international plus Bond index fund would have trounced those calls. Add in international stocks small and value tilting, etc., etc.

 

[gasdoc77]

Regarding inflation, make no mistake that we have been inflating. It simply has not yet come home to roost thanks to "globalization" creating a similar situation to what we call the 2 compartment model in pharmacokinetics. Eventually that money will find its way back to our shores. In the meantime, inflating through quantitative easing has proven to boost GDP by making the general public have to work harder to keep up with the Jones's, extracting more productivity. Krugman argues that this very inflation is necessary to stoke the fires of our consumption based economy. I'm not a fan of Krugman's liberal agenda, but I think that the fed has bought into this lock stock and barrel.

 

[deleted126335]

Regarding inflation, make no mistake that we have been inflating. It simply has not yet come home to roost thanks to "globalization" creating a similar situation to what we call the 2 compartment model in pharmacokinetics. Eventually that money will find its way back to our shores. In the meantime, inflating through quantitative easing has proven to boost GDP by making the general public have to work harder to keep up with the Jones's, extracting more productivity. Krugman argues that this very inflation is necessary to stoke the fires of our consumption based economy. I'm not a fan of Krugman's liberal agenda, but I think that the fed has bought into this lock stock and barrel.

No. The Fed is pumping liquidity into the system to keep people employed and not having their homes or cars repossessed or so they can keep their health insurance and not go bankrupt. The Fed's tools are incredibly blunt and a lot of the liquidity being pumped into the system is finding its way into financial assets. Not most working Americans' paychecks. Wages have been deflating. In general Commodities (spot prices) have been inflating.

 

[gasdoc77]

No. The Fed is pumping liquidity into the system to keep people employed and not having their homes or cars repossessed or so they can keep their health insurance and not go bankrupt. The Fed's tools are incredibly blunt and a lot of the liquidity being pumped into the system is finding its way into financial assets. Not most working Americans' paychecks. Wages have been deflating. In general Commodities (spot prices) have been inflating.

While we may not agree on motives I think we can agree on the end results.

 

[BLADEMDA]

http://forums.studentdoctor.net/threads/blade-opines-on-money-and-anesthesia.732938/

You posted the following May 2010:

My stance on savings/investment is simple:

1. Gold- at under $1500 an ounce I would be a buyer of gold. It deserves a place in a diversified portfolio (10-20%).

2. Bonds/CD- Again, the risk of the market is huge so this should be an important part of a portfolio (20-30%)

3. Commodities- You need a real hedge against possible inflation. Yes, we are deflating now but inflation is real risk going forward.

4. Stocks- It is a trader's market. Over the next few years the market is likely to gyrate a lot and go nowhere. So, those who trade well have a big advantage over "buy and pray" investors.

Also from the same thread: "I argue the real asset bubble is the U.S. Dollar."


----------------------------------------------------------------------


Let's see how four and one half years later these calls worked out:

1. Gold: Under $1,200 /oz

2. Bonds/CDs can't argue with that.

3. Pimco Commodity Real Return Strategy 3 year return -5.35.% 5 year return -0.45% (annualized). Vanguard Energy (open end mutual fund) +7.55% 3 year. +5.01%. 5 year annualized

4. Dow Jones close that day 10,136. Today 17,828.

5. US Dollar index. That day it closed at 86.5. Today it is 88.4.

Think how a simple total stock plus total international plus Bond index fund would have trounced those calls. Add in international stocks small and value tilting, etc., etc.

Gold still looks good at $1150 an ounce. I'm adding to my portfolio as is Putin/Russia and China. The miners look even cheaper!

Bonds are very risky right now. I'm 90% short term as the risk/reward going forward isn't there.

I"M heavily invested in equities. Over 50% of my portfolio is in equities and will likely remain so. I vary my % based on fair value of equities. Low fair Value and I tilt 60% and high fair value I go 45%. This isn't timing as much as it is common sense and back-tested.

Dollar is an over-inflated asset. I don't how long it will be before the dollar collapses 20-30% but my portfolio is hedged against that scenario with Gold, Silver and Commodities (hard assets).

Sometimes it takes 10-15 years for a thesis to play itself out. Value investors must be patient investors.

I did give up on coal earlier this year. Natural Gas is plentiful and cheap plus the EPA hates Coal.
But, I'm bullish on gold at these prices especially the miners.


Buy quality companies when they are on sale and you will make money. Still, only a portion of your portfolio should be devoted to individual stocks, Gold, etc. Even when I play the miners I use the ETF- GDX.

 

[BLADEMDA]

One more thing: The bulk of your portfolio can be ETFs or Vanguard funds with diversification across all asset classes including Foreign, Emerging markets, etc. I've done exactly that this year. That said, I've reserved a portion of my portfolio for individual stocks, miners, gold and silver. I see the greatest opportunity for profit in the under-loved sectors of the market especially the miners and energy.

Bubbles can get HUGE before they burst. I'm wary of the U.S. dollar at these prices.

 

[Mman]

Exactly. Right now those 2 sectors are selling at less than 70 cents per dollar of fair value. Maybe you should start nibbling at those companies?

Rebalancing is fine but there is no reason not to take advantage of mispricing in a sector by Wallstreet. The "street" has a tendency to overdo a sector on the way up and crush it on the way down. The question is has the street finished beating up the energy sector yet?

I already own decent positions in energy stocks mostly because they are very stable cash cows long term that pay out relatively large dividends. Temporary drop in price doesn't bother me, especially when those same companies see their refining profits go up when oil prices go down.

Watching individual stock price movements can be fascinating. Best Buy is down 5% today mostly because they had website problems over the weekend from a crush of people using it. So that's a bad thing??? They just got done trouncing 3Q profit estimates about a week ago and now they have so many people buying stuff they can barely keep up and the stock goes down??? Bizarro world.

 

[epidural man]

Peter Lynch -

One up on Wallstreet is probably considered a classic with regards to investing.

 

[BLADEMDA]

I already own decent positions in energy stocks mostly because they are very stable cash cows long term that pay out relatively large dividends. Temporary drop in price doesn't bother me, especially when those same companies see their refining profits go up when oil prices go down.

Watching individual stock price movements can be fascinating. Best Buy is down 5% today mostly because they had website problems over the weekend from a crush of people using it. So that's a bad thing??? They just got done trouncing 3Q profit estimates about a week ago and now they have so many people buying stuff they can barely keep up and the stock goes down??? Bizarro world.

How about the Gold Miners? GDX.

I expect a lot of tax loss selling in GDX this month so maybe you get a great deal after Christmas. Gold is currency and at $1150 per ounce miners must shut down production and curtail expenses. Supply will eventually dip below demand and then GDX goes higher.

 

[BLADEMDA]

Here is my advice for investing after reading 6 books recommended by Doze and others. Doze has set me straight on this subject. I've spent countless hours pouring over data and analyzing returns for the past 15 years.

1. In a taxable account avoid actively managed funds in the domestic side of your equity exposure. I recommend avoiding it on the international side as well but a case, a weak one, can be made for active management in Foreign small cap and Emerging markets. This doesn't mean ETFs, Index Funds, etc are BAD ideas for your IRA; on the contrary, they are fine for both taxable and non taxable accounts. Doze would counter that passive management is superior to active management for Foreign investments but my research shows that active management can add value here due to the inefficiency of foreign markets.

2. Bonds- Those under 40 don't need much of these. Over 40 and you need Bond funds from Vanguard, Fidelity or PIMCO (yes, Pimco). For all the talk about stocks and equities or even Gold the Bond portion of your portfolio as you reach 50 becomes vitally important to the portfolio.

3. Vanguard and DFA funds are the best in the business. Low cost, tax efficiency and market beating returns over 10 year periods. I own funds from T. Rowe price, Tweedy Browne and Fidelity but really they aren't needed if you have access to Vanguard and/or DFA.

4. U.S. markets are over-valued right now. Foreign markets are cheaper and Emerging markets offer growth potential exceeding the USA over the next 10 years. You need exposure to emerging markets in the 5-10% range. Those under 40 should have 10% of their portfolio in Emerging markets.

5. The best resource for Investing is Morningstar.com, Bogleheads, William Bernstein or Rick Ferri and SDN via Doze. You really need to read 2 books before investing your first dollar or venture outside the Vanguard Family of funds.

6. Asset Allocation- Your success or failure as an investor has more to do with Asset Allocation, Low cost Funds and Tax efficiency than anything else.

7. If you must play the market like a few of us do (not Doze of course) then limit that to no more than 10% of your portfolio and follow strict rules for buying/selling stocks.

 

[BLADEMDA]

Sample Portfolio for under age 40:

Domestic stocks 35%


Reits:
5% USA
5% Global or Foreign

Bonds:
5% Short term USA (municipal or short term corporate if in IRA)
5% Foreign Bonds incl emerging markets

Foreign stocks 35%


Metals/Commodities- 10% (sector is cheap right)



When the commodity sector becomes fully valued again in 3-5 years you could reduce that sector allocation to 5% and deploy the money into your bond fund allocation.

FYI: Rick Ferri claims the "value" affect on the domestic equity side of the portfolio is vanishing or non existent. Hence, he doesn't emphasize the VALUE tilt as much as some others do (like Doze) for equity investing.

 

[BLADEMDA]

You can build a portfolio like I list above very cheaply using ETFs with just Vanguard as the brokerage. Or, you can do what I prefer which is Vanguard ETFs for the domestic side of the portfolio and active management for PART of the Foreign equities. That said, if you have access to DFA funds then you can use low cost passive approach for the entire portfolio.

 

[Shimmy8]

CA-1 here, currently working on Intelligent Investor and Bogleheads book.

Current IRA with Vanguard:
20% VBTLX Vanguard Total Bond Market Index Fund
30% VTIAX Vanguard Total International Stock Index
50% VTSAX Vanguard Total Stock Market Index Fund

Wife's 401k through work with Fidelity:
50% FXSIX Spartan 500 Index Fund
30% FSPNX Spartan International Index Fund
20% VBTIX Vanguard Total Bond Market Index Fund

Don't plan on these changing any time soon, KISS.

 

[BLADEMDA]

CA-1 here, currently working on Intelligent Investor and Bogleheads book.

Current IRA with Vanguard:
20% VBTLX Vanguard Total Bond Market Index Fund
30% VTIAX Vanguard Total International Stock Index
50% VTSAX Vanguard Total Stock Market Index Fund

Wife's 401k through work with Fidelity:
50% FXSIX Spartan 500 Index Fund
30% FSPNX Spartan International Index Fund
20% VBTIX Vanguard Total Bond Market Index Fund

Don't plan on these changing any time soon, KISS.

You need Emerging Market exposure. Long term Emerging markets offer greater returns. Yes, the Volatility is higher but the returns are worth it.

Here are a few:
1. FEMKX
2. VOO
3. EEM
4. EEMV

 

[BLADEMDA]

 

[Obnoxious Dad]

My knowledge of economics and finance is poor, and would like to start learning more. I've start looking at white coat investor which seems like a good starting place. Are there any manageable introductory books that people would recommend? What do people tend to read on daily/weekly basis, ex WSJ, economist, etc?

I'm not a doc. My kid is. I'm a CPA with an MBA from a top 25 program and an inactive attorney.

If you want to learn about the economy, go to the local community college and take the first two elementary economics courses. The knowledge you pick up in those classes will benefit you in your career, your investment decisions and perhaps decisions about housing and other life style issues.

If you find the econ classes interesting, take the elementary courses in accounting. They won't turn you into a CPA but they will teach you how to read the financial statements of your employer, group, partnership etc. You will be less likely to get swindled as you progress in your career.

If you are still interested, then take a couple of finance classes. These classes might not be available at a CC. You can get a basic understanding of corporate decision making and investment theory. I do agree with the other posters that unless you are extremely insightful like Peter Lynch or Warren buffet, you aren't going to beat the market. The best things to do are to avoid transaction costs, minimize fees and avoid capital gains taxes.

Finally, if you are completely nuts, you can get an MS in Applied Econ through the University of North Dakota's online program. I may do that myself in my retirement just for fun. 😉

 

[yappy]

I'm not a doc. My kid is. I'm a CPA with an MBA from a top 25 program and an inactive attorney.

If you want to learn about the economy, go to the local community college and take the first two elementary economics courses. The knowledge you pick up in those classes will benefit you in your career, your investment decisions and perhaps decisions about housing and other life style issues.

If you find the econ classes interesting, take the elementary courses in accounting. They won't turn you into a CPA but they will teach you how to read the financial statements of your employer, group, partnership etc. You will be less likely to get swindled as you progress in your career.

If you are still interested, then take a couple of finance classes. These classes might not be available at a CC. You can get a basic understanding of corporate decision making and investment theory. I do agree with the other posters that unless you are extremely insightful like Peter Lynch or Warren buffet, you aren't going to beat the market. The best things to do are to avoid transaction costs, minimize fees and avoid capital gains taxes.

Finally, if you are completely nuts, you can get an MS in Applied Econ through the University of North Dakota's online program. I may do that myself in my retirement just for fun. 😉

Great advice but all of the courses you mentioned can be taken free via open courses at well known universities.

 

[Mman]

2. Bonds- Those under 40 don't need much of these. Over 40 and you need Bond funds from Vanguard, Fidelity or PIMCO (yes, Pimco). For all the talk about stocks and equities or even Gold the Bond portion of your portfolio as you reach 50 becomes vitally important to the portfolio.

Graham argued that almost everybody should have a mix of stocks and bonds between 25% and 75% depending on your age. So even the young investor should probably have something like 25% in bonds to help temper their portfolio against a 20-50% drop in stocks over a few years.

I understand the rationale for younger investors (35 and under) barely having any exposure to bonds, but one of his points was that investing is more about guarding against emotional decisions. If you are 100% in stocks and they take a big downfall, it's hard to remain rationale and calculating. Having a decent exposure to bonds helps you remain unemotional about the decisions even in a very big down market. It also gives you a reserve to get back into stocks when their prices are way down.

 

[Jay K]

Blade, I appreciate that you're quite opinionated and always willing to share. I don't know that I always agree with you, but I've certainly picked up a lot of good things. You keep this forum going, and I thank you.

 

[BLADEMDA]

Graham argued that almost everybody should have a mix of stocks and bonds between 25% and 75% depending on your age. So even the young investor should probably have something like 25% in bonds to help temper their portfolio against a 20-50% drop in stocks over a few years.

I understand the rationale for younger investors (35 and under) barely having any exposure to bonds, but one of his points was that investing is more about guarding against emotional decisions. If you are 100% in stocks and they take a big downfall, it's hard to remain rationale and calculating. Having a decent exposure to bonds helps you remain unemotional about the decisions even in a very big down market. It also gives you a reserve to get back into stocks when their prices are way down.

Well for a guy/gal just starting out at age 30 with 2 nickels in the bank I don't think bonds make sense. Instead, cost average into the market from age 30-40 and stick with equities. Of course, at some point you need to add bonds into the mix and that should occur after age 40 or your portfolio is large enough to need "tempering" against a drop in stocks.

I do understand the classical thinking in using bonds to reduce volatility while maintaining good returns. Hence, I won't argue if anyone chooses to hold a 20-30 percent allocation in bonds. The caveat to bonds is the concept of risk reduction in this area so high yield, foreign and emerging market bonds don't accomplish that task. Doze always says "take your risk on the equity side of your portfolio" and he is correct.

At my age I hold at least 40 percent in cash/gold coins/bonds/CDs etc. I probably should hold even more like 45 percent but I take the risk from equities so my bond holdings are pretty boring. I can't Afford to take risk on the equity side and the bond side.

 

[BLADEMDA]

not all bonds are the same. So, if your allocation is multisector, high yield, foreign and emerging market bonds the risk is still there you can lose a lot of money. In fact, one could argue some bond funds are riskier than foreign equities.

Hence, please make sure you understand about risk reduction with the correct type of bond fund.

 

[deleted126335]

Few thoughts on above:

-I am 100% passive, except for some individual stocks that I bought 20+ years ago that have unrealized cap gains. I have been slowly donating them to charity.
-Gold: there are multiple reasonable strategies that use gold or precious metals equity. I don't use them, but they are reasonable. I prefer precious metals equity. GDX is an excellent choice. Advantage: EXCELLENT diversification benefits. Disadvantages: wicked volatility. More importantly This particular asset class requires a tremendous amount of patience to pay off. Think decades, not years. Precious metals equity has had a horrific fall off over the last few years. If you are thinking about taking a long term position, now is a very reasonable time. Doesn't mean that it won't continue to get savaged. Be prepared to be very patient.
-Foreign equities: Definitely cheaper than US equities, thus they have higher EXPECTED but not guaranteed returns. They might just lose less than US equities in the future. If stock returns were guaranteed they would have no risk. Emerging markets also have higher EXPECTED but not guaranteed returns.
-Currently all financial assets appear to be at the high end of historical valuations. This bodes ill for future expected returns. The stock market is not an actuarial table. It does not "owe" investors 10% or so per year. High quality bonds will have a negative real return after taxes at current valuations. The only exception would be a deflationary collapse where your bonds don't default.
-Value investing. Has paid off handsomely over the last decade plus and over the long term. I agree with Rick Ferri, many money managers have embraced the value effect and poured lots of money into value stocks. The premium may well have shrunk significantly. It is probably still there for international stocks since most folks are under invested internationally. Tough time for those considering retirement who need to have a large amount in fixed income.

 

[Mman]

Well for a guy/gal just starting out at age 30 with 2 nickels in the bank I don't think bonds make sense. Instead, cost average into the market from age 30-40 and stick with equities. Of course, at some point you need to add bonds into the mix and that should occur after age 40 or your portfolio is large enough to need "tempering" against a drop in stocks.

Again, I don't disagree. It's just that Graham's argument is that the greatest threat to your investing lifetime is making emotional decisions. If you are 100% exposed to various equities at any point (even early on), a big down swing could cause you to make poor emotional choices. A more diversified portfolio, even early on, can allow you to have a better chance at not experiencing big emotional swings that impact your decisions.

And of course, all bonds are not created equal. There are some stocks that have less risk than some bonds in them. But everybody probably needs at least a little diversification to help them remain calm in any storm. I prefer low cost bond funds and low cost international stock funds to help diversify my portfolio (taxable bond funds in my tax deferred accounts and tax free bond funds in my taxable accounts) alongside low cost total stock funds and whatever is leftover mixed between cash (and equivalents) and individual stocks .

 

[BLADEMDA]

Great advice from Doze and Mman. Doze has been my "mentor" in the financial arena the past 36 months. I've restructured my portfolio so that it now has diversification across all asset classes. We may disagree on a few points here and there (like I don't trust the U.S. currency long term) but overall the man is spot on when it comes to the SCIENCE of investing.

Those of you out there without a MASTER PLAN for retirement need to get going on one. The most important parts of the plan are asset allocation (major), passive investing in your taxable accounts (major), passive investing in your retirement accounts (I chose active mutual fund managers for 50% of my retirement portfolio but I keep expenses, i.e. ER, below 1%), rebalancing at least once per year (minor) and tax loss harvesting (minor).

Keep Cost averaging in to your "plan" until you are too old or too rich to continue doing it. All plans deserve a review every quarter or 6 months to make sure you are on track. If you are losing money in any one asset area don't be concerned as that is expected. If the market tanks rebalance from Cash or Bonds and buy equities.

I still dabble in individual equity names but prefer sector ETFs for my trades. You need to be in the game to win the game so go open up that account at Vanguard, Fidelity, Schwab, Ameritrade, E-trade, etc and start investing tomorrow.

 

[BLADEMDA]

 

[BLADEMDA]

http://www.coffeehouseinvestor.com/coffeehouse-beans/coffeehouse-portfolios/

International exposure is too light for the new world order where the USA makes up less than 50% of total world equities.

Emerging Market exposure? Should produce better longer term performance than the US equity markets but with much higher volatility.

 

[BLADEMDA]

 

[BLADEMDA]

 

[BLADEMDA]

 

[BLADEMDA]

 

[BLADEMDA]

 

[BLADEMDA]

My portfolio is similar to the above except I have Foreign small/mid cap, Foreign Small cap value and US Small Cap Value as boxes (plus the ones listed above). At this time my TIP exposure is ZERO but I will add that box when and if interest rates return to 3.50-4% (which may be never).

My portfolio varies from 50% equities (when they are expensive) to 65% equities when they are cheap (like late 2008/early 2009). Right now equities are slightly overvalued in the USA with small caps being expensive. Foreign equities are below fair value.