Mutual Funds
Written by Dani, April 11th, 2013
ETF Quick Facts:
- ETFs globally hold about 1.7 Trillion dollars in assets.
- Over 1400 ETFs available for U.S. investors
- Pros of ETFs: low cost, low trading fees, liquidity and transparency
- Most ETfs are index-based
We believe that ETFs are excellent vehicles and we use them for the majority of our client portfolios.
However, there are some very good mutual funds out there, as well, and we encourage you to not get locked into only one investment style. If there’s a mutual fund that manages risk and implements a strategy that cant be duplicated with an ETF, we will definitely use it if it’s reasonably priced.
So, don’t get sucked into a ETF vs. Mutual Fund debate. Both can be used effectively with the right education, goals and portfolio outlook.
This is a podcast summary. For more information, please listen to the entire broadcast here.
Written by Dani, November 14th, 2012
This is a recap of our recent teleconference (Tuesday, November 13, 2012) titled: The Election, Your Money, Your Future. If you missed the presentation, we encourage you to listen to the audio recording and download the handout, as well as read this blog for more information.
The purpose of this teleseminar is to help you with a thoughtful investment process. This is for general information and education, not personal investment advice.
Here are the main points we want investors to think about in this season:
- The elections are over, and it’s time to remove politics from your investment thinking.
- Think before you act. Make good investment decisions, follow good strategies.
- Avoid speculation. No one can predict, guess or bet on what will happen next. There’s a lot of noise out there, so be wary of fear-mongers.
- Think about solid investment ideas to build upon.
First, let’s discuss the things that we are certain of, that will absolutely affect our money and our decisions:
- Obama re-election, Congress remains the same.
- Obamacare implementation, taxes, and regulation.
- Higher taxes
- Recession in Europe is worsening
- Recession in Japan
- New leadership in China
Next, examine those things which we are less sure of. These are not news items we should be speculating about or making decisions based on, because we simply do not know their outcome. Be aware of these items but not panicky about them:
- Fiscal cliff outcome
- Greece to exit the euro and deal with current cash needs
- Spain also has severe cash needs
- New policies from China
- Potential global recession
Again, we are not making investment decisions based on things we don’t know. We need to be prepared for worst-case scenario, but not investing our of fear or an end of the world scenario. For your continued education and information, we will be having another teleseminar on Tuesday January 15, 2013 in order to update these uncertainties and continue moving forward, so mark your calendar!
Fixed-Income Review and Outlook
Bond market uptrend still in place, which makes bonds a good place for your money right now. There are a lot of people predicting bond market collapse, but we think this is inappropriate speculation, and we want our clients to know that we believe the bond bull market to be still intact.
(Click on chart to enlarge – Key to charts: AGG = Aggregate tripleA rated bonds, LQD = Large corporate bonds, TFI = National municipal bonds, EMB = Emerging market bonds)
Speculation continues that interest rates will rise in the next year, but for right now, these price trends are clearly in place. Obama being elected is an affirmation of Ben Bernanke and the Federal Reserve’s monetary strategy, which is keeping interest rates low. We want to dispel the myth that worries about the strength of the U.S. dollar right now. We believe that the dollar is doing just fine, currently in a short-term uptrend, and is stable. We are monitoring it and global faith in our currency, but we are not seeing anything to worry about in that area right now.
U.S. Indices Review and Outlook
(Click on chart to enlarge – Key to charts: DIA = Dow Jones Industrial Average, QQQ = Nasdaq 100, SPY = S&P 500, IWM = Small-cap stocks)
The longer we stay below the 200-day moving average, more probability of a longer and more serious correction in the markets. We believe that there is still a great deal of short-term risk in the market, but that this will present good opportunities for smart investors. We are defensive with our portfolios but looking for opportunities, and hoping to be buyers in this climate.
International Review and Outlook
(Click on chart to enlarge – Key to charts: EFA = 800 stocks of large international companies (no U.S. exposure), IEV = Europe, EEM = Emerging markets, FXI = 25 largest companies in China)
Opportunities for Income and Growth Investors
Income:
- Mortgage backed security strategies
- Emerging market bonds
- Invest in securities that create a monthly income stream
- Dividend equities (could be a good opportunity for purchase in a panic)
Growth
- Equities that pay income stream (we like utility stocks and real estate investment trusts right now)
- China
- Precious metals, mining.
We want to remind our listeners and readers that position size is very important when making investment decisions. We are in defensive positions right now, but alert to buying opportunities. We are not speculating or panicky, but wise and ready for our next investment move.
Personal Finance Post-Election Strategies
Taxes
With President Obama, tax issues are coming in 2013. California taxpayers, Prop 30 is retroactive, so there will be a large tax bill coming to California taxpayers that you need to be aware of and prepared for. Obamacare taxes will begin, as will fiscal cliff negotiations, and this all means that you should look closely at your taxes and meet with your CPA so that you can be prepared for the impact of this political and fiscal climate.
Income
This is the investment area where most people make big mistakes. Before you do anything, declare the kind of investor you are, and make a plan for that investment goal. The mistake that income investors most often make is chasing yield. We encourage you, do not chase speculative or volatile investments in order to get higher yields. It’s not worth it. Your entry point is critical, and it’s important to pay attention and put your money to work at the right price and right time.
Growth
We’re in a secular long-term bear market. Have a shock absorber for volatility. Look for equities that pay income and avoid risk.
Legacy
Everyone is going to die at some point, and how do you plan to take care of your spouse, family, heirs and other causes when that happens? Do you have a relationship with a competent investment adviser? You need professional help in order to insure that your goals and dreams are realized, both for you and your loved ones.
To close, we have some essential takeaways for all investors:
- Know that short-term risk is high.
- Revisit investment objectives.
- Revisit asset allocation.
- Prepare for buying opportunities.
As a thank you for participating in our seminar we would like to offer you a free consultation to discuss your portfolio and strategies to achieve your financial goals. This includes an in-depth analysis of all the holdings in your portfolio. We will share with you the unique strategies we are using for our clients right now and how active portfolio management can be of benefit to you.
This offer is available for goal-oriented investors with more than $250,000 in their investment portfolios. Contact us for a brief introduction and to schedule an appointment to review your accounts.
To schedule your free Portfolio Assessment, call us at 800-391-1118.
Written by Dani, October 31st, 2012
(This is a podcast summary. For more complete details, listen to our full podcast here, and don’t forget to pass this blog on to other friends and investors who might benefit from our perspective.)
We’ve all been watching Hurricane Sandy this week, and it’s incredible to see the power of a super-storm like that. Of course, everyone knew Sandy was coming, and while out here in California we are relatively warm and dry, we are still thinking of our friends on the East Coast as they weather this. Sandy is a great metaphor for the next storm in the stock market, but the difference is that many people probably won’t see that storm coming, and no matter where you live, you need to be prepared for it.
We are not pretending to know the future, but as we mentioned in last week’s podcast (which we encourage you to listen to if you haven’t already) we have lived through and learned from some stock market crashes in the past, and we want to help you learn from them as well, and prepare your portfolio accordingly.
The things you need to think about as you prepare your “storm survival kit” are:
- Check your volatility (especially in Mutual Funds and individual stocks). You can do this by visiting stockcharts.com and inputting the ticker symbols you own to see the price charts and trends. We suggest looking at the last three years or so in order to have a good picture of how much volatility you really own.
- Are your mutual funds or stocks in an IRA or a taxable account? How will downsizing affect your tax outlook?
- Think about correlation. Is your stock going in the same direction as the general market?
- Consider this: what’s your “pain point”? In other words, at what point of loss will you panic? Panic is often the enemy of smart investing, but you need to know where and how to handle sudden drops, volatility or uncertainty.
- Take action early in a market decline, and be prepared to ride out the storm on the rest of your portfolio.
- Just like in a storm like Sandy, you need to make a plan ahead of time, and be prepared to enact it.
If you’d like to find out more about how we can help you and your money face the next market storm, then act now by listening to the Monday Morning Market Outlook podcast, and then by giving us a call at 800-391-1118.
Written by Dani, March 28th, 2012
Bonds around the world should be approached selectively, understanding where the bonds are coming from and what challenges your investment may face. We just read about the new 100-year bonds in the UK, a vote for stability that stands in stark contrast to the bond market troubles in the rest of Europe. Here in the U.S., bonds are still in a bull market and we expect them to continue to do well this year. However, we think that municipal bonds need to be monitored very closely, as there are some local governments which are having serious financial troubles.
Because the political landscape in the U.S. is so polarized, there is a couple of misconceptions about our current financial situation.
Here’s two reasons why American investors should not panic or assume that the U.S. is the next Greece:
- We have the largest economy in the world, which means we can grow our way out of debt.
- We have the largest navy and military in the world, so we control the world’s oceans, causing our bonds to be a safe haven when global financial stress hits.
The big question is, is any politician going to address the issues of deficit spending? If you’ve read this blog for any length of time, you know that we don’t have much faith in politicians, but this is an issue that will have to be addressed, hopefully by 2013.
In short, we are approaching the bond market selectively. We do believe in the bond bull market, and we think that bonds will continue to be a safe haven this year. If you have any questions about what bonds we are investing in and why, please give us a call at 800-391-1118
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on this topic, and please share this information with others who might benefit from our perspective.)
Written by David, February 15th, 2012
“You have to make your money work for you.”
We’ve all heard this old adage, and to be certain, it is the key to income investing success. And while the truth of this statement can’t be argued, it’s definitely a lot easier to say than to actually do.
At Fabian Wealth Strategies, we take the concept of making your money work for you very seriously. But what does it actually mean to have your money working for you, and how can we help you achieve that noble goal?
Answering these questions is what our new report, The Ultimate Income Strategy, is all about.
As a fee-only investment advisor specializing in helping clients preserve their capital while also generating the income they need to live the life they desire, we take both of these objectives extremely seriously. However, conventional Wall Street wisdom usually pits the twin objectives of capital preservation and high income generation at odds.
According to the official party line, you can either A) preserve capital by sticking your money in “safe” investments that offer a pitifully low yield, or B) put your money at risk in dividend stocks and other high-yield equities and be willing to wait out the inevitable market declines that are inherent in these kinds of securities.
Well, we think this conventional wisdom is flawed, and we know there’s a better way to manage your income assets. You see, instead of the either-or choice of safety vs. yield, we’ve developed a strategy designed to maximize income while at the same time managing the various risks inherent whenever you put money to work in the market.
We call it our “Ultimate Income Strategy,” and when you’re finished reading this report, you should have a good sense of how the strategy works, and more importantly, how it allows your money to work for you.
If you’ve been trying to generate high income but have failed to keep your money safe from volatile market swings, then this report is aimed straight at you.
In The Ultimate Income Strategy, you’ll discover why the right mix of income-generating assets—along with the expertise to navigate in and around changing market conditions—are two key components of a truly successful income program.
By downloading this FREE special report, you’ll find out the secrets of how we manage an income portfolio to deliver the capital preservation and high yield every income investor is after.
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Written by David, January 04th, 2012
Bill Gross’s PIMCO Total Return Fund is the world’s largest bond fund. But as the old adage goes, the bigger they are the harder they fall. That was certainly the case in 2011, and particularly in December. The fund saw $1.4 billion in outflows in during the month, according to fund analytics firm Morningstar. In 2011, the fund saw total redemptions of $5 billion.
Why the flight away from PIMCO? Simple, Gross failed to deliver. He woefully underperformed his benchmarks in 2011, primarily by betting heavily against U.S. Treasuries. As it turned out, Treasuries were one of the best-performing asset classes last year, and the move higher in Treasuries actually forced Mr. Gross to issue a “mea culpa” letter to his investors admitting he got it wrong.
The admission of a mistake in the investment industry isn’t very common, and I give Bill Gross a ton of credit for doing so. I think it’s admirable to admit when you get a call wrong, as it shows you’re someone who respects the truth and can trusted to pursue that truth. Of course, that is little consolation to the many investors who didn’t see much upside in the PIMCO Total Return Fund during a banner year for bonds.
The lessons here are many, but there are three that I really want you to take with you. First, respect the man of integrity who admits the error of his ways. Second, even the biggest names in the financial industry get it wrong from time to time. Finally, always remain the steward of your financial destiny. If you aren’t getting what you need from a fund, and advisor or a service, then simply change things up. You are responsible for your financial well being, and the only way to achieve the results you’re after is by proactively taking control of your own fiscal fate.
Written by David, October 12th, 2011
Last Friday marked the end of the third quarter, and what a dismal quarter it was for the equity markets. Stocks in the Dow sank 12.09%, while the broader S&P 500 Index dropped 14.33%. The NASDAQ Composite finished the dreary Q3 with a 12.91% surrender of value.
The poor performance of the broad market in one quarter is bad enough, but just think about how badly you’d feel if a mutual fund you owned continually delivered poor performance relative to its benchmark? I suspect you wouldn’t be very happy, and that’s why I created the Fabian Lemon List.
The Lemon List is our inventory of mutual funds that have underperformed their one-, three-, and five-year benchmarks. This quarter, 1,786 mutual funds qualified as lemons, and those funds accounted for more than $1 trillion in assets.
If you want to rid yourself of the bitter taste of lemons in your portfolio, you must first find out if your fund(s) are on the list. If they are, it may be time to turn those mutual fund lemons into ETF lemonade. Get your complete copy of the Fabian Lemon List today.
Written by David, August 17th, 2011
On Tuesday, I attended an investment conference sponsored by Fidelity Investments intended specifically for financial advisors and money managers. There were several good presentations, including one from the very smart guys at Pimco. But the real takeaway for me from this conference wasn’t any single good idea. Rather, it was the chorus of trite bromides I heard from a panel of three mutual fund company representatives.
I am not going to name the companies here, and the reason why is that nearly all mutual fund companies have the same basic philosophy—and that philosophy is that whatever takes place in the market, investors should just buy and hold and wait for the market to inevitably move higher.
I was so disappointed with this advice that I just had to comment on it for my readers. You see, all three of these mutual fund reps admitted that they thought the market was in for a struggle over the next several months and beyond. All three agreed that the economy was slowing down, and that it was important for their fund managers to select the right stocks in a difficult market environment. Up until then, I agreed with them. Then they each rolled out the same old expired prescription for individual investors.
That prescription, of course, is to just buy and hold. There thesis was that in three to five years everything would be okay. Huh? I put that kind of inane advice along the same lines as telling someone they should buy low and sell high.
The fact is that a lot can happen in this market in three to five hours, let alone three to five years. I don’t know about you, but just sitting back and watching the value of my portfolio drop isn’t my idea of smart money management.
What was perhaps even more disappointing was the failure by this panel to address the potential of a new bear market. What if we were to fall into bear territory and stay there for a protracted period? Should investors just watch the value of their holdings evaporate, or should they go to cash or go short? Their answers were conspicuously absent.
This panel discussion just confirmed for me what I’ve always known, and that’s that mutual fund herd never changes its spots. These days there are just too many other good options for your money, and these are the options we use each day in our investment advisory services.
Written by David, July 20th, 2011
The action in the equity and bond markets so far in 2011 can be characterized by what I call a sort of “nervous uncertainty.” Let’s face it, we’ve had a lot of cause for worry, and we’ve had a lot of reasons to be encouraged. On the bond front, that nervous uncertainty has translated into a big surge in cash holdings among bond mutual funds. Apparently, bond fund managers aren’t in any hurry to purchase new debt, and that comes despite the fact that bond fund inflows are on the rise.
According to mutual fund research firm Morningstar, the average cash stake in the 1,623 funds that the company tracks rose to 9.8% at the end of June from 9.1% at the end of 2010. In dollar terms, that’s about $243 billion. The average bond fund’s cash position was at 10.2% at the end of 2007, and 10.1% at the end of 2008, according to the data.
Meanwhile, investors have been funneling money into bond funds in 2011, adding some $92.8 billion through June 30. That’s the biggest inflow seen in any of the fund categories that Morningstar tracks. In other words, bond fund managers are raking in the cash, and essentially hoarding it.
So, the logical question here is why aren’t bond fund managers investing in new debt right now?
Well, for starters, we can blame that debt-ceiling debate for at least some of the uncertainty. Although I am not sure how to quantify this, I suspect that no bond fund manager wants to get caught with his guard down if the unthinkable does happen, and if the powers that be in Washington drive the nation into default.
Another reason why bond fund managers aren’t gobbling up new debt is the possibility of a credit rating downgrade. Such a downgrade has been threatened by both Moody’s and Standard & Poor’s. Although I suspect that we are in no danger of a downgrade here, the mere discussion of such a negative turn of events for the bond market is understandably spooking bond fund managers.
Then there’s the issue of the Federal Reserve’s follow-up policy to quantitative easing, part 2, or QE2. Will we see another round of money creation in some form or another and, if so, what will be the impact on the U.S. dollar and U.S. Treasury bonds? Nobody knows for certain, and this uncertainty is keeping cash on bond fund books.
Written by David, July 21st, 2010
It’s summer, and the weather is heating up all across America. To cool off, many people will pour themselves a tall glass of ice-cold lemonade. Hey, I think it’s fine if your lemons get squeezed into lemonade, but what isn’t fine is if you have lemons in your investment portfolio.
The lemons I’m talking about here are underperforming mutual funds, funds that have earned a spot on the infamous Mutual Fund Lemon List, the list of the worst-performing mutual funds. To be classified as a lemon, the fund must pass strict screening criteria: it must underperform its peer group average for the last 12 months, as well as for the last three and five year periods.
This quarter’s Lemon List includes 1,584 mutual funds totaling $715 billion in assets, and if one of the funds you own is on the list, you need to squeeze that lemon from your holdings.
To see the latest edition of the Lemon List, and to get your FREE update each quarter, just go to the Mutual Fund Lemon List website today.
Hey, all you have to lose is that sour taste in your portfolio.
