Craig L. Israelsen, Ph.D.
The well-known Callan chart (Periodic Table of Investment Returns by Callan Associates) visually depicts the year-to-year performance of various asset classes and has been an incredibly value contribution to the literature of finance. It provides an easy-to-understand snap shot of several key points that successful investors learn to heed: (1) past performers seldom repeat in a logical pattern, and (2) there is no discernible pattern that would allow an investor to pick the next year’s winning asset class. Continue reading A New Periodic Table of Performance
Unified investment account management is extraordinarily important in order to achieve investment success. It allows answers to critical questions, such as:
- Are your investment accounts constructed to meet your personal risk and return profile, both individually and collectively?
- When reviewing your investment accounts, do you review your accounts both specifically and collectively?
- When rebalancing portfolios, do you realign your portfolios in a manner that optimizes your overall performance, while minimizing your overall risk?
- Are investment tax decisions made in a dynamic manner so as to minimize investment taxes both specifically and collectively?
Investors commonly have multiple investment accounts. For instance, IRAs, taxable, spousal, and educational portfolios are frequently held as separate accounts by the same owners. Good portfolio management requires identifying the investment strategy for each investment account. Decisions regarding market trading, passive investing, fundamental analysis, and technical analysis are but a few of the considerations. Asset allocation must also be identified – i.e., what percentage should each account hold in cash, bonds, stocks, funds, options, real estate, and other investment alternatives. When allocations become skewed, what tactical rebalancing decisions are needed based on changing market conditions? If all investments are not considered on a collective basis, investment mistakes and unnecessary taxes are inevitable.
Investment Account Manager portfolio tracking software provides the tools needed to collectively manage your investment accounts, while considering the many variables affecting the portfolio management process.
Craig l. israelsen, ph.d.
This article outlines the concept of relating leaky pipes to chronic under-performing stocks. If you have any questions, feel free to comment. Continue reading Leaky Pipes & Under-Performing Stocks
Spring Offers a Perfect Time for This Important Portfolio Management Task
Just as green-thumb hobbyists are busy this Spring prepping their flower and vegetable gardens for the upcoming growing season, (cleaning out last years’ waste, adding fertilizer and weed preventatives to their soil, and making sure there is proper water drainage, among other tasks), investors too might find Spring an ideal time to review their portfolio holdings and make necessary rebalancing changes for long term goals. This article will review the importance of rebalancing and how to accomplish this crucial portfolio management task.
Craig L. Israelsen, Ph.D.
It’s time for a better “balanced” portfolio. Way back when, there were two dominant investment categories (or asset classes), namely US stock and US bonds. These two assets became the mainstay ingredients in balanced mutual funds, with the typical ratio being a 60% allocation to large US stocks and a 40% allocation to bonds.
Based on the results of a quiz sent out by FINRA, Millennials are significantly less financially literate than preceding generations. When asked five questions about economics and finance, only 24% could answer four or five questions correctly, compared to 38% of Generation Xers (see graph). Continue reading Millennials and Financial Literacy
With the prospects of rising interest rates, investors may be re-thinking the role and purpose of fixed-income (bonds) investments within their investment portfolio. If you are considering reducing or eliminating fixed-income investments from your investment portfolio, prior to doing so, it is important to consider the reasons and importance fixed-income investments provide for proper portfolio allocation.
Diversification: The future is uncertain, more so now than in recent history. While there may be strong evidence of what lies ahead, unforeseeable events can often alter reality. Taking too large a bet on any one particular outcome can negatively impact your long-term results, reducing your ability to achieve long-term goals. Investment decisions based on concentrated allocations are usually higher risk.
Reduced Volatility: One of the primary purposes to own fixed-income investments, even if rates continue to rise, is the lower long-term volatility these investments typically offer when compared to common stocks. Bonds, when used properly as part of a diversified investment strategy, may help level your portfolio’s overall performance over the long-term.
Liquidity: Most bonds have a maturity date at which the principal is returned to the investor if the issuer has not defaulted or called the bond. If you are able to anticipate future cash needs, purchasing high quality fixed income investments, with maturities at or near these future dates, can provide an effective strategy of remaining invested in fixed-income allocations, while offering confidence the funds will be available when you need them.
Income: Income and cash flow are important to investors. If you hold your bond to maturity and the issuer does not default or redeem the bond, you will receive your expected cash flow (interest and principal), regardless of whether interest rates rise or fall. This too offers the confidence on maintaining a proper allocation to fixed-income investments.
Given the above reasons, investors need to avoid ‘rushing to judgement’ on the decreased value of remaining invested in fixed-income investments. Allocation goals, with an eye on long-term results, must remain forefront. Investors will benefit by properly assessing the investment climate and understanding the purpose fixed-income investments offer before reducing or eliminating these investments from their investment portfolio.
Source: Wells Fargo Investments, Global Investment Strategy