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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
  • Any guys here 85 years or older?
    @Junkster Good to hear there are so many women in your area living past 85; that will keep you busy! :) However, several decades from now, that trend won't be lasting. How would you guess middle-aged women are doing? A research note from CDC plopped into my inbox several months ago, regarding an unexpected finding from analyzing 2010 census data. My memory could be a bit off on this, but starting in the Appalachian Mtns in eastern KY and TENN, extending down slightly into ALA and MISS, and the swiggling across all of ARK, lower part of OKLA and into W. Texas, something is happening to middle-aged women--- they're dieing in appalling numbers. How appalling? Enough to drive the life expectancy for all women living within that bounded area all the way down to 75! It is impacting all races/ethnic groups. This hasn't happened before. Needless to say, a good chunk of the mini-census (2015) will be devoted to getting a handle on this; they really don't know.
  • Donor-Advised Funds for Charitable Giving
    These funds have their plusses and minuses.
    On the plus side, they make donating assets much easier than donating directly to your favorite charity (especially if the charity is small and not set up to handle donations other than cash).
    The main benefit IMHO is the ability to time-shift, i.e. donate one year and get the money to your designated charity (or charities) in later years. Good if you want extra deductions up front but want to spread out the actual donations, or if you don't know right now exactly where you want your contributions to go.
    A minus is the cost. Typically 60 basis points (T. Rowe Price is 50 basis points). Many people complain about VA wrapper fees, which with these same providers (T. Rowe Price, Fidelity, Vanguard) are well below 60 basis points. So a 60 basis point cost for DAFs is not insignificant.
    Another minus is the limited investment options offered for the money in the DAF before it is disbursed to your designated charities.
    Disclosure: I have contributed to a DAF.
    I liked one of the comments - about donating NUA stock. A similar idea I've been toying with is donating insurance stock obtained via demutualization. (That's when a formerly mutual insurance company converts to a stock company, and as part of that conversion grants stock to its policy holders).
    The IRS still claims that the cost basis of this stock is zero. So donating this stock is "better" than donating other stock that you purchased (since that other stock will have a non-zero cost basis and thus less unrealized capital gains to give away). Court rulings are all over the map, ranging from saying that the gain is the full value of the stock to recognizing no gain, to points in between. This muddle is another good reason to consider donating this stock.
  • Cash as an active part of your mutual funds, etf or overall portfolio
    Craig Israelsen made a convincing case for cash as a beneficial asset class in a diversified portfolio in this 2007 Article.
    In our household, we have an emergency cash fund which earns very little but is very liquid. In our taxable and retirement investment accounts, I try my best to keep a low cash balance, at most 5-10% at any given time, as I am about 20 years from retirement and I want to maximize our wealth creation despite increased volatility. If I have extra cash with no specific target, I dump the funds in my PRWCX position.
    As for the question of how many funds to own, we own a total of 9 funds/stocks, but I see no problem with folks who own more funds, as long as they are excellent, relatively low cost and outperform their respective indices. Live and let live. As I will likely die before my fetching wife (not "partner"), I am focused on wealth creation, and I continually remind my wife that there is only one thing worse than being old, and that is being old and poor.
    Kevin
  • Cash as an active part of your mutual funds, etf or overall portfolio
    Hi Catch: What I was implying was that "dry powder" in the form of cash allows you to put the money back to work later when prices are lower. If a stock (or fund NAV) drops 50% while you're waiting in cash, when you redeploy the cash you buy 2 shares for what 1 would have cost. By sitting in cash you have doubled your wealth. That's the leverage.
    You can pick a lot of holes in that argument if you want. In fact, I'll do so myself. First, it assumes that one can be successful in timing the market (not a given). Second, it ignores the likelihood (but not a certainty) that bonds may actually appreciate substantially while stocks are falling - and so, in a sense, would provide even greater leverage.
    I don't have a dog in this fight. Ted had said earlier that cash is trash - and I was simply pointing out that under some circumstances it can be quite valuable. Gotta run. Take care.
  • Cash as an active part of your mutual funds, etf or overall portfolio
    Hi @Dex and @hank
    Dex, you noted: "Cash flow ... think about it. It isn't sexy but it is overlooked and needed for financial longevity"
    >>>I will presume, because of the nature of this web site; that cash in an investment portfolio would also have a money market component available.
    Any MM that I can directly access at Fidelity as a parking area for money is at a negative value. This circumstance is from the .01 or .02% yield and expenses for many of these at various investment houses to be at about .46%. Fidelity Cash Reserves indicates an e.r. range of .27-.37. If one looks through returns for these type of "investments", the returns will be negative.
    If this is what is being discussed regarding "cash" within an investment portfolio, then I still have no need for such an item. The exception would be another market melt.
    If one has 5 major areas for investment as has been noted in this thread, what is the value of the cash portion.......no yield, e.r.'s that eat the principal and top this off with inflation destroying more principal.
    Being that "income" is one of the 5 areas noted previous; why not keep the monies in this and move monies from this area into another, if needed?
    hank, you noted: "I understand where Ted is coming from. But in more volatile markets than we've witnessed recently, cash can also be leverage.
    >>>I fully agree that cash can have its place during nasty periods, but I don't call this leverage.
    I'm trying to understand the need to keep any cash inside of an investment portfolio, with the exceptions that I noted previously. When we think we have a more valuable investment, we sell all or part of something else that isn't doing as well and move the money, period. We sold quite a bunch of bonds last year and moved the monies elsewhere, but not to cash.
    I surely don't knock anyone's plans; as I know we all travel different money paths.
    Fidelity Cash Reserves values
    Okay, time for a large bowl of ice cream with fresh Michigan strawberries.
    Take care,
    Catch
  • Cash as an active part of your mutual funds, etf or overall portfolio
    Cash is an invest few talk about.
    After nearly 35 years of declining interest rates, is it any wonder?
    I guess we're all a product of our times. My first mutual fund was a money market fund. A nice cool 20% a year nearly risk free. What's not to like?
    I understand where Ted is coming from. But in more volatile markets than we've witnessed recently, cash can also = leverage.
  • Any guys here 85 years or older?
    I'm 60, and have been using 85 as my check out date. I think sitting on your butt is the thing that will kill you the fastest. Financially, I think after a point (excluding high inflation) expenses will remain constant. As you slow down, discretionary expenses will decline while other expenses increase.
  • Cash as an active part of your mutual funds, etf or overall portfolio
    The "risk of ruin" is diminished due to spreading the allocation among managers and geography. And the fees are no more than aggregating into one fund of average cost.

    But then isn't the opposite also true? You are hoping the average of all those funds is better then say your best pick over time. I am not a fan of duplicate funds in the same category but I understand others feel like it reduces risk. But lower risk is lower return. I don't think it works the other way around. To me you extend the risk of negating your manager's effort.
    Just trying to argue the other side. Always comes down to comfort level. But you do pay a price for comfort.
    Mike, your point is very true. On the dice table, if I knew 5-5 would be thrown, I would bet the house on a hard ten. Unfortunately, I am not adept at picking the specific fund which will do the best for the next 12 months or for any given time period. As such, I spread my wagers.
    In my specific case used as example, while my funds are all international in scope, I try my best to make sure they do not occupy the same footprint. I accept less than "best possible case", and aim for above average.
    press
  • The Shocking Truth Mutual Funds Don't Want You To Know
    Hi Guys,
    A very nice ongoing discussion here. Please allow me to contribute a few thoughts.
    The Persistency Scorecard has been a part of the mutual fund industry for many years. In each of its now semi-annual reports, although the specific numbers change, its overarching findings have remained the same. Persistent mutual fund performance in terms of consecutive quartile rankings is an elusive goal.
    In large part, what goes up all too often comes down. One exception is that the poorest quartile of funds linger in their desperate positions until they disappear from the scene.
    This consist finding opens the manager skill/luck issue once again. As noted in the referenced report: “Demonstrating the ability to outperform repeatedly is the only proven way to differentiate a manager’s luck from skill.” Far too many active managers are failing this test.
    I don’t remember the source, but from memory, about 75% of active managers hover near their benchmarks, sometimes generating positive Alpha, sometimes producing negative Alpha. After fees and trading costs, their performance relative to a benchmark is mostly a wash. Roughly 24% of active managers are persistent losers relative to their benchmarks. The residual 1% consistently contribute positive Alpha.
    That’s a thin cohort. The trick is to identify these rare souls. But if the fund population is roughly 8,000 strong, that means that maybe 80 such funds exist and are waiting to be discovered.
    In general, I like the Persistency Scorecard. But it does have its shortcomings. The Persistency Scorecard is not focusing on the most useful fund selection criteria. Consecutive quartile rankings are not nearly the best sorting tool.
    Individual investors are much more interested in cumulative outperformance relative to some benchmark. The single best criterion to satisfy that target is a positive Alpha. And its not single year Alpha. It is positive Alpha over several extended timeframes.
    Morningstar provides precisely the requisite data in their Ratings and Risk MPT Statistics section. Morningstar computes Alpha for 3, 5, 10, and 15-year periods using several benchmark comparisons. Alpha is a dynamic parameter and depends on timeframe and comparison standard.
    No easy answers here since much depends on your specific portfolio management style and measurement choices. It helps if management has been stable over time and if costs are minimal.
    The hunt is to seek positive Alpha scores over multiple timeframes. They exist.
    Best Wishes.
  • Cash as an active part of your mutual funds, etf or overall portfolio
    @davidmoran: Which has a better chance of enhanced returns, a portfolio of ten funds, or one of 50 funds? The more funds you own past a reasonable point brings in the law of dimishing returns. Once again, the more funds you own reduced returns are exponentially increased. Basic Funds 101.
    Regards,
    Ted
  • Bond Fund Alternative Is Turning Heads With Hot Performance
    If the M* portfolio holdings detail and the fund fact sheet are to be believed, SHAIX is going for market neutral & low-ish volatiility. It's essentially long the S&P 500 and short an equivalent total percentage of 120+ stocks. Over the last month, its gains are down to 0.29%, so about 3.6% annualized, which is pretty much what I'd expect as a decent result from a market neutral fund.
    The other fund in the stable, just plain Schooner (SCNIX), appears to be no great shakes, so doesn't inspire a lot of confidence that Hedged Alt Income is going to shoot out the lights.
    Is it really being marketed as an FI alternative, in the sense of its being somehow equivalent? I don't see it in the fund literature, which (prospectus, fact sheet) just says that it's an income-oriented fund with little correlation to FI, expressed like this in the prospectus:
    "Investment Objective. The investment objective of the Schooner Hedged Alternative Income Fund (the “Fund”) is long term appreciation through the generation of income using strategies that have minimal correlation with traditional fixed income markets."
    I don't see any reason to get too excited, either positive or negative, about SHAIX.
    P.S. Westwood recently came out with a "market neutral income" fund that sounds superficially like SHAIX (~ same objective, different methodology) - ticker is WMNIX.
  • Cash as an active part of your mutual funds, etf or overall portfolio
    @Ted,
    My portfolio is of hybrid configuration ... and, on last check the S&P 500 Index was all equity. My portfolio pays out more than twice that of the S&P 500 Index in the form of interest, dividends and capital gains over the Index. To me, you are comparing apple, oranges and grapes as the same. They simply are not even though all of them are members of the fruit family.
    Skeet
  • Cash as an active part of your mutual funds, etf or overall portfolio
    @Old_Joe: The difference is that the ER for Old_Skeet's fifty-one funds is not the same. For every additional fund Old-Skeet owns the chances of reduced returns is exponentially increased. From 2009 through 2014 the S&P 500 Index has had an average return of 17.39%. Remember, the most expensive coat only has two sleeves.
    Regards,
    Ted
  • Cash as an active part of your mutual funds, etf or overall portfolio
    Hi and @Ted,
    Perhaps. However, I don't process the talent and skills that most of my fund managers have. I learned a long time ago when I worked for an ex college football coach who use to tell me ... find the best possible people you can afford; and, then use thier skills to propel our team. If they can't, then find tallent that can. One of his teams, years back, played for a national title.
    Looking back for the past six years, from 2009 through 2014, my portfolio has returned an average of 15.7% per year. I'll gladly take this knowing I paid a sum to those P/M's for their talents in doing this. Know too, since I control the overall asset allocation and when I choose to make changes I can fire anyone of them anytime I choose should they falter or their fund is no longer a fit.
    I am happy with what has been achieved. And, with fifty one funds that is some talent pool; and, a lot more talent than I have. For example, when I need a doctor, I don't try to be one, I go and find one that has the skill and knowledge to treat me.
    Old_Skeet
  • Cash as an active part of your mutual funds, etf or overall portfolio
    @Ted- Seriously, I must be missing something in your argument, which you've repeated many times over the years. What is the fee difference (assuming: 1) all NL, and 2) all of the ERs are within a reasonably narrow range) between $50,000 in one account, or $1000 in 50 accounts?
    Thanks- OJ
  • Cash as an active part of your mutual funds, etf or overall portfolio
    Hi @ bee,
    I feel you know pretty much as to what I am going to write about cash being part of my portfolio’s asset allocation. To me, cash is not trash.
    Years back when CD’s could be found in the four to five percent range I kept about ten percent of my portfolio in CD’s and included these in the cash sleeve of my portfolio as FDIC Insured time deposits. In addition, my FDIC Insured savings account balances were also included as time deposits.
    Now that interest rates are currently very low, I still have kept these cash sums in the cash area of my portfolio but now draw on them from time-to-time to fund my special investment positions (spiffs) when I engage in them. In essence, instead for drawing interest income from these balances I now draw, most of the time, capital gains derived from the spiffs that have, for now, replaced interest income.
    My asset allocation calls for a range in cash form five to twenty five percent with a neutral position being fifteen percent. Currently, it is in the twenty percent range.
    Here is a brief description of my sleeve system which I organized to help better manage the investments that were held in five accounts that make my portfolio. The accounts consist of a taxable account, a self directed ira account, a 401k account, a profit sharing account and a health savings account plus two bank accounts. With this I came up with four investment areas. They are a cash area which consist of two sleeves … an investment cash sleeve and a demand cash sleeve. The next area is the income area which consists of two sleeves. … a fixed income sleeve and a hybrid income sleeve. Then there is the growth & income area which has more risk associated with it than the income area and it consist of four sleeves … a global equity sleeve, a global hybrid sleeve, a domestic equity sleeve and a domestic hybrid sleeve. An finally there is the growth area, where the most risk in the portfolio is found and it consist of four sleeves … a global sleeve, a large/mid cap sleeve, a small/mid cap sleeve and a specialty sleeve. Each sleeve consists of three to six funds (in most cases) with the size and the weight of each sleeve can easily be adjusted, from time-to-time, by adjusting the number of funds and the amounts held. By using the sleeve system one can get a better picture of their overall investment picture and weightings by sleeve and area. In addition, I have found it beneficial to xray each fund, each sleeve, each investment area, and the portfolio as a whole monthly. Again, weightings can be adjusted form time-to-time as to how I might be reading the markets and wish to weight accordingly. All funds pay their distributions to the cash area of the portfolio with the exception being those in my 401k, profit sharing, and health savings accounts where reinvestment occurs. With the other accounts paying to the cash area builds the cash area of the portfolio to meet the portfolio’s monthly cash distribution needs with the residual being left for new investment opportunity. In addition, most all buy/sell trades settle from, or settle to, the cash area.
    Here is how I have my asset allocation currently broken out in percent ranges, by area. My neutral targets are cash 15%, income 30%, growth & income 35%, and growth 20%. I do an Instant Xray analysis of the portfolio monthly and make asset weighting adjustments as I feel warranted based upon my assesment of the market, my risk tolerance, cash needs, etc. Currently, I am a heavy in the cash area, light in the income area and neutral in the equity area. I am thinking that once year end mutual fund capital gain distributions are paid out this will reduce the equity area and raise the cash area.
    Cash Area (Weighting Range 5% to 25%)
    Demand Cash Sleeve… (Cash Distribution Accrual & Future Investment Accrual)
    Investment Cash Sleeve … (Savings & Time Deposits)
    Income Area (Weighting Range 20% to 40%)
    Fixed Income Sleeve: GIFAX, LALDX, THIFX, LBNDX, NEFZX & TSIAX
    Hybrid Income Sleeve: AZNAX, CAPAX, FKINX, ISFAX, PASAX & PGBAX
    Growth & Income Area (Weighting Range 25% to 45%)
    Global Equity Sleeve: CWGIX, DEQAX, EADIX & PGUAX
    Global Hybrid Sleeve: CAIBX, IGPAX & TIBAX
    Domestic Equity Sleeve: ANCFX, CFLGX, FDSAX, INUTX, NBHAX, SPQAX & SVAAX
    Domestic Hybrid Sleeve: ABALX, AMECX, DDIAX, FRINX, HWIAX & LABFX
    Growth Area (Weighting Range 10% to 30%)
    Global Sleeve: AJVAX, ANWPX, PGROX, NEWFX, THDAX & THOAX
    Large/Mid Cap Sleeve: AGTHX, BWLAX, HWAAX, IACLX, SPECX & VADAX
    Small/Mid Cap Sleeve: IIVAX, PCVAX & PMDAX
    Specialty Sleeve: CCMAX, LPEFX, SGGDX & TOLLX
    Total number of mutual fund investment positions equal fifty one.
    I wish all ... "Good Investing."
    Old_Skeet
  • The Shocking Truth Mutual Funds Don't Want You To Know
    I agree with BobC on the broad points, but have nits to pick with the details.
    Broad points:
    1. Period-by-period "consistency", a la Bill Miller/Legg Mason Value, doesn't matter. What matters is long term performance.
    2. Many (dare I say most, whatever that means :-) ) financial writers are either poor writers, don't understand their subject well, or both.
    On that second point, the writer strategically omits mention of bond funds (also included in the S&P report), perhaps because they would undercut her thesis - no persistence of performance.
    "Performance persistence levels have tended to be higher among the top-quartile fixed income funds over the past three years ending March 2015." (From the S&P report.) Not surprising, since for bond funds, cost is a huge determinant of performance, much more so than for equity funds.
    Details:
    1. The source of the material was stated in the second paragraph - S&P Dow Jones Indices’ Persistence Scorecard. (I've linked to the S&P Scorecard.) The research was S&P internal research. Raw data came from CRSP.
    2. "Most", unless otherwise stated, may be taken to mean over half. If you look at Exhibit 2, under 1/3 of top quartile domestic funds in 2011 repeated in 2012. Exhibit 1 looks at top quartile funds from 2013; 1/4 or less repeated in 2014.
    3. The consistency sought by S&P was for yearly, not quarterly performance. They just started their years in March.
    4. The only consistency that one may reasonably expect is that index funds will consistently underperform their benchmarkts. Not by much, but that's the only consistent performance I expect to find anywhere.
    5. All classification systems have their limitations; we've been over this ground many times. However, Morningstar and Lipper are irrelevant here, as this is an S&P report, and S&P uses its own classification system.
    From S&P's Mutual Fund Guide: "Standard & Poor’s ... analyz[es] fund behavior, then classif[ies] funds into 67 different styles". This is a different methodology from M* and Lipper, in that S&P classifies based more on behaviour than on portfolio.
  • Actively Managed Funds Roar Back — Here Are the Best Of 2015
    Not being nitpicky, but the picture of the biotech lab is pretty impressive...
    The biotech companies within healthcare sector has been doing well in the last several years, not just 2015.
  • The Shocking Truth Mutual Funds Don't Want You To Know
    I did not see what research she used to write this article. "Most" mutual funds could be, what, 51% or 65% or ? This is all stuff we have heard for many years, so it is strange to me that Forbes would bother with the article. I think most of us can agree that domestic index funds provide the broadest coverage for the lowest expenses. Whether an investor chooses to add selected active-share funds is another decision. The shocking truth to the writer may be that there are more than a few active-share funds that have very strong 3 & 5 year records. Frankly, whether the fund lands in the top quartile every year for five years during a strong bull market is of little importance to me. On the other hand, as we already know (old news), there are a lot of crappy funds out there that exist only because marketing arms of fund companies continue to push them. That does not mean there are not some great active-share options. Investors just need to do their homework and accept that a great fund will not likely be in the top of its group every year. Just not possible. Add to that how funds are categorized by Lipper and Morningstar, often in what I think are the wrong asset classes, and rankings and comparisons become more difficult.