The Danger Of Over-Diversifying Your Mutual Funds For those that have a number of accounts along with a good number of mutual funds I formulated a sleeve management system that has helped me greatly. It might also provide you with some ideas that you can incorporate in something you might choose to develop for yourself.
The article speaks to a concern no doubt many have; but, it falls short and fails to offer direction as to how to solve the concern other than to go see a financial planner.
For those interested ... Here is what I did and I it found that it worked so well for me that I have chosen to stay with probally more funds than I absoutely need as I could probally reduce the number down to about thirty (three per sleeve) and still incorporate my system.
The system was derived from a betting system I used at the dog track many years ago. In this system I'd usually bet ten races and in these races I'd bet my three best picks in each race to win, place or show. Folks, I usually left the track with more money than I came with. So, for me, my system worked even better than I first thought it ever would. Even today, I still make an occasional trip to Daytona (visting friends) and bet the dogs using my system ... and, I still wear a smile as I usually come away with more money than went with.
Some ask me ... How you do you do this? If they were readers of the Observer then they would know. My wife knows, but our friends don't. So let's keep it to ourselves.
My Investment Sleeve Management System (09/02/2015)
Here is a brief description of my sleeve system which I organized to help better manage the investments that were held in five accounts. 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 monthly; and, the portfolio as a whole at least quarterly although I do it 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 disbursement with the residual being left for new investment opportunity. In addition, most all buy/sell trades settle from or to the cash area with some nav exchanges taking place.
Here is how I have my asset allocation 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 on the portfolio monthly and make asset weighting adjustments as I feel warranted based upon my assessment of the market, my risk tolerance, cash needs, etc.
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, JNBAX & 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, 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, NEWFX, PGROX, THOAX & THDAX
Large/Mid Cap Sleeve: AGTHX, BWLAX, HWAAX, IACLX, SPECX & VADAX
Small/Mid Cap Sleeve: IIVAX, PCVAX, PMDAX & VNVAX
Specialty Sleeve: CCMAX, LPEFX & TOLLX
Over the past 90 days, or so, the four most recent additions are AJVAX, GIFAX, JNBAX & VNVAX. The four most recent discards are CFLGX, DEMAX, PASAX & SGGDX. Total number of funds currently held equal fifty.
I wish all ... "Good Investing."
Old_Skeet
Don't Cash Out Of Mutual Funds In A Bad Stock Market
The Danger Of Over-Diversifying Your Mutual Funds
RNCOX For RNCOX (and similar funds-of-funds), the ER you are referring to is the "Total ER", which includes both RiverNorth's management fee, plus the management fees of the funds (CEFs) that it invests in.
Looking at their website, RiverNorth's actual management fee is
1.20%, which might still be high but it is a bit more reasonable:
http://www.rivernorth.com/mutual-funds/rncix-rncoxHere's how it breaks down: Let's say you want to buy a CEF which holds a bunch of stocks. The CEF has an ER of
1%. Disregarding pricing spreads, you'll expect to get the return on those stocks, minus the ER of the CEF. So for your CEF to outperform, you need to expect your CEF's investment skill will deliver more than
1% of added value compared to just buying stocks directly.
Now we go one step up. You want to buy RNCOX, which holds a bunch of CEFs. RNCOX has a (non-total) ER of
1.20%. So for RNCOX to outperform, you need to expect RiverNorth's voodoo magic will deliver more than
1.20% of added value compared to just buying the CEF's directly. Those CEFs, in turn, still need to to deliver another
1% of added value to outeperform the underlying stocks, so that's how you ultimately end up with your total ER of 2+%.
In a traditional funds-of-funds, this makes sense. However in RNCOX's case, I think the total ER is misleading, because RNCOX's strategy is focused only on trading the CEFs themselves, and has very little to do with the actual strategy or management skill of the CEFs. When they buy a CEF, they're not thinking, "This manager is very good, and is likely to give returns of more than 2% over the market, so we can charge 2% for our services." Instead they're thinking, "This CEF is underpriced, and we expect it will go up more than
1.2%, so we can charge
1.2% for our services." So in my opinion,
1.20% is the ER that more accurately reflects their strategy.
Short summary: The 2.4% ER includes the ER of both RNCOX and the underlying CEFs, but since RNCOX's strategy is based on getting value from trading CEFs rather than their underlying stocks, it seems more appropriate to use a
1.2% ER.
Gargoyle Hedged Fund In a May 2014, Vintage Freak said this this about the write up of the Gargoyle Hedged fund which was than a River Park Fund
"Also, you don't sell call options to nervous investors unless one is talking about investors nervous that the market will go up! You sell it to bullish investors that want to bet on the upside so you can hedge your downside as you keep the premium if the market falls or remains the same. The more you sell, less exposure to the market's upside as you have to pay the increase over the strike price + premium.
You sell put options to nervous investors as insurance who are trying to hedge their downside and so not what the fund would want to do since the fund also wants the same protection. The fund could buy put options for downside protection but then it would land up paying the premium.
The write up is a bit confusing on what they are actually doing because of the above."
The same write up is included in the Sept 2015 write up, and the same confusion exists. If they are selling calls to nervous investors, the nervous investors must be buying out of the money calls to so they can buy the index at a lower price. The more likely scenario is that a nervous investor would buy a put option to guard against a losses on his existing portfolio. I have zero experience with the options, but I don't think the explanation is clear. Anyone know for sure what the fund actually does?
Perspectives on the energy sector @old_joe, Agree. Oil price may have further to decline given the global economy is slowing. At $
110 and PE
13, Apple is becoming quite attractive.
Riverpark RSIVX & RPHYX That's because the interest dividends are taxed at, say, 25%, while you only get tax credit for 15% of the capital loss.
I understand your point, but this is not entirely correct. If you have long term capital gains that are taxed at
15%, and your losses on RPHYX offset those long capital gains, then yes you are only getting
15% credit for those losses. But if your losses on RPHYX offset short term capital gains that are taxed at ordinary income, then you get full credit. And if you have no capital gains at all, you also get full credit against your ordinary income.
Riverpark RSIVX & RPHYX I could have sworn I posted this already somewhere:
Unfortunately, when current yield equals current cap gain loss, one comes out a loser. That's because the interest dividends are taxed at, say, 25%, while you only get tax credit for 15% of the capital loss. One winds up down 10% or so.
Vanguard: Perspective And Patience @Edmund - Agree this sounds like it was written for a novice investor - maybe even a
10-year old. If they're simply trying to encourage folks to stay invested rather than pulling everything out of their IRAs - than I get it. I guess.
Hopefully this blurb isn't typical of what Vanguard cranks out for its loyal core of investors. T.Rowe Price, where I'm more familiar, puts out some excellent market analysis from time-to-time. Ignore them at your own peril (as I've learned the hard way).
Riverpark RSIVX & RPHYX I own both funds as a sort of '401K Stable Value Fund' replacement and a source of current income. I'm on the slightly positive side of Happy with it, with the current LT Capital Loss :-( being offset by the Current Yield. It's not great, but it's better than a CD...
Perspectives on the energy sector "I've been actually looking at Callon Petroleum's stock."At a PE of 42 vs AAPL
@13? You must be expecting one heck of an earnings improvement.
Portfolio just entered negative, for the year, today....waiting for the next dead cat bounce ??? Catch, Thanks for the chuckle. We've been negative for awhile now - if it makes you feel any better.
I've always felt subjecting one's life savings to the vicissitudes of the markets was a bit of a gamble. But bear in mind the old: "No pain. No gain."
With short term bonds yielding what? (1% or something like that) ... is it any wonder that it's becoming harder to extract big gains from riskier assets.
Personal Beliefs Don't Belong In Your Retirement Account ... the newer ESG styles ranks companies within industries and then tries to buy the ones with the best environmental, social and governance records. So for instance oil stocks are not excluded but only the ones with the worst ESG rankings. This many studies Deutsche Bank examined led to outperformance of the stock market, not neutral results.
Ben Allen at Parnassus (colleague of Todd Ahlsten),
in a Bloomberg article from a year ago, put it this way:
"Call it socially responsible, but Allen says his strategy is just due diligence. 'It's not just about feeling good about yourself in the morning,' he says. 'When we're looking at two similarly valued energy companies, and one has a good track record for worker safety and one doesn't, which do we invest in? That's a no-brainer.' "
The Closing Bell: U.S. Stocks Advance After Two-Day Selloff @PRESSmUP: I have no control over the recent
1-2% daily swings in the market. As for the Closing Bell, I will continue to link daily the most complete stock market wrap-up found anywhere on the web. Is there any part of this you don't understand.
Regards,
Ted
Sorry for my attempt at humor. It won't happen again.
Plan And Act, Don’t React FYI: An investor can and should learn from the past. He should never react to the recent past. Why? The past can’t be changed, but it can be known. Reacting to the recent past leads investors into the valleys of greed and regret — good investments missed, bad investments incurred.
Regards,
Ted
http://alephblog.com/2015/09/02/plan-and-act-dont-react/
