Very nice @MJG.
Larry Katz is the Director of Research at Merriman Inc., a Seattle Based Financial Advisor. These folks also ran FundAdvice.com which provided educational material although with the retirement of founder Paul Merriman last year, FundAdvice.com has lost some of its previous content that I used to refer to. (Update: The article you posted in available in perhaps a bit better format at here)
Two of my favorite articles are "Fine Tuning Your Asset Allocation" and "Ultimate Buy and Hold Strategy".
Fine Tuning Article contained a table that provided the performance, risk and max drawdown information for various equity and bond mixes. Armed with that information an investor could make a more intelligent choice what risk/return level he/she is comfortable with and the what sort of downside could be expected at the portfolio level. Here is the 2011 Update that I can find. They used to update this article with each new year data. If it is updated since 2011, it is not publicly exposed anymore. :( I'll try to ping them to see if they will continue to update this one.
For the other article they continue to provide year to year updates to numbers. There is now a 2013 Update to Ultimate Buy-and-Hold Strategy article. Direct link is here.
The article you have linked and these two provide a good set of educational material.

Hi Guys,
Many MFO members are justifiably interested in portfolio retirement drawdown rates that yield a high likelihood of portfolio survival. Ultimately, it’s a subject that gets everyone’s focused attention.
There are numerous ways to approach the problem, some more sophisticated than others, but all are somewhat fragile because of uncertain and unknowable future market returns. But these imperfect tools do generate respectable estimates of the odds, the probabilities of success if you are a glass half filled personality or a glass half empty if you are a pessimistic type.
As an aside, of course we all recognize that the glass is never just half filled or half empty. It is always completely filled with a mixture of liquid and gas.
I did my own portfolio survival estimates using Monte Carlo analytical techniques. Many such tools, which use statistical, random sampling techniques to choose annual returns, are freely accessible on the Internet these days.
I like them and recommend you give them a try. However, they do have shortcomings. They rely on statistical inputs like guesstimates of returns, the variability in those returns, and the correlation coefficients between the various asset holdings that are included in the portfolio. Most need additional inflation rate projections. Some do not permit withdrawal rate adjustments after the analysis is initiated. Almost all use Normal distribution assumptions. None handle Black Swan events very convincingly.
But that’s the state-of-the-art today. The final predictions seem plausible even given the list of shortcomings.
But some folks do not trust Monte Carlo-based methods and/or statistics. Some folks prefer real world data; they favor a historical analysis. These analysis were commonly completed before Monte Carlo tools were available.
Here is a Link to one such computation that was completed in late 2011:
http://www.marketwatch.com/story/how-to-invest-so-your-money-lasts-in-retirement-2011-11-01
The analysis used real market returns in the sequence that they were recorded. It doesn’t get much more real than that. Portfolio drawdown rates of 4 %, 4.5 %, and 5 % were postulated.
Note the hole in the middle of the portfolio failure rate charts; that’s goodness; the most successful portfolios were constructed with a balanced mix of equities and bonds. Monte Carlo codes produce similar findings.
Larry Katz, the author of the piece, provides three conclusions: (1) Diversify among beneficial asset classes, (2) Take moderate distributions from your portfolio, and (3) Choose a reasonable stock/bond allocation.
The general finding from a drawdown perspective is that a 4 % withdrawal rate is relatively safe, whereas a 5 % annual withdrawal rate is far more risky.
That’s an excellent guideline if you are committed to an inflexible drawdown schedule. However, if you have the flexibility to adjust that rate after a bad portfolio year or two, you can bump that withdrawal rate plan upward by approximately 1 % per year without much compromising the survivability odds of the portfolio. Many independent portfolio studies have verified this more aggressive drawdown strategy.
I have done a host of studies using a number of Monte Carlo codes that reaffirm this result. Of course, you had better be prepared to execute the plan after a disappointing market return. Plans are simply plans, execution is the more demanding component.
Enjoy the referenced article.
Best Regards.

You've boiled it down to a simple yes or no proposition. Sometimes that reduces complicated issues to the essentials. Sometimes it obscures. If you are asking whether diversified bond funds will produce positive returns over - say the next 5 years, it's a debatable point. Using the MFO search option will bring up extensive & sometimes heated debates on that question. I've no desire to wade into that again.
However, a better question might be: Is it really necessary for everything in your diversified portfolio to show positive returns? Many things we own provide great value, even though they cost money and appear to offer little material gain. Consider house insurance, fire extinguishers, umbrellas, and life rafts on a vessel. By owning a variety of investments that MAY do well under different circumstances, you can reduce volatility and uncertainty, and perhaps sleep better at night. I don't consider this too important for youngsters under 50 who can ride out the bumps and who also tend to have fewer investable assets. I do consider it important for folks 60+ who are retired and reliant on their life savings for subsistence.
One good way to address the issue above is to study the allocation models of some good moderate or low-risk mutual funds, along with their rationale, with an eye to learning how managers design portfolios taking into consideration (1) desired risk profile and (2) allocations to cash, treasuries, various grades of corporate debt, equities, and sometimes "real assets." Prospectuses can be pretty dry, so that's not where I'd point you. However, some of the annual and semi-annual fund reports - replete with pie charts - make for good reading. Couple better ones are those from managers at PRWCX or OAKBX - both moderate allocation funds. Also, look at the allocations for target date funds which try to adjust risk to age and years from retirement. Some of the websites are also pretty good on their own. And, many third parties, like M* break the allocations down if you look beyond the "headline" rankings.
Overlooked In your question is the fact that bond funds comprise a large and diverse group with much different risk profiles or purposes within a portfolio. To that end, here's a decent read showing some of that variety (much more substantial than merely choosing between a chocolate or cherry soda:-) https://www.tradeking.com/education/mutual-funds/bond-mutual-funds ... And, if you look closely, many shun the moniker "bond fund" completely, preferring the term "income fund" which gives them more latitude within the fixed-income (and sometimes equity) universe. I happen to own DODIX and RPSIX - both of which are so identified,
Regards

I continue to have concerns regarding fixed income and how it will perform down the road (as well as if the perception of its "safety" will change), but I think it can continue on longer than anyone would think. If you are in/near retirement, I think you can continue to have some fixed income, but - and I understand your dislike of equity volatility - I think it's good to not be 100% one asset class. SPLV is a low volatility S & P 500 ETF that offers monthly dividends - if the market goes down, you can reinvest at lower levels each month. There are a number of low volatility options now available.
I definitely understand the desire to have lower volatility and lower risk in/near retirement (and I think I've been particularly understanding of that on this board for some time), but I think it's good to have *some* (even if a bit) of exposure to equity. I think something that can offer consistent dividends that are reinvested (monthly like the SPLV) is something that may be more volatile than fixed income, but the monthly reinvestment could at least take some of the stress off over time in that you can let it go on autopilot and just reinvest (?)
You can be 100% in any one asset class, but as long as you're accepting of the risks (and potential underperformance at times, possibly for longer periods) of that. The same goes for anything - equities, commodities, bonds or even more specific sectors - emerging markets, tech, whatever.

HFMDX = 1.97%
WSBEX = 1.68%
SMVLX = 1.48%
GASFX = 1.24%
MSCFX = 1.21%
WAFMX = 0.36%
PONDX = 0.08%
Way, way, way too many funds for me. Sold MSCFX, HFMDX today (too volatile for my tastes) while increasing in GASFX which is my kind of fund. Still too overweight in PONDX at now around 75% but such a great retirement anchor.

http://www.sec.gov/Archives/edgar/data/754510/000072921813000007/main.htm
Supplement to the
Fidelity® Small Cap Growth Fund and Fidelity Small Cap Value Fund
September 29, 2012
Prospectus
Effective the close of business on March 1, 2013, new positions in shares of the Fidelity Small Cap Value Fund offered through this prospectus may no longer be opened. Shareholders of Fidelity Small Cap Value Fund on that date may continue to add to their fund positions existing on that date. Investors who did not own shares of Fidelity Small Cap Value Fund on March 1, 2013 generally will not be allowed to buy shares of Fidelity Small Cap Value Fund offered through this prospectus except that new fund positions may be opened: 1) by participants in most group employer retirement plans (and their successor plans) if Fidelity Small Cap Value Fund had been established (or was in the process of being established) as an investment option under the plans (or under another plan sponsored by the same employer) by March 1, 2013, 2) by participants in a 401(a) plan covered by a master record keeping services agreement between Fidelity and a national federation of employers that included Fidelity Small Cap Value Fund as a core investment option by March 1, 2013, 3) for accounts managed on a discretionary basis by certain registered investment advisers that have discretionary assets of at least $500 million invested in mutual funds and have included Fidelity Small Cap Value Fund in their discretionary account program since March 1, 2013, 4) by a mutual fund or a qualified tuition program for which FMR or an affiliate serves as investment manager, and 5) by a portfolio manager of Fidelity Small Cap Value Fund. These restrictions generally will apply to investments made directly with Fidelity and investments made through intermediaries. Investors may be required to demonstrate eligibility to buy shares of Fidelity Small Cap Value Fund before an investment is accepted.
The following information replaces the information for Fidelity Small Cap Value Fund found in the "Fund Summary" section under the heading "Portfolio Manager(s)" on page 11.
Charles Myers (lead portfolio manager) has managed the fund since May 2008.
Derek Janssen (co-manager) has managed the fund since January 2013.
The following information supplements information for Fidelity Small Cap Value Fund found in the "Fund Summary" section under the heading "Purchase and Sale of Shares" on page 11.
Shares of the fund offered through this prospectus will be closed to new investors effective the close of business on March 1, 2013.
SCP-SCV-13-02 February 27, 2013
1.808094.115
For more information, see the Additional Information about the Purchase and Sale of Shares section of the prospectus. Remember to keep shares in your fund position to be eligible to purchase additional shares of the fund.
The following information supplements information found in the "Shareholder Information" section on page 18.
Shares of the Fidelity Small Cap Value Fund offered through this prospectus will be closed to new investors effective the close of business on March 1, 2013.
The following information replaces the biographical information for Charles Myers found in the "Fund Management" section on page 29.
Charles Myers is lead portfolio manager of Fidelity Small Cap Value Fund, which he has managed since May 2008. He also manages other funds. Since joining Fidelity Investments in 1999, Mr. Myers has worked as a research analyst and portfolio manager.
Derek Janssen is co-manager of Fidelity Small Cap Value Fund, which he has managed since January 2013. Since joining Fidelity Investments in 2007, Mr. Janssen has worked as a research analyst and portfolio manager.

A fund that offers a unique point of view, has flexibility, is not heavily correlated to the market and has a demonstrated track record of success (in this case, with the company's hedge funds) is appealing. I view this fund as part of a second generation of long-short vehicles that are more flexible with the definition (this doesn't even fall into the l/s category on Morningstar, interestingly.) Funds that, despite being "long-short" funds, realize that there's going to be times where there aren't many short opportunities, and have the ability to dial up and down risk to a greater degree. I think these funds may lose more in down markets than a number of their long-short peers, but also have the potential to capture more of the upside in up markets than many of their long-short peers.
Marketfield also falls under this category, as well. These funds definitely rely on management calls (although certainly every fund does), but I believe that the flexibility offered will be positive in the years to come.
Otherwise, I've thought for a while that essentially A:) we didn't learn anything from 2008, it was just "how quickly can we throw money at the problem to reboot everything?" However, with the Fed doing what it was doing, you had to be invested. Now, as I said the other day, it's nearly 5 years later and the Fed is still doing QE and ZIRP and the training wheels have not been taken off. What if we do have a recession, or are we not going to have them anymore because they'll just be met with more QE?
Seth Klarman noted the other day that, "(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors."
Personally, I think, despite what markets have done, there is some degree of shakiness to the foundation because what has happened is built on what the Fed has done, but nothing more than that; there has not been real reform to the financial system to strengthen the underlying foundation.
Or, as Jacob Rothschild recently noted, "“We are living through a
period of unparalleled
complexity and
uncertainty.” These
words remain as
regrettably true today as
when I wrote them in
my report to you two
years ago. To avoid the
situation becoming even
worse, governments
continue to roll their
printing presses in one
form or another. Their
actions prevent systemic
collapse but the deeper
underlying problems
remain."
That's not to say that I think people should freak out. That's not to say that I think you should sell everything. However, I think if someone is in retirement age or near retirement age especially, take a look at what you own and realize that the markets have been very comfortable the last few years. They may remain comfortable, but realize that there remain real issues here and abroad that have not really been addressed at the core level. If the market did have a substantial downturn, would you sleep well at night? If not, this may be a point, given where markets are, where you want to address that. That's not to say that a substantial downturn would be another 2008, and there are funds that allow people to remain invested, but with less risk and volatility. There's no one path to recommend, because everyone is different and everyone has different goals, different risk tolerance, etc, but I think the general idea is to remain invested but - at this point (especially if you're towards retirement age - maybe dial down risk a bit if you believe that some of what you own may not fare well if things were to turn South at this point.
As for the Whitebox letter, I think confidence in treasuries comes down to a belief that the Fed can buy enough paper to keep rates low, but I think retail investors continue to pile into bonds because they believe that there's a level of safety in bonds that can be maintained for the foreseeable future and they're looking for yield. That "safety" can go on for longer than anyone can think it will, but eventually the Bond market will turn South. People continue to reach for yield (no surprise, given that they can't earn anything in CDs or other "risk-free return") in fixed income and REITs and MLPS, but I think personally, given the environment, I'd rather own real, productive assets and get yield from that.
Additionally, as Marc Faber noted - and I agree with, at least for the foreseeable future - "I think that in equities you will be better off because you have an ownership in a company, than by being the lenders to companies, and the lenders, especially, to governments." If the bond market really turns substantially (and possibly suddenly), I think it will be large, institutional-level sellers that do it. It's not going to be all the retail money that has gone into bonds that will be first to leave.
In terms of the even the "rosy" scenario discussed in the Whitebox letter, I think there are some fairly large transitions implied by that, and while they may just go smoothly, I tend to believe that large transitions by many people, at one point or another, tend to get disorderly. Hopefully not. I do agree with the favoring of well-established large caps and I think a Yacktman or "Yacktman-like" fund of big brands and established names an appealing place to be right now vs taking more aggressive risks.
As for the Fed and Treasury losing credibility, that will likely never happen, because the Fed is the Great and Powerful Oz. The Treasury is, well, some new guy. I tend to wonder if there was ever a real loss of credibility for the Fed if it would ever be started internally, and wonder if it would be more likely an external event. But, that's neither here nor there.
I did find the discussion of "devaluation is inevitable" if treasuries rise towards 600bps rather interesting and I would have liked the letter to go into a little more detail on that.
There have been a lot of discussions of the implications of rates even getting back to rates considered "normal" lately, and it makes me tend to believe that if that occurs sooner than later, it would be due to things getting disorderly. I also question whether we will get the growth that is needed that is discussed in the letter, and if we do, it becomes a matter of how much is that growth actually costing, and the diminishing returns on the cost of buying the appearance of growth.
Overall, I think that people should not freak out, but realize that there are real risks that have not been addressed in the financial system and real obstacles yet ahead. Things, in terms of the markets, have been very comfortable for a while. I'd say stay invested, but the time to look to reduce potential volatility and risk is not in the midst of crisis, it's when everything seems comfortable.

Initiated a small position in the retail class this summer.Intrigued by "Hedge Fund Style Approach"? Adding to my retirement position weekly @TD Amer.Low minimum initial and no minimum subsequent,check it out! If any of that "rosy scenario should go wrong,especially the Fed's credibility,look out below! Avalanche and Earthquake are scary words,I'll buy this insurance no matter what Ted says about high fees for cash and EFT management.Sounds like their cash management is a little more sophisticated than just parking it in FSLXX. Thanks for posting this alternative investment fund news Charles!

Howdy,
1. In or out of retirement only matters to the degree the taxes do on any gains (see #2).
2. As Scott said, you'll need to handle the K1 and all that.
feh. I don't really see any of these funds suitable for trading the pm market, however, the ETFs are no better if it's in a taxable account.
Mark brought it up but it would help frame my response if we knew what your goal was. Is this to be an relatively permanent investment, a speculative play, a momentum play, what?
peace,
rono

I think really becomes what are you looking for in terms of gold - a short-term (more of a trade?) or long-term (maybe a year or more?)
I wouldn't think there would be a substantial difference in terms of retirement or non-retirement and am not sure about PFIC issues, but I'd guess it's similar (just more paperwork hassle) to a K-1. If you're just looking for a trade, I'd think there would be easier ETFs to do that with (although some of the commodity ETFs do produce a K-1)
I'll also note that Sprott Resource Corp (SCPZF.pk) has substantial holdings in physical gold, but is a mix of a lot of different things. (public/private investments, farmland, etc etc) That just started paying a monthly div.

Am interested in getting more information for the following closed-end funds before investing any money:
Sprott Physical Gold Trust (PHYS)
Sprott Physical Silver Trust (PSLV)
Sprott Physical Platinum and Palladium Trust (SPPP)
Two topics that come to mind immediately are:
T1. Pros and cons of holding the units in a retirement account vs. non-retirement account
T2. U.S. federal income tax issue (will be considered a U.S. Unitholder). Can anyone speak to this issue assuming that I plan to make and maintain a QEF (Qualified Electing Fund) with respect to the units (will need to file IRS Form 8621 for any year that the Trust is a PFIC (Passive Foreign Investment Company)). Aside: Since I most likely will NOT meet the minimum requirements for redeeming units for the physical stuff, any units redeemed will be for cash.
Any other information in regards to these three Trusts will be greatly appreciated.
Thanks in advance to all those who care to share their wisdom.
AlsakaDan

Here is a link to Crescent's Annual Report.Mr Romick states his case for a continued high cash position and his current strategy.He continues to believe the current economic situation will not end well.Their is even a slight hint of closing the fund. FPACX continues to be a core holding of mine.I did sell some to buy into MFLDX within the past eighteen months and am glad I did before MFLDX went corporate with their share classes.These two funds plus BRUFX form my core Roth holdings four years into retirement.For younger readers I strongly advise setting up a retirement account through FPACX's shareholder services.$100.00 down,$100.00 a month and no sleepless nights! I just did that in a non-retirement account with SEEDX in the past month, same shareholder services,$100.00 down and $50.00 twice a month.Two younger managers with good creds from Acorn and Harris Associates . http://oakseedfunds.com/home.htm
CRESCENT ANNUAL REPORT
https://materials.proxyvote.com/Approved/MC2221/20130207/AR_154573.PDF

If you've become disenchanted with the fund and have something better to swap it with, you probably should. Actually, if you are strong on M* ratings, I see they gave it 4 stars and a gold rating.
That said, this is one of my core funds. Some times it seems like it lags, but when I measure it against the benchmark I like to use, TRRAX, a balanced 60:40 retirement fund, it has done quite well. Better returns overall, but I really like it because of it's downside protection. Your argument on bloat is not a new thing. It has had a large asset base for years now.
Good luck on your decision.

Just in case you folks were wondering, I'm the reason Kris Jenner decided to leave the T Rowe Price Health Sciences fund. Here's how it happened...
Late last year, I was analyzing my position in the Vanguard Healthcare fund (VGHCX) against PRHSX. I decided that while VGHCX was an excellent fund with a great long-term record, PRHSX was noticeably better. And since Ed Owens announced his retirement plans, it was a good time to switch. So I sold VGHCX last September, and started establishing a position in PRHSX in January 2013.
So there you have it! My timing is spot-on once again.

If I had money that I was only going to leave to my heirs, I'd put part of it in Berkshire Hathaway, even with Buffett's inevitable retirement or death. Presumably tax efficient and good companies even if Buffet isn't around. BBALX also seems to reasonably cheaply meet my requirements for money I would never need. It does, however, have a Lipper rating of 2 for tax efficiency, but it's 4's and a 5 (cost) otherwise. Don't know if the cost (.25%) balances out the tax cost for you.
Now, before I leave Fantasyland, I gotta find Tinkerbelle and get some fairy dust for my real portfolio.

Hi Guys,
First and foremost, I want to thank each and every MFO member who visited my posting. The response was overwhelming and very satisfying to me since the goal of every single of my submittals is to educate, to inform our band of brothers.
Secondly, and no less importantly, I particularly want to extend a thank you to those members who contributed excellent commentary. You prepared outstanding viewpoints that balanced the discussion. We all benefit from these divergent standpoints. No single person understands all the fascinating machinations and mechanisms of the marketplace. Your special perspectives are always welcomed and truly appreciated.
It appears that my chosen title is somewhat controversial. Good. It was selected to capture the prospective audience’s attention, and by the readership count it performed exactly as designed. In addition, it closely and purposely mirrors the title of Peter Lynch’s famous book whose objective was to inspire individual investor participation, education, and potential profits.
I partially concur with some contributors that specifically “Beating the Street” for that singular purpose is a shallow objective for most investors. It might satisfy some egos, but it will not necessarily enhance one’s retirement comfort. Please take note of my qualifier “necessarily”. I attach a deeper, embedded purpose to that common phrase. Let’s dive into the weeds now.
I naturally anticipate that under normal circumstances a retiree with a several million dollar portfolio need not Beat the Street; he might not even need to beat inflation; his goal might just be wealth preservation. However, for most retirees a fair return in excess of inflation must be the target.
Before constructing a portfolio, a target return is estimated based largely on projected annual withdrawal rate demands and expected timeframe. There are other factors too. During the construction of that portfolio, an asset allocation determination is made to satisfy that target goal with minimum risk. In many instances, risk is defined in terms of portfolio volatility.
The commonsense logic is that only risk sufficient to meet the required portfolio drawdown rate is acceptable. I’m a total investment amateur, but a highly seasoned one; I have never earned a dime giving financial advice. But that’s how I developed my portfolio over two decades ago; I propose that some professional advisors that participate on this fine site do the same.
A guiding principle that controls much thought in cobbling together a portfolio is broad product diversification, including international components. None of this is novel stuff. I do not invent these concepts: I do deploy them. Essential elements that go into that portfolio assembly are mutual fund statistical data sets like average annual return, return standard deviations, and correlation coefficients.
The forecasted portfolio returns must be high enough to satisfy the clients projected drawdown schedule. If a client needs a 4 % drawdown rate above inflation, short term government bonds will simply not do the job. Historically these short term government bonds only generate about a 0.7 % annual reward above inflation rates. Therefore, to satisfy this hypothetical customers needs, more additional product risk (likely equities) must be introduced into his portfolio.
How much of each asset class is required to resolve the allocation issue? That depends on the expected reward profiles of each investment class candidate. What are those levels? An excellent zeroth order point of departure is the historical returns (pick your own timeframe) registered in the past. These data are precisely the Index returns that represent the marketplace overall and for various subcomponents of it.
So equaling or beating the Indices (Beating the Street) is a crucial part of both constructing and assessing (measuring) the current status of a portfolio. That portfolio was assembled with certain forward looking expectations; expectations that were basically grounded in Index returns. That portfolio is in trouble if those expectations are not realized. So Beating the Street is a measure, a benchmark of the health of a retirement portfolio.
If a portfolio continuously fails to achieve street-like rewards, most advisors will eliminate the faltering elements and select replacements. If the advisor uses Morningstar as a data source, it is highly likely that the advisor will never select a one-star fund. Denials aside, most advisors base their initial selections on recent performance in general, and specifically contrasted against an Index reference standard.
How do financial advisors gauge their success? One reasonable answer is to compare performance against a carefully constructed benchmark. Typically, the benchmarks are composed of Indices which are themselves a proxy for the marketplace. So “Beating the Street” is really just an alternate way of saying that the portfolio is doing its intended job.
Since portfolios are built using Index returns as a likely returns pattern, a failure to achieve those forecasted returns implies dire consequences for the portfolio’s survival likelihood unless changes are implemented.
Language has developed to facilitate communications. It is mostly successful, but since it has been around for so long, alternate meanings and interpretations sometimes interrupt or interfere with its goal. Such might be the case here. Language can be a tricky business.
For me, “Beating the Street” is about equivalent to “Beating the Indices”. As a retiree, “Beating the Indices” means that my portfolio is keeping its head above water insofar as my planned withdrawal schedule is being preserved. It is an embedded performance measurement tool, not an ego adventure; it functions like a calibration device.
It’s interesting to note that even Wall Street bankers did not use this simple measurement concept as late as the early 1960s. In Peter Bernstein’s superb book “Capital Ideas”, he relates a story from Bill Sharpe. When Sharpe lunched with these bankers, he questioned them about their performance relative to some relevant benchmarks. No banker could answer his question. In that period, these professional financers did not measure their performance against any reasonable standard. We have come a long way since those times.
One final clarifying point is needed.
For the record, when I use the term “guy”, I mean it as a gender neutral term. That’s the way it is used in our household; that’s the way it is in many households. Sorry if it offends some of you guys, but it makes writing much easier for me. In all ways, I respect women for their financial acumen. They run their households efficiently, and they invest wisely. I often reference studies that conclude that female investors outperform their male counterparts. That’s accomplished by trading less frequently. Good for them.
Once again, thanks for your readership, and thanks for your informed contributions. I enjoy discussing these matters with you all.
Best Wishes.

Good morning folks. did not buy much over the past month or so. still 80%/20% w/ 401K. Still buying couple of bonds here and there. IMHO, to me the market appears 'very tired/sluggish' the past couple of wks after the new yr. Looks like it's climbing a large hill and it's getting to the top of the hill and giving out pretty soon. I would expect a major corrections [-] 20 - 30s% soon (but we've been saying this since 2010 LOL). BTW, We never saw that double dip.
It's good to be near retirement and bail - probably in 65% bonds and very little stocks if any.

FWIW, why should the goal be to "beat the market"? I don't get it. Every investor's goal is going to be somewhat different. My goal is to be able to have the cash flow I desire in retirement. What with Social Security, 401k, and (fortunately for me, part of a business ownership), I know what kind of return I need from my investments to achieve that income goal. And it has nothing to do with "the market". The same goes for our clients. Each has a different pot to work with, each has different cash flow targets, and specific risk tolerance.
Frankly, I don't give a rat's patooie if my portfolio "beats the market" from one year to the next. I DO want my mix of managers to help me reach my retirement income goal. I can look back over the last 10, 15, 20 years and see that client accounts have done better than "the market" with less risk. What happens year-to-year is important, but not all that big of a deal. We are talking a marathon here, not a 100-meter dash. HOW each investor puts their truly diversified mix together is not nearly as important as is focusing on the big picture "at the end". The best thing investors can do for themselves is to create a TRULY diversified portfolio. In many cases, 401k plans have lousy investment options. But more and more we are seeing 401k plans offer self-directed brokerage accounts, which is something EVERY participant should consider. That should really open the door to a large number of investment options that are not found in hardly any traditional 401k, such as long-short, currency, EM bonds, bullion, and dynamic allocation strategies.
The fact is that there are plenty of talented managers (men AND women) who have strong track records and who have beaten their benchmarks over 3, 5, 10 year periods. If an investor does not have the time or the inclination to do the work needed to find these people, there are plenty of other options. Just don't go to Raymond James, Edward Jones, Merrill Lynch, or the local bank and expect someone there to do anything holistic. Places like Mutual Fund Observer have great content and plenty of smart people to offer help and insight.
My suggestion is to not spend time on "beating the market". Instead think about what your REAL goal should be, then create a portfolio that should get you there, no matter what happens to "the market". And remember that nothing helps like putting as much money away every pay period as you possibly can.

MJG,
Don't assume all of the committed active private investors are all men. Or that some of us don't index a portion of our portfolios. And that many of us to don't have advisors, and a game plan. Our goal is not always to beat the market, it's to make sure we have a well thought out approach and enough diversification so we get to keep and grow much of the money we want to spend in our retirement and leave to our heirs in many cases.

Hi Guys,
It was a different investment community forty years ago. In that hazy past, the odds were that individual investors were mostly trading with each other.
In that yesteryear, private investors executed 70 % of the daily trading volume; institutions accounted for the remaining 30 %. The science or art of investing was very primitive; it was basically dumb, weak money exchanging stocks with equally dumb, weak money. There were remarkable exceptions; these exceptions quickly became rich (and sometimes poor again cyclically).
Today, that structure has been completely reversed and turned on its head. Now the bulk of the trading (like 70 %) is done by smart, strong institutional money. As an individual investor, it is highly likely that if you are trading some equity position, an institution is taking the other side of that gamble.
That trading partner poses a significant threat. Over time, he has become relatively and absolutely a more powerful opponent. His advantages are manifested by his composite unbounded financial resources, his unfettered timeline, his formal educational background dominated by top-tier MBA graduates, his mathematical sophistication especially in the statistical and operations research arenas, his unlimited research time commitment, his supercomputer access, and his sheer numbers.
The institutional participant is a daunting challenge to private investors. It is not a fair or a level playing field. It is something like the championship Baltimore Ravens professional football team competing against a ragtag group of tag football high school part-time players. The outcome is basically predetermined.
In the early 1990s, Peter Lynch published his blockbuster best seller “Beating the Street”. He projected that the “average Joe” could tame the excesses of Wall Street. Lynch ended that exceptional tutorial with 25 Golden Rules for superior investment outcomes. However, even at that earlier date, the private investor was becoming overmatched by the resources and skills of the institutional giants.
Even the legendary Peter Lynch magic was eroding. His major outsized performance was registered in the late-1970s to the mid-1980s. In that glorious period, his firm permitted him to participate in the inefficient small company and foreign company marketplaces. He invested so broadly and prolifically that it was said that Lynch never saw an investment opportunity that he did not like. But the times turned against him in the late-1980s, and he struggled to generate market-like rewards for his now excessively large client base. He salvaged his reputation by retiring in 1990 at age 46 after a few very mediocre years.
Interestingly, Jeff Vinik, Fidelity managements replacement for the departing Lynch, was soon summarily fired in 1996 when he attempted an ill-fated timing rotation to bond positions. Even as early as the 1990s, the major investment houses were clamping down on the freedom of choice prerogatives that were afforded earlier superstars like Peter Lynch. Vinik eventually recovered while launching and managing a highly profitable Hedge Fund operation. He currently owns a host of professional sports franchises around the world.
That’s spectacular success, even for a Jersey-boy. It does prove a major point. Rare as they likely are, active investing can have huge paydays.
But, there has been a sea change that has made the task far tougher for today’s amateurs, semi-pros, and even full time professionals. Everyone is substantially smarter, better informed, and can react with computer-like lightening speed.
The global statistics collected at places like Morningstar, Dalbar, and Standard and Poor’s demonstrate just how demanding it now is for the part-time investor to produce excess returns above market Index averages. When reviewed in total, these data sets are dismal for the individual investor. On average, we investors recover only about one-third of the returns that the mutual funds that service us deliver. We are pitiful in our entry-exit timing maneuvers. The marketplace is essentially a winning institutional game now.
I recognize there will always be a few highly skilled, insightful, and lucky souls who will outperform the dominating monoliths. They will be rare birds indeed. There are so many smart, informed, and talented financial outlets nowadays competing for the golden ring that they tend to neutralize one another.
They cancel each other out, quickly negating any momentary advantage, and deliver sub-par performance to their customers because of the continuous frictional cost to compete so energetically. Costs are like a hole in a water bucket; it’s a constant drain to wealth accumulation under all circumstances.
So, currently, my takeaway is that it is nearly impossible to “Beat the Street”. That’s just not going to happen for most of us.
But some segment of us will persistently try. Many current MFO members are in this camp. What is the game plan, the strategy, and most importantly, the prospects for this brave band of fearless warriors? Let me invent a likely generic profile to explore the issue for comparative purposes.
The committed private active investor is middle aged with a college degree. He is smart, dedicated, motivated, and industrious. He exchanges ideas on websites like MFO, accesses Morningstar for needed mutual fund data, and probably visits sites like Pony Express Bob to identify momentum attractive candidate funds for consideration. He likely deploys technical analyses using charts to guide perhaps a sector rotational strategy. It is a time-consuming struggle to access and absorb the mountainous pile of data available. Constant attention is necessary. Decision making is a lonely process.
Given the dominance of institutional investors these days, his competition is probably an institutional giant. Perhaps it’s a Boston behemoth, perhaps one of Chicago’s monsters of the midway, or perhaps it’s a team from the illustrious New York Genius network. Surviving against that cohort is hazardous duty. Given their many advantages, the odds of outwitting and outplaying these fierce and tireless opponents must approach zero. And adding the heavy burden of costs into the equation only deepens the challenge.
Given today’s environment and the lineup of market participants, what Peter Lynch interpreted as an individual investor advantage has morphed into a decided disadvantage. Currently, an active private investor is definitely playing a Loser’s game.
Why fight the tape? Since smart institutional investors engage to neutralize one another, an increasing number pf this elite club are joining the passive investment universe. Their numbers will swell in the future. It is doubtful that these numbers will ever penetrate the 50 % level, since institutional warriors enjoy the hunt and the profit incentives too much. That’s all goodness because active market participants are necessary to supply the requisite market pricing mechanism. Pricing competition keeps the marketplace roughly efficient.
Indexing is a reasonable solution to this dilemma for individual investors. It guarantees just short of market rewards if the low cost and low trading disciplines as advocated and practiced by outfits like Vanguard are followed. Even Warren Buffett has acknowledged the wisdom of this approach for most investors.
I encourage you to seriously consider the passive Index option for a more comfortable retirement. Although I currently own a mixed bag of actively managed and passively managed mutual funds/ETFs in my portfolio, I am slowly switching to more and more low cost passive holdings. Portfolio management need never be a overly simple either/or decision; compromise is a useful tool to reduce risk.
So it might well be time to step away, not to smell the roses, but to readdress your portfolio mix. The accumulating evidence overwhelmingly demonstrate a participant sea change and a slowly developing tsunami of institutional investors flooding towards the Index option. Recognize those perturbations and respond to your own special interpretations of those factoids. The institutions are making smarter decisions these days; just look at their profit margins
Certainly there will always be winning active investors who produce outsized market returns. Jeff Vinik is one such wizard. But there will also be lottery winners too. The key is to forecast these winners and their persistence. That’s a Herculean chore. Fat chance on accomplishing it.
Talk to you guys further down the road.
Best Regards.