Investing Curiouscatblog

Tag: long term

  • Lazy Golfer Portfolio Allocation

    There are many asset allocation strategies; which often are pretty similar. In general they oversimplify the situation (so an investor needs to study and adjust them to their situation – though most don’t do this, which is a problem). In general, I think asset allocation suggestions are too heavily weighted on bonds, and that is even more true today in the current environment – of could that is just my opinion.

    I ran across this suggested allocation in Eyewitness to a Wall Street mugging which I think has several good values.

    • It focuses on low fee, market index funds. Fees are incredibly important in determining long term investment success
    • It has lower bond allocation than normal
    • It has more international exposure than many – which I think is wise (this suggested portfolio is for those in the USA, USA portion should be lowered for others)
    • It includes real estate (some suggested allocations miss this entirely)

    In my opinion this allocation should be adjusted as you get closer to retirement (put a bit more into more stable, income producing investments).

    My personal preference is to use high quality dividend stocks in the current interest rate environment. I would buy them myself which does require a bit more work than once a year rebalancing that the lazy golfer portfolio allows.

    I would also include 10% for Vanguard emerging markets fund (VWO) (for sake of a rule of thumb reduce Inflation Protected Securities Fund to 10% if you are more than 10 years from retirement, when between 10 and 1 year from retirement put Inflation Protected Securities Fund at 15% and Total Stock Market Index Fund at 35%, when 1 year from retirement or retired lower emerging market to 5% and put 5% in money market.

    Depending on your other assets this portfolio should be adjusted (large real estate holdings [large net value on personal home, investment real estate…] can mean less real estate in this portfolio, 401k holdings may mean you want to tweak this [TIAA CREF has a very good real estate fund, if you have access to it you might make real estate a high value in your 401k and then adjust your lazy portfolio], large pension means you can lower income producing assets, how close you are to retirement, etc.).

    The Lazy Golfer Portfolio (Annually rebalance the fund on your birthday and ignore Wall Street for the remaining 364 days of the year) contains 5 Vanguard index funds

    • 40% Total Stock Market Index Fund (VTSMX)
    • 20% Total International Stock Index Fund (VGTSX)
    • 20% Inflation Protected Securities Fund (VIPSX)
    • 10% Total Bond Market Index Fund (VBMFX)
    • 10% REIT Index Fund (VGSIX)

    Related: Retirement Planning, Looking at Asset Allocation – Lazy Portfolio Results – Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation – Starting Retirement Account Allocations for Someone Under 40 – Taking a Look at Some Dividend Aristocrats

  • Is it Time to Sell Apple?

    No, it is not time to sell Apple, if your portfolio is not already too heavily overweighted in Apple it would make sense to buy. There is about as much wrong with Apple today as Toyota 3 years ago, which means essentially nothing is wrong. Yes, neither company is perfect. Maybe people were carried away with how awesome Apple was, but I don’t think the stock price every was.

    Apple was a great buy at $700. Of course in the same situation buying it at $500 would be even better. I think it is a great buy at $500 today. I think Apple is going to move ahead just as Toyota has the last few years. The people jumping around at every single rumor of a data point are going beyond reacting to each data point they are reacting to rumors of data points.

    I could be wrong. If Apple’s earnings cave over the next 5 years people can claim they say early signals. After a long time watching investors react to data and rumors and speculation I think they are just being foolish. Even if Apple is deteriorating, there needs to be a much better explanation for why investors should believe that than I have seen.

    The best reason to question Apple is how long of a run they are on. Figuring the “law” of convergence in mean should make investors wary. That isn’t really true but that idea – that you just don’t stay on such a run (especially when you are huge and the have the largest market capitalization in the world).

    But that is more just saying Toyota can’t keep being awesome. There is some sense that most likely they will stumble. But the problem is it is more likely about every other company will stumble first. The winners keep winning more than they start failing. But they also do often start failing. 100 years from now there is a decent chance Apple doesn’t exist. But there is a greater change most of the other companies you can invest in won’t. And there is a greater chance most other investments will do worse than Apple. That is my guess. Other investors get to place their money where there mouth is and we will see in 5 and 10 years how things stand.

    I’ll stick with Apple and Toyota and Google and Danaher and Intel and….

    Related: Apple’s Earning are Again Great, Significantly Exceeding High Expectations (April 2012) – Apple Tops Google (Aug 2008) – 12 Stocks for 10 Years: Oct 2010 Update

  • Long Term Care Insurance – Financially Wise but Current Options are Less Than Ideal

    The expenses for long term care is exactly the type of financial risk insurance is best for. The problem is the whole area is so uncertain that what you buy may not provide the coverage you planned on (the health care system is so broken that it is not certain insurance will cover the costs, companies can go bankrupt, change coverage rules drastically…).

    The questions about long term care insurance are not about the sensibility of the coverage abstractly, it is very wise. But the complexities, today, in the real world make the question of buying more a guess about what coverage you will actually receive if you need it.

    Many of my posts here are focused on the USA but applicable elsewhere, or just applicable wherever you are. This post is mainly focused on the USA, long term care insurance options in other locations will be very different and have different considerations (in many countries it may not even apply, mainly due to a less broken health care system than the USA has).

    Long-Term-Care Insurance: Who Needs It? by Marilyn Geewax

    “the reality is that each year, an estimated 11 million U.S. adults need some type of long-term care.

    Such care can be crushingly expensive: Just one hour of home-health-aide care costs roughly $20, while the average private nursing home room costs $87,000 a year. Neither routine employer-based medical insurance nor Medicare will pay for extended periods of custodial care.”
    …
    Also, some people pay their premiums for years, and then get hit with rate hikes they can’t afford.

    Insurance has a transaction cost. Paying that transaction cost for expenses you can afford is just waste. You should pay the cost directly. This is why higher deductibles are most often wise. It doesn’t make sense to cover pay insurance costs every year to pay for a $500 risk you can afford to absorb yourself.

    But huge expenses are exactly what you want coverage for. Long term care expenses are huge. However, long term care insurance is still in flux, which isn’t good for something you want to provide long term protection. A huge risk is paying premiums for years, and then getting hit with rate hikes that may well be designed primarily just to get people to drop coverage (or be so expensive that those that stay pay enough that the insurance company makes money).

    Ideally such insurance would be set so maybe the cost rose at some preset limit when you signed up. The problem is the USA health care system is so broken this won’t work. No one can predict how much more excessively expensive long term coverage will be in 30 years so the insurance companies can’t predict. It leaves consumers in a risky place.

    Insurance is regulated by the states. There are huge differences in which states do a good job regulating long term care insurance and those that don’t. The majority don’t.

    This is one of the more important areas of personal finance. Unfortunately there is no easy answer. If the system were stable, reliable and predictable, long term care insurance would be a definite requirement for a sound financial plan. Today it is wise to insure yourself from those risks, the problem is determining whether any of the options available are worth it. The risk of needing this insurance is high: it is both likely and costly. So getting coverage is definitely wise if you can find some you think is reliable over the long term. Because of the uncertain nature of the options, this will require much more effort on your part than many personal finance actions (I included several links below to help your research).

    Also look at how long the coverage is for. This is another limitation insurance companies have put in place that makes it much less worthwhile.

    Related: Personal Finance Basics: Long-term Care Insurance – National Clearinghouse for Long-Term Care Information – AARP advice – Disability Insurance is Very Important – How to Protect Your Financial Health

  • Amazon Keeps Spending, Sales Growing But Not Income

    I think Amazon is a great company and Jeff Bezos is a great leader. I sold the stock I had in Amazon hoping that prices would fall and I could buy it back (I sold a small portion held in my 12 stock for 10 year portfolio). So far that hasn’t worked. The latest earnings from Amazon were more of the same. Very good revenue growth (up 38% to $9.86 billion). Very large increases in spending. And bad earnings news (net income down 33% year over year). I think this is due to smart choices by Amazon (I would be a bit more focused on current earnings but I understand the vision of Bezos and it is very wise and support it).

    Normally the stock market punishes this type of pattern. Even Google, that has a similar pattern (but with much better earnings growth), has a stock price that has been held back much more. This quarter investors again punished Google for good earning growth but also high expense growth. Amazon avoided that response, even with shrinking earnings and guidance of lower earnings. Jeff Bezos wrote about these decisions to invest in increasing expenses in Amazon’s shareholder letter

    The advances in data management developed by Amazon engineers have been the starting point for the architectures underneath the cloud storage and data management services offered by Amazon Web Services (AWS). For example, our Simple Storage Service, Elastic Block Store, and SimpleDB all derive their basic architecture from unique Amazon technologies.
    …
    All the effort we put into technology might not matter that much if we kept technology off to the side in some sort of R&D department, but we don’t take that approach. Technology infuses all of our teams, all of our processes, our decision-making, and our approach to innovation in each of our businesses. It is deeply integrated into everything we do.
    …
    And we like it that way. Invention is in our DNA and technology is the fundamental tool we wield to evolve and improve every aspect of the experience we provide our customers. We still have a lot to learn, and I expect and hope we’ll continue to have so much fun learning it. I take great pride in being part of this team.

    Operating cash flow increased 9% to $3.03 billion for the trailing twelve months, compared with $2.78billion for the trailing twelve months ended March 31, 2010. Free cash flow decreased 18% to $1.90 billion for the trailing twelve months, compared with $2.32 billion for the trailing twelve months ended March 31, 2010.

    Operating income was $322 million in the first quarter, compared with $394 million in first quarter 2010. Net income decreased 33% to $201 million in the first quarter, or $0.44 per diluted share, compared with net income of $299 million, or $0.66 per diluted share, in first quarter 2010.

    I continue to think Amazon is being a bad corporate citizen by fighting efforts to have Amazon play its proper role in the collection of sales tax. Ethics mean doing the right thing even if it costs you something personally. Amazon continues to act as an organization that fights what is right for society for their own greedy reasons. This is the worst behavior Bezos continues to push and does indicated a refusal to accept the responsibilities of participation in a society. Overall I believe Bezos does many great things but this disrespect for our society is a serious ethical problem.

    Related: Amazon Soars on Good Earnings and Projected Sales (Oct 2009) – 12 Stocks for 10 Years: Feb 2011 Update – Another Great Quarter for Amazon (July 2007) – Amazon’s Bezos on Lean Thinking