Analyste de Boston

All That Is Gold Does Not Shine

I agree with Richard in this regard (implied): gold is not a good "investment." It's a hedge, a safety, a cash substitute that earns nothing. The larger question is CASH: how much should you hold, in what form, and for how long.

At the end of the last major recession (1982), American investors held 18% Cash. Another of Richard's charts (11/17/09) illustrates how the 10 Year rolling allocation to Cash has fallen from 18% in the mid-1950s to just 6% this decade. If there's a lesson from that history, it's that investors were conservative in the 'good investing climate' but too aggressive in the 'poor investing decade.' Prudence & discipline sharply now return many seasoned investors to conservative sensibilities and a Cash allocation somewhere at least 10-15%.

How one manages this Cash allocation is subject to much debate, and the "Seeking Alpha" answer depends entirely on age & risk tolerance factors: probably, a combination of bullion/coin, PM ETFs, currency ETFs and/or other hard asset proxies. To learn how to save, Gold is a great teacher!

The evolution of the Cash allocation for retirees hasn't really been a major SA focus, but bigger risks for USD-holders are nearly upon us: presumed severe inflation and a collapsing Dollar. For those threats to savings, many commentators appropriately suggest Gold NOW: that defense has little or nothing to do with speculation, either.

Personally, I'd like to see more articles & discussion about gold's role in asset allocation and referencing Age & Risk Tolerance. But again, that isn't properly a "Seeking ALPHA" topic: PMs are rather a hedge against Equity Beta, especially for older, conservative, and HNW investors.

In that role, Gold shines as brilliantly as ever.

Harvard and Yale 2009 Returns

Returns? Most readers assume returns are 'what the investments generated.' WRONG.

University endowment INCLUDE donor contributions, other income & distributions in their performance (you can see why.) Contributions of what, +$1 BILLION a year sometimes?? Be very very careful when you read "endowment return" stats - don't assume these gross #s are germane to a retail investor's portfolio performance in any way, shape or form! Apples & oranges.

I ran numbers using the proxy ETFs & MFs that the author and others have suggested previously for various allocations 2006-2008. The 10/9/07-3/6/09 Great Bear Decline losses ranged -48% > -55%. For Yale (10/9/07-6/30/09), these older, unrebalanced, static allocations lost -36% > -46% (vs. the "-30%" stated recently.)

In his 12/16/08 letter, Yale President indicated -25% loss for the previous 6 months, with greater unrealized losses to appear later. I calc'd between -33% > -38% with the proxies, so they do approximate. I would also expect their pricey hedge funds managers could reduce risk & improve performance over mock-up ETF allocations from 2006!

I don't think Harvard or Yale did a good job managing risk - on the contrary, they seemed to carry the same overall risk as their asset allocation. And before we declare they "beat stocks" longer term, let's remove the billions in alumni contributions over the past 3 decades!

Top 20 Performing Dividend ETFs

Which website has the most comprehensive, accurate & timely information on dividends and interest income?

ETFConnect shows a different "Current Distribution Rate" for several just checked, and it appears to be current (8/17/09) data. Is there a better site? Thanks!

fwiw, interest income can fluctuate widely for many funds - don't anticipate these distributions will be consistent (for income/tax purposes) over time!

Swedroe: 'Buy and Hold' Not Dead but Rebalancing Necessary

>On the individual level, say you only want 4% in commodities. So I’d take 25% of 4%, which is 1%, and I’d rebalance once it goes beyond a 1% move—meaning below 3% or above 5%.<

I'll nit-pick this.

a) There's probably no benefit in any ASSET allocation > 3%. And anything allocated with very small percentages (<5%) should have a much higher threshold for mandatory rebalancing. There's good reason to 'let your winners run' when the total asset allocation is so minor (presumably RISK was the reason the asset class was so restricted.) And you're likely just ADDING COSTS if such tinkering is not part of a general rebalancing, particularly in a small $ portfolio.

b) Check the "wisdom" of auto-rebalancing more significant asset percentages +/-25%. If you rebalanced your simplified 75/25 portfolio TWICE in the Great Bear Market (10/9/07-3/9/09) on Sept 30, 2008 and November 20, 2008, how would your Portfolio compare to a Target 2020 (75/25) MF?

Target 2020 avg return = -40%
Your '2x disciplined rebalanced' 75/25 portfolio= -46%
(Used returns of AGG/SPY and FBIDX/FSMKX)

Show of hands: who would be happier with an extra 11% LOSS? Recall that you'll need a +67% or +80% upside just to break-even... an extra 13.6% return on a 75/25 portfolio might take another 12-18 months, luck permitting! Just to break even!

Ouch, some "discipline" in that lesson learned.

Rhetorical question: why does no one ever shriek "Rebalance! Rebalance!" when the market is peaking? (I was conservatively Bearish in 2005-2007, fwiw.) There seems to be an inherent bias to these Permabull, buy&hold pundits cluttering the "financial advice columns." Nevermind their profound & longstanding hostility to alternative investments that afforded better downside protection.

God forbid anyone 'mainstream' would have the courage to suggest 12% commodity exposure might be a prudent allocation: they sure didn't in 2006 or 2007.