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Jay Johannesen
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Jay Johannesen is a principal and investment strategist at Portfolio Research, LLC. Jay holds an MBA from the Haas School of Business at the University of California at Berkeley and a CPA certification in Washington state. Portfolio Research is the leader in building risk controlled portfolios... More
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  • Investing for Retirement - Are Americans becoming realistic?
    "80 is the new 65" according to this recent Wells Fargo survey on retirement savings and investing  -- Americans are recognizing they may need to work past 65 to finance retirement, and 25% expect to work at least until the age of 80.

    But how realistic are their expectations?  The survey indicated that the average American had saved a median of $25,000 towards retirement and estimated they would need to accumulate a median of $350,000 to support themselves in retirement.  The majority of respondents expressed reluctance about investing in the stock market with 45% preferring bank certificate of deposits over stocks or mutual funds. Those surveyed expect to withdraw about 18 percent on average from their savings each year in retirement.

    We plugged these numbers into our Portfolio Research Retirement Planner to see how realistic American investors have become. In the case of a 45 year-old contributing $3,000 per year to a conservative portfolio, the $350,000 goal could in fact be met by working until the age of 80 and not withdrawing any funds, so in this respect Americans appear to be coming to grips with reality. However withdrawing $63,000 per year (18% of the balance upon retirement) will drain this individual's savings in less that seven years so this assumption appears more wishful thinking (but perhaps this is less problematic for individuals working until such an advanced age).

    Investing these amounts in a more risky portfolio might enable the investor to retire much earlier - between the age of 70 to 75 years in the median scenario, and draw down $63,000 per year for a longer period, but of course they would face more volatility.

    So it seems that Americans have become a bit more realistic about funding their retirements, at least in terms of a willingness to work later in life. However a more aggressive investment plan might make the process easier and retirement draw-down assumptions remain murky.   
    Nov 21 1:12 AM | Link | Comment!
  • Sell in May and Go Away – Are Investors Being Fooled by Randomness?
    Investors have long been seduced by the simplicity of calendar-based investing - selling in May and buying back in autumn, January's predictive power, high returns in the 3rd year of a US presidency, Super Bowl winners determining market moves, etc.  Most of the results of these seemingly predictive rules are pure randomness; but so far in 2011 the market seems to be following the predicted patterns. This graph from the WSJmakes it starkly clear that your portfolio would have out-performed if you adhered to some horoscope-like rules:

    Almanac Investing Chart

    In fact, based on past statistics, September and October are historically two of the three worst months to own stocks. November and December, on the other hand, rank as the fourth and second best months to own stocks, respectively. But here we see that October has bucked the trend. What does this mean?

    Well, according to the mystic arts, October has been a "bear-killer". So, apparently we can count on a new bull market - or at least gains through the remainder of 2011. 

    Looking as past returns is always interesting, but at Portfolio Research we like to keep the snake oil and other charms at bay. We encourage disciplined, efficient, long-term investing. So please don’t spend all the gains you are now counting on making on the anticipated Santa Claus, post-Christmas rally quite yet. Wait and enjoy the post Christmas sales. 
    Nov 07 10:37 PM | Link | Comment!
  • The Catastrophe Portfolio – Chasing Strategies to Crash-proof a Portfolio

    What is the best way for risk-averse investors to crash-proof their portfolios? 

    This recent Reuters article Rich run for cover at turmoil hits wealth describes how high-net worth household investors are trying to preserve wealth through "catastrophe portfolios" and focuses on a particularly conservative model portfolio designed to preserve wealth in extreme financial turmoil.  This catastrophe portfolio is comprised of the following asset classes: 

    - 33% Gold
    - 33% Global blue chip stocks
    - 33% Developed World Govt Bonds

     From our perspective (among other concerns) this particular mixture of asset classes seems to suffer from recency bias – chasing after assets that have more recently performed well (gold which has risen spectacularly over the past decade, and blue chips which have out-performed other broad riskier asset classes the past few months) - but which will not necessarily fare well in potential future economic scenarios. 

    There are better ways to crash proof a portfolio – build a broadly diversified portfolio and re-balance it regularly.  At Portfolio Research, our lowest risk portfolio uses eleven broad asset classes and is currently weighted toward a blend of US bonds (for example iShares Barclays Aggregate Bond ETF - AGG), Global Bonds (for example SPDR Barclays Capital Intl. Treasury Bond ETF - BWX), TIPS (for example Vanguard Inflation Protected Securities - (MUTF:VIPSX), and Cash - along with exposure to REITs, commodity funds and equities.  Currently 86% of our "catastrophe portfolio" is allocated to the four lower risk asset classes, though this may drop in the future based on objective measures of volatility, correlation and return expectations.   

    And if you are too lazy to re-balance, even variations on the so-called "Lazy Portfolios" (33% inflation protected securities fund (such as VIPSX), 34% total bond index fund (such as VBMFX), 33% total international stock index fund (such as VGTSX) strike us as more sound Catastrophe Portfolios.

    Disclosure: I am long AGG, BWX.
    Nov 02 10:10 PM | Link | Comment!
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