Gold has been a lousy hold over the last few months. According to Google Finance the SPDR Gold Trust (GLD), which is a client holding, is down 15% for the last six months. It has been below its 50 DMA for months and is approaching its 200 DMA. We own GLD essentially as insurance in the belief that when external shocks that drive down equity prices occur, gold is likely to go up.

It plays out this way often enough for me to continue to believe in this attribute. I've said in the past that if gold is the best performing thing in the portfolio then chances are things in the stock market aren't so great. We have owned GLD since shortly after it listed although we did sell 1/3 of the position in August 2011. The magnitude of the euphoria then seemed far more extreme than the level

As a followup to Wednesday post about all-ETF portfolios from CNBC.com I found this article at Seeking Alpha titled Blending Alpha & Beta: Building A Mini Endowment. The image below was the model put forth for illustrative purposes only. While the author said this is not the totality of the portfolio he manages for clients, I did get the impression he only uses funds (mostly ETPs).

I'm not sure about the endowment qualities of the portfolio, but it covers a lot of ground and the article had a lot of great detail on what seemed like every aspect of the portfolio. One statistic he mentioned was that the above yields 2.5%, which he said was modest and the portfolio was not designed for retirement income.

This highlights an issue I made a long time ago, which is that it is very difficult to get much in the way of

A reader left a lengthy question about how I determine how much of a client's portfolio goes into fixed income and what I thought about buying stocks with dividends and substitutes for low yielding bonds.

As the portfolio manager, it actually is not usually my job to determine asset allocation. Typically the percentages for equity and fixed income is part of the planning process, and at our firm, this is usually two different tasks. If a portfolio is going to have something of a normal asset allocation, then the fixed income portion is going to be between 25% and 50%, with most people being 30%, 35% or 40% fixed income... again if the portfolio is going to be normal. We have a few clients who, as a function of their volatility tolerances, have more than 50% in fixed income.

There is, of course, a vetting or a

The WSJ posted an Other Voices column written by financial planner Chuck Levin who said he gave up on active management when he hung his own shingle. Based on the article it seems as though the big reason for him was the expense of active management noting that active funds charge an average of 1.3% (his number, I don't know if it is correct). He alludes to the difficulty of beating the market but my take is that his focus is the expense.

Passive versus active is one of many questions that an investor needs to answer for themselves but frankly the way the article was framed it seemed to not take into account many years of changes in the world, changes in investment products and changes in how do-it-yourselfers have a much easier time accessing information and commentary on the Internet.

To be clear, the point here is

CNBC posted ETF portfolios devised by its ETF Advisory Counsel targeting different ages for 50 year olds with "less than 20 years until retirement." The asset allocation was 5% into cash, 50% in equities, 20% in fixed income and 25% into a category called opportunity which was a mix of equities, bonds and cash.

Cash

Guggenheim Enhanced Short Duration Bond ETF (GSY)

Equities

SPDR S&P 500 (SPY)
Schwab US Dividend (SCHD)
Vanguard Mid Cap ETF (VO)
First Trust Health Care ETF (FXH)
Vanguard FTSE All World ex-US (VEU)
WisdomTree Emerging Markets ETF (DEM)
EG Shares Emerging Market Consumer ETF (ECON)
PowerShares S&P International Developed Low Volatility (IDLV)

Fixed Income

iShares Core Total US Bond Market ETF (AGG)
iShares iBoxx Investment Grade Corporate Bond ETF (LQD)
WisdomTree Emerging Markets Local Debt (ELD)

Opportunity

PowerShares Sentior Loan Portfolio (BKLN)
Market Vectors

The other day Rick Santelli used the word counterfeit to describe the gains in the stock market and any signs of growth/recovery in the economy (in the stats that have shown growth/recovery). Stuart Freeman from Wells Fargo who sees things more positively when he said in Barron's that "Individuals are moving back into equities. It's still very early." The context being there is still room for a lot of upside in this now 49 month old rally.

The reason to express the age in months is that some time ago Barry Ritholtz pointed out that the average bull market lasts for 38-39 months.

Santelli is pointing out what should be a perversion of how capitalism is supposed to work in that we have had bailouts and debt monetization but as yet there has been no catastrophic outcome. Freeman seems to be saying that there is no reason things should

Howard Gold from MarketWatch had an interesting article titled' Don't be a Doomsday Prepper Investor', which was about the extent to which investors have very large weightings in alternative investments (mostly precious metals) compared to equities. Some of the stats cited in the article were surprising, given that they cited accounts held by people attached to markets and that the equity market is obviously up a lot.

It is not news that many investors never came back to equities, or so we are led to believe, but people actively engaged missing out on this run is news (to me anyway).

A few years ago, alternatives were more popular in terms of blog and MSM coverage, as sentiment on a large scale wondered whether it was the "death of equities." I am a big believer in using alternatives-- or as I called them, diversifiers-- but in moderation. Back then I

Yesterday about 2/3 of the way through the regular session the market sold off sharply. The sell-off was attributed to (beware explanation fallacy, but still) comments from Chuck Hagel about North Korea. Over the years I have mentioned a couple of times that we own Northrop Grumman (NOC).

The reason I own it is that it is my belief that in the face of some sort of military threat that it and the other defense stocks will generally go up. The table below shows this in action with NOC and three other defense companies. Yesterday was obviously just a microcosm as I don't think North Korea will be a meaningful long term issue at least I hope not.

(Click to enlarge)

Interesting that the news did

Jason Zweig had an article up the other day making the case for automatic enrollment into 401ks and the like. The article was so-so, but there was an interesting comment:

"Forced savings," without a requirement to also study the subjects of personal finance and economics, reads like the plot line for a future disaster.

I believe the reader is generally correct. In the past I have argued against privatized Social Security, citing previous articles from all sorts of places showing how bad 401k results tend to be. Most people who care enough about investing to read a blog like this one would probably think that privatized Social Security would be a great thing for them and maybe it would (or maybe not), but for society in general, I believe disaster is the right word.

Having lived through a couple of market meltdowns as have many people now,

The Striking Price column in this week's Barron's had an interesting opening passage:

One of the great riddles of our time is why so many people are such bad investors. After all, good investing isn't terribly difficult. All you really need to do to be successful is pick a reasonably well-run company like IBM (IBM), or Johnson & Johnson (JNJ), or even a low-cost mutual fund or exchange-traded fund that tracks the Standard & Poor's 500, and forget about it. Dividends and inflation account for about half of investment returns, and the rest is largely attributed to time, perhaps a little luck, and an ability to remain graceful under pressure.

I made a similar observation a few weeks ago. The context here is accumulating enough money for whatever the goal is, usually retirement. This is not about relative performance because how important is relative performance for someone who is

Bill Bernstein was interviewed by Index Universe and had some interesting things to say about fixed income investing. Perhaps the reason they are interesting to me is because they echo what I've said before about fixed income (confirmation bias).

First he says that "I want to take my risk with stocks, not bonds." Relatively high yields are great but too many people do not understand the risk they take when they chase yield. The SPDR High Yield ETF (JNK) and the iShares High Yield ETF (HYG) both had equity-like declines in 2008.

Another event of the same magnitude is unlikely, but a combination of a normal bear market and widening spreads could lead to another run-in with equity-like declines - but there has not been an equity-like recovery. Since the March 2009 low the S&P 500 is up over 110% while JNK is up 45% but still down from

Barron's interviewed David Winters, who manages the Wintergreen Fund (WGRNX). Winters is generally well regarded as a stock picker and I would describe him as one to hold on to stocks as a long term investor.

There was a lot of time in the interview devoted to his fund's positions in Swatch (SWGAY.PK) and Compagnie Financiere Richemont which both make watches. According to Morningstar, the fund had a combined 10.83% in the two companies. To read the interview it is quite clear that Winters believe the prospects for the watch industry are very bright.

I believe Swatch has watches at all price points whereas Richemont skews to the high end. There was not a lot of detail about his optimism other than he believes the companies have pricing power and the extent to which these purchases are often emotional.

The stocks have done well in the last two years.

The Cyprus resolution is taking shape as it looks like accounts with balances greater than €100,000 will be subject to a 30% hit to go toward meeting the requirements of the bailout. This news seemed to have visible impacts on iShares Italy (EWI) and iShares Spain (EWP) which were both down more than 4% yesterday.

Those two countries are clearly perceived to be the shakiest of the Euro countries yet to fall (I consider Greece to have fallen in this context). Obviously there is debate as to whether this current event in Cyprus is significant or not and it seems like just about every not argument focuses on how small the country's GDP is--we produce a new Cyprus everyday before lunch is one quip I read somewhere.

Of course the size of the GDP is not really the issue. If this is going to be important it will be because

By now you've heard the news about the plan in Cyprus to confiscate or tax deposits; 10% for balances greater than €100,000 and 6% on balances less than €100,000. A client emailed asking if such a plan could be implemented here; we clearly have financial problems, regardless of what you think the outcome will be there is clearly a debate about whether social security and medicare can survive.

The threat of confiscation is not new. The big difference between the U.S. and the countries in the euro zone is the currency union versus the U.S.' control over its own currency. For the same reasons we are not Greece we are also not Cyprus. The U.S. can simply print more money as it has been doing. This of course leads to a different bad outcome. The threat of inflation down the road is an easier sell than confiscating some percentage

Barron's had an ETF Special Report which consisted of two articles including a roundtable of sorts with four people in various roles in the industry. Unfortunately there was very little from the roundtable that was useful, maybe they asked the wrong questions, but there was the following quote that I think is worth blowing up:

Active managers have struggled to add value. There is only so much alpha to go around. For every manager who wins, there has to be an offsetting losing bet.

This was in response to a comment that active sector selection is not a "great way to add alpha." At times, a tremendous amount of alpha can be added from active sector selection but not always of course.

The idea of finite alpha comes up occasionally and as I have said in the past this is an academic point - not one from the real

It has been a while since we mentioned John Hussman and his weekly commentary but he had a particularly interesting quote this week;

Emphatically, I am not encouraging investors to deviate at all from their own investment discipline, provided that it is well-defined, well-tested, and matches their risk tolerance over the complete market cycle. But investors who have no such discipline – who believe that it is possible to simply “hold stocks until they turn down” or “party until the Fed takes away the punch bowl” – these investors are likely to be confounded by the failure of these simplistic notions to provide the comfortable exit they unanimously envision. Today is not 2003, and it is not 2009.

This came after a paragraph or two defending his permabear reputation. In many past posts I have talked about taking bits of process from various sources to create your own process

Over the weekend I read a post at Seeking Alpha titled "Will Your Retirement Savings Last?" It was a dividend oriented post that drew a lot of comments including the following:

After reading your article,it would seem to me that the average retired investor needs a 7% yearly return to simply keep pace. Example 4% dividend to live,and 3% return on shares to keep pace with inflation. Thats a pretty scary thought.

This is an interesting comment and an astute observation. This doesn't have to be that scary, challenging yes, but not necessarily scary or wildly unattainable. It seems like the commenter is a dividend investor of some sort but I cant be certain but that was the orientation of the article and most of the comments.

(Click to enlarge)

In past posts I have been pretty clear (I think) about believing heavily in dividends but not believing

My response to a relatively new client's question about how we manage downturns in the stock market;

In general terms the market can only do four things. No matter what is going on in the world the market can only go up a little, up a lot, down a little or down a lot. We are most concerned with that last one; down a lot. There are two different kinds of down a lot; fast declines and slow declines.

Fast declines historically are better to buy while slow declines are better to sell. An example of a fast decline is the 1987 crash. The low was a day or two after the crash and from there was an almost uninterrupted multi-year up move. Slow declines tend to be far more serious but fortunately the market does warn with things like an inverted yield curve, downward slope in the S&P 500's

Jason Zweig had a two-part blog post over the weekend titled Are You an Investor or a Speculator (part one and part two). One commenter noted that savers should be the third category. On a related note there was this article at Seeking Alpha where the author lays out his opinion about how to construct a four-ETF portfolio. While I don't agree with the four funds he chose there is an intellectual appeal to finding some sort of holy grail portfolio that only needs four or five holdings and very little work.

This is not reality in my opinion but it is interesting to keep looking.

At the other side of the scale was an article in Barron's over the weekend with details of a survey of various wealth managers about asset allocation. This PDF has the details; not sure if it requires a

David Van Knapp had a post at Seeking Alpha citing research that blows up the 4% rule, suggesting 2.8% might be the new 4%. The shift, if accurate, has to do with the current state of bond market yields and the possibility that yields may remain low for an extended period.

There is a massive psychological roadblock here IMO. The person who is able to accumulate $1 million very likely did so living a lifestyle far beyond the $28,000 that 2.8% would produce. You can plug in your own numbers into the equation to try to determine how much you need to save or how much of a reduction in lifestyle (financially) you might need to endure but to repeat something we've said many times before, if the 2.8% conclusion is right, which is that something's gotta give.

Although I don't think expressly stated by Van Knapp