Who Still Offers B Shares & Best Bond Funds
So I am new to the industry and keep running into people who despise the idea of taking almost 6% off their initial investment with A shares, yet also hate C shares higher annual fees which never decrease. When I explain B shares, many people seem to like the idea, however many Fund Companies no longer offer them. What are some solid Mutual Fund Families that still have B Shares?
Lastly, I need some good Bond Funds…Any ideas?
Change your forum name. You can’t be a Big Cheese until you have earned it!
haha nice touch mr. cheese
Do your clients a favor and tell them the truth about B-shares. Run a hypo on any B-share, and compare it to an A-share. Ask them which performance they prefer.
If you plan on having a bit more active role in the process, i.e. moving from fund to fund, then suggest C-shares so they aren't always getting killed with the up front sales charge. I explain how all the shares work, give the numbers, talk about my investment philosophy, then tell them to make the decision. If they ask for help, I do the math for them. I have yet to find a situation where a B-share makes sense for the client.Really? I did a hypo on FINRA’s website and after 10 years, B shares beat A and C every time…It is not by much, but regardless of the rate of return I selected (5,6,7% annually) the investor always had more money with B shares
MFS Total Return Fund Class A MFS Total Return Fund Class B MFS Total Return Fund Class C Data As Of 2/8/2010 2/8/2010 2/8/2010 Ticker Symbol MSFRX MTRBX MTRCX Investment Amount $10,000.00 $10,000.00 $10,000.00 Estimated Return You Selected 5.00% 5.00% 5.00% Holding Period 10 10 10 Fund Value After 10 Year(s) $14,003.01 $14,104.49 $13,922.33
Did I do something wrong here or is there something about B shares I don’t know here?
6%? You do understand breakpoint rules, don’t you? It’s actually pretty rare for anyone to pay the full load. And those folks typically aren’t great clients anyway. If they’re complaining about paying you 5.7% for the next 10 years, then they’re better off buying an asset allocation fund from Vanguard and letting it ride. Your book with thank you in the long run.
If you have to sell B shares look at MFS, Goldman, Lord Abbett, Van Kampen (soon to be AIM/Invesco), or Oppenheimer. I'm sure there are others out there, but many of the big companies have lost their financing on the B shares, so they stopped doing them. You're going to have to be more specific on the bond fund thing. Are you looking for a total return bond fund, high yield fund, government bond fund, foreign bond fund? Be more specific and you'll get some better responses. Oh yeah, stop using the FINRA website. Figure out how to use your firm's hypo system. If you can't have your internal wholesaler do it for you. Morningstar shows the 10 year ending numbers (as of 1/31/10) on the MFS funds you used as $15,476, $15,432, and $15,416 for the A, B, and C shares respectively. So, a $60 difference over a 10 year time frame between the A and C. Less for the B. The 5 year hypo isn't even close. C share wins hands down. Plus the flexibility of the C share is a big draw. Plus you get paid better in the long run on the C share. So, for $6 a year in performance you get a client without the handcuffs (commissions paid or CDSC fees), an FA who has a regular stream of income who is happier about servicing that client with $10K, and no headaches from your compliance officer when in 3 years you want to switch out of XYZ A share because the money manager has changed or the entire fund family got overweighted in financials or the landscape has changed and it's time to move to bonds.Maybe i’m off here, but I have been recommending B shares for people just wanting to open a roth IRA and just wanna put in 5k for 1 or 2 years and then just let it grow…Because it is such a small amount, I’ve been telling them about B shares. Thank you for those names/funds.
As for the Bond Funds, I guess I am primarily looking for some good generic bond funds and maybe 1 or 2 extraordinary performers that may be a little more risky or international etc.
You are a clown. You are stealing screen names and now ripping on guys who actually know the business? Get bit and go sell your B shares at Fidelity.<SPAN id=userPro182281 title=“View Drop Down” =“showDropDown’userPro182281’, ‘proMenu182281’, 160, 0;”>Which performance do you prefer SometimesNowhere?
I agree with Spiff and Cheese. B shares are better for small amounts for younger people, A shares are better if you hit breakpoints. Unfortunately, B shares are going away, so I would not bother selling them.
This is just one reason our industry is so fukced up.
Where do you work?Maybe i’m off here, but I have been recommending B shares for people just wanting to open a roth IRA and just wanna put in 5k for 1 or 2 years and then just let it grow…Because it is such a small amount, I’ve been telling them about B shares. Thank you for those names/funds.
As for the Bond Funds, I guess I am primarily looking for some good generic bond funds and maybe 1 or 2 extraordinary performers that may be a little more risky or international etc.
It has to be EJ
Here’s an interesting thought:
If B shares are going to be eliminated pretty soon across the board, would it benefit the client to buy all B shares in the meantime in anticipation that they will be converted to A shares as soon as that specific fund family decides to make the change? I have a client that had Columbia B shares until this past August and they converted automatically to A shares w/out charging him any fees. Wouldn't doing this allow the client to avoid paying a front-load, the majority of the CDSC, and still pay us good?In my very limited experience with B shares from companies no longer offering them (American and Franklin) they didn’t immediately end the B share fund. They simply stopped allowing new sales and are allowing the existing shares to eventually run their course.
Did those Columbia funds reach the end of the CDSC? All Col. B shares convert to A after the CDSC.
And I think Bigsneeze09 should just sell his customers all no loads…
Ahhh...just checked. They actually eliminated the whole fund and combined it with a similar fund that no longer had B shares, so they put it in the A share.Did those Columbia funds reach the end of the CDSC? All Col. B shares convert to A after the CDSC.
In regards to Bond Funds I like -- Templeton Global Bond, JPMorgan Core Bond, Pimco Low Duration and Total Return
Who ripped who Ron?
And I assure you I did not take the time to look up bigcheese and then add an 09…bigcheese09 has been my aim name since high school and my password since middle school…and again, I was not ripping anybody…I simply showed the hypo I did with the 10k a client was investing into a Roth and the B-shares won…how is that a rip?
And you aren’t kidding about Templeton’s Global Bond Fund…It’s 10 year annual return is stupid…Appreciate that
Just change your screen name or start another one. See if bigjackass09 is available.
Who pissed in your cheerios this a.m Ron?
I’ll keep checking on other fund companies, but if that is the case, that’s a pretty legit idea <span id=“userPro182328” =“showDropDown’userPro182328’, ‘proMenu182328’, 160, 0;” =“msgSidePro” title=“View Drop Down”>3rdyrp2…Appreciate it
And Ron, seriously (I’m not trying to stir up sh*t or anything) but I’m curious who I ripped…I swear I was not trying to rip anybody…It was just a question
You made a smart ass comment to Sometimesnowhere and then went back and changed it. Too bad I already quoted it and replied, preventing you from erasing it completely.
What??? Ron, I promise you I didn’t do that…I don’t even know how to change stuff on here…I’m brand new to the site I swear…I’ve been on this site all day long but had to go out for a few meetings, so maybe one of the guys in the office came in and changed some sh*t to f with me and make me look like a cuntnugget or something, but I promise you that what is posted now is what I posted
Is this the third coming of Windy?
You are a clown. You are stealing screen names and now ripping on guys who actually know the business? Get bit and go sell your B shares at Fidelity. [/quote] This is what you posted clown car.[quote=bigcheese09]<SPAN id=userPro182281 title=“View Drop Down” =“showDropDown’userPro182281’, ‘proMenu182281’, 160, 0;”>Which performance do you prefer SometimesNowhere?
Ron, I assure you that is not what I posted…Does that sound like anything else I posted the entire time? I swear I just got on here to research, find great ideas from some veterans, and ask questions that I keep running into…I promise you I didn’t write that…That doesn’t fit what I’m trying to do at all
How the hell would I get it to quote then ? Nevermind. You are a waste of my time.
No i’m not accusing you of lying, you said it went to that line (that you quoted) and then back to the question…I’m saying that when I left my office to go to my meetings, I’m guessing someone from the office changed it to that smartass remark you quoted, then changed it back when I got back to make me look like a cuntnugget and I was clueless as to what the hell was going on and why ppl wanted me to jump off a bridge etc.
As the creator of Big Cheese, I think the forum administrator has to share the revenue allowing bigcheese09 to this forum.
I will be expecting the check soon. The greatest form of flattery is to replicate what others have done...If your production 09 spikes I take full credit and expect a check from you too...haha do I make it out to Big Cheese?
Makes me wish EDJ had a fee based platform that we as advisors actually had control of and could build the portfolio however. I think every client deserves the right to decide if they want to pay an annual fee or transactional. Of course at Jones we have Advisory…Where we give EDJ COMPLETE control!..That’s great…except then Jones has COMPLETE control of our business:) …Then we are just babysitters and any chump can do that job…
Why do you think so many firms make fun of you guys? EDJ and Primerica are the only two “firms” in the industry without a fee-based platform advisors can trade on.
Technically that's not accurate. You could do Advisory on the custom model side. You have more control over it then. Granted, you still have to stay within the guidelines with percentages in G/I, G, etc and you can't use individual securities, but if control is what you're looking for then you've got quite a bit of it that way. If you see Advisory as reducing your role with your clients down to simply babysitting, then you're missing the point of the program altogether. With my Advisory clients I've become MORE involved with them rather than less. We just spend more time talking about things other than performance and fund companies.Makes me wish EDJ had a fee based platform that we as advisors actually had control of and could build the portfolio however. I think every client deserves the right to decide if they want to pay an annual fee or transactional. Of course at Jones we have Advisory…Where we give EDJ COMPLETE control!..That’s great…except then Jones has COMPLETE control of our business:) …Then we are just babysitters and any chump can do that job…
Aren't you an Ameriprise guy?Why do you think so many firms make fun of you guys? EDJ and Primerica are the only two “firms” in the industry without a fee-based platform advisors can trade on.
Yes, and we have several fee based models which we have complete control over. Whats the issue w/Ameriprise? We can do everything, but the only real issue investment-wise is the lack of annuity carriers. Who gives a flying f*** about annuities if you don’t do a lot of annuity business.
Here's where some people are missing the point of the fee based platform and the whole suitability/fiduciary issue. I have to admit, I am struggling through it from an indepent RIA viewpoint. If you are offering a fee platform you are (or soon will be according to the news) held to the fiduciary standard. Your firms have processed this. They have formed Investment Committees tasked with the management of the due dilly process for the model portfolios that are ultimately recommended. A single person couldn't possibly go through the hoops that they are going through and expect to produce at the same time. If you deviate from the model portfolio, what are the reasons and rationale? What type/amount of research went into that decision? I have in front of me right now the Due Diligence Process Manual for a broker/dealer provided platform. It's 33 pages long and more complex than all get out. Can you honestly say that you went through as thorough a process as the Investment Committee in coming up with your own model, and then bring that into context of fiduciary responsibility?Makes me wish EDJ had a fee based platform that we as advisors actually had control of and could build the portfolio however. I think every client deserves the right to decide if they want to pay an annual fee or transactional. Of course at Jones we have Advisory…Where we give EDJ COMPLETE control!..That’s great…except then Jones has COMPLETE control of our business:) …Then we are just babysitters and any chump can do that job…
[quote=Spaceman Spiff]
Technically that's not accurate. You could do Advisory on the custom model side. You have more control over it then. Granted, you still have to stay within the guidelines with percentages in G/I, G, etc and you can't use individual securities, but if control is what you're looking for then you've got quite a bit of it that way. If you see Advisory as reducing your role with your clients down to simply babysitting, then you're missing the point of the program altogether. With my Advisory clients I've become MORE involved with them rather than less. We just spend more time talking about things other than performance and fund companies. [/quote] Spiff I still think Advisory is more for control over our business than anything. I know we have the side that you have "more" control over, but it's no different than having a 401K and having limitations on what you can choose from. Picture this: Spiff has 90% of his book in Advisory. What happens when you have one little quarrel with Jones. You are easily replaced. They boot you out and put someone else in your place to talk about other things, other than their performance, which in reality, is the only reason that client is sitting across the desk from you. To know his performance for the last quarter, month, year...whatever...Take the ability for an advisor to ACTUALLY build a portfolio and you are useless..To me the best part of this job is building the portfolio and doing the research....Maybe thats just me... Speaking of this, I have a good friend who works in the IT department on supporting different programs. We were talking a week or 2 ago and he was telling me about some of the new programs Jones has coming out. Did you know that Jones is working on a system that you put all the parameters in for a client, age, income, etc...and it builds a portfolio for you? Thats control my friend..... I think we should have a real option of fee based. I have LOTS of clients who would go for the fee, if they could trade stocks and swap fund families without any cares. In some cases, it's just a better deal for them...in others..transactional is best. Although I highly agree with a post someone had on here recently, that Bonds should never be wrapped...Yeah, well. Thats just, like, your opinion, man.Ameriprise=weak minor league ball
Actually Jones is going the other way with that. By going fee based with Advisory, we have no fiduciary responsibility, because Jones makes all the decisions. Atleast thats what J-Dub said....Here’s where some people are missing the point of the fee based platform and the whole suitability/fiduciary issue. I have to admit, I am struggling through it from an indepent RIA viewpoint. If you are offering a fee platform you are (or soon will be according to the news) held to the fiduciary standard. Your firms have processed this. They have formed Investment Committees tasked with the management of the due dilly process for the model portfolios that are ultimately recommended. A single person couldn’t possibly go through the hoops that they are going through and expect to produce at the same time. If you deviate from the model portfolio, what are the reasons and rationale? What type/amount of research went into that decision? I have in front of me right now the Due Diligence Process Manual for a broker/dealer provided platform. It’s 33 pages long and more complex than all get out. Can you honestly say that you went through as thorough a process as the Investment Committee in coming up with your own model, and then bring that into context of fiduciary responsibility?
Actually Jones is going the other way with that. By going fee based with Advisory, we have no fiduciary responsibility, because Jones makes all the decisions. Atleast thats what J-Dub said....[/quote] Uhhhhh....That was actually my point. You are acting as a fiduciary, Jones provides the CYA.[quote=joelv72]Here’s where some people are missing the point of the fee based platform and the whole suitability/fiduciary issue. I have to admit, I am struggling through it from an indepent RIA viewpoint. If you are offering a fee platform you are (or soon will be according to the news) held to the fiduciary standard. Your firms have processed this. They have formed Investment Committees tasked with the management of the due dilly process for the model portfolios that are ultimately recommended. A single person couldn’t possibly go through the hoops that they are going through and expect to produce at the same time. If you deviate from the model portfolio, what are the reasons and rationale? What type/amount of research went into that decision? I have in front of me right now the Due Diligence Process Manual for a broker/dealer provided platform. It’s 33 pages long and more complex than all get out. Can you honestly say that you went through as thorough a process as the Investment Committee in coming up with your own model, and then bring that into context of fiduciary responsibility?
My bad for mis-reading. I, however, still think the best part of this job is doing the research and building the portfolio. Not very keen to giving that up. After all, that is our job.
That avatar is killing me mlgone! Funniest sh!t I’ve seen.
[quote=Ronnie Dobbs][quote=Spaceman Spiff]
Technically that's not accurate. You could do Advisory on the custom model side. You have more control over it then. Granted, you still have to stay within the guidelines with percentages in G/I, G, etc and you can't use individual securities, but if control is what you're looking for then you've got quite a bit of it that way. If you see Advisory as reducing your role with your clients down to simply babysitting, then you're missing the point of the program altogether. With my Advisory clients I've become MORE involved with them rather than less. We just spend more time talking about things other than performance and fund companies. [/quote] Spiff I still think Advisory is more for control over our business than anything. I know we have the side that you have "more" control over, but it's no different than having a 401K and having limitations on what you can choose from. Picture this: Spiff has 90% of his book in Advisory. What happens when you have one little quarrel with Jones. You are easily replaced. They boot you out and put someone else in your place to talk about other things, other than their performance, which in reality, is the only reason that client is sitting across the desk from you. To know his performance for the last quarter, month, year...whatever...Take the ability for an advisor to ACTUALLY build a portfolio and you are useless..To me the best part of this job is building the portfolio and doing the research....Maybe thats just me... Speaking of this, I have a good friend who works in the IT department on supporting different programs. We were talking a week or 2 ago and he was telling me about some of the new programs Jones has coming out. Did you know that Jones is working on a system that you put all the parameters in for a client, age, income, etc...and it builds a portfolio for you? Thats control my friend..... I think we should have a real option of fee based. I have LOTS of clients who would go for the fee, if they could trade stocks and swap fund families without any cares. In some cases, it's just a better deal for them...in others..transactional is best. Although I highly agree with a post someone had on here recently, that Bonds should never be wrapped...[/quote] Stepping back and looking at the big picture, you make a very good point. You guys have to remember that technically you are employees of the firm. It reminds me of the evolution of commercial banking. Loan officers used to do the loan analysis themselves and present it to loan committee, and ultimately to the board (if it was large enough). Credit departments sprung up to support loan officers, taking some of the analytical burden off of their shoulders, but the loan officer ultimately called the shots. Now the tables are turned, and the loan officers are nothing more than paper shufflers taking orders from the credit department. Which makes me glad I own my own business now.it's Mel and Shoe[/quote] I need to start looking at this site at home more often. The only thing I see in your avatar in the guy with the question mark in his head.[quote=3rdyrp2]That avatar is killing me mlgone! Funniest sh!t I’ve seen.
Picking mutual funds that are approved by EJ is not research or building a portfolio. This is not a shot. I don't do research either.My bad for mis-reading. I, however, still think the best part of this job is doing the research and building the portfolio. Not very keen to giving that up. After all, that is our job.
Wind - I guess the reason I like advisory is so that I don't have to do all the research. I can't possibly do enough quality research to improve upon what those analysts do. It's just not possible for me to run my business, post on here so much, and search the universe of funds for the right combination to use.
I think in this business you have to figure out what your focus is going to be. Guys like BondGuy or Gaddock know the investment side of what they do like the back of their hands. That's why they attract new clients. I don't really care anymore to get bogged down with whether Keeley is a better small cap manager than American Funds. OK, well, maybe that wasn't a good example, but you get the point. I'd rather spend my time doing what I am this morning - working with a client who wants to retire next year and just simply wants to know if she can. I've got her 401k statement, her budget, her pension statements, her SS statements, her insurance, her 529 plans, etc all scattered all over my desk. Not one time in this entire conversation with her have we talked about mid-cap funds. She doesn't care. She wants to know if she's going to run out of money before she dies. If using Advisory means that I can focus more on retaining and attracting clients like her, then I'm all for it.it's Mel and Shoe[/quote] I need to start looking at this site at home more often. The only thing I see in your avatar in the guy with the question mark in his head. [/quote] Where do you access this forum from....Communist China?[quote=mlgone][quote=3rdyrp2]That avatar is killing me mlgone! Funniest sh!t I’ve seen.
Picking mutual funds that are approved by EJ is not research or building a portfolio. This is not a shot. I don't do research either. [/quote] Ron, many of us use funds at Jones that are NOT part of their approved, preferred, focus, whatever-lists. We have access to about 75 different fund families, so there's no shortage of options. However, I wish I had my choice of what funds to use in Advisory, not just the funds they put in the program (which is what I think Windy was getting at). The problem I have with Advisory is not so much the funds they choose (they are generally pretty good in their categories), but the asset allocation methodology. I don't necessarily buy into "style-box" investing, which is exactly what Advisory Solutions is. Not one of my "favorite" funds is in Advisory Solutions, because most of them are not category-specific. Jones does not choose funds that have much flexibility in approach. They want to totally control the asset allocation. I prefer more of a core/satellite approach, and want to be able to tweak my allocations as I see fit.[quote=Ronnie Dobbs]My bad for mis-reading. I, however, still think the best part of this job is doing the research and building the portfolio. Not very keen to giving that up. After all, that is our job.
Picking mutual funds that are approved by EJ is not research or building a portfolio. This is not a shot. I don't do research either. [/quote] I work within the guidlines I have, but for the most part we can purchase almost anything Ron. I DO, do my research. I enjoy the whole process.[quote=Ronnie Dobbs]My bad for mis-reading. I, however, still think the best part of this job is doing the research and building the portfolio. Not very keen to giving that up. After all, that is our job.
it's Mel and Shoe[/quote] I need to start looking at this site at home more often. The only thing I see in your avatar in the guy with the question mark in his head. [/quote] Where do you access this forum from....Communist China?[/quote] No, but I suspect something similar, like an EDJ workstation.[quote=Spaceman Spiff][quote=mlgone][quote=3rdyrp2]That avatar is killing me mlgone! Funniest sh!t I’ve seen.
There are guys like B24 that do things differently at Jones and that’s great. I think B24 is more suited to be an independent, but that will be a decision he’ll have to make.
Wind - Jones didn’t hire you to manage portfolios and select securities for people. They hired you to grow assets and make money for the firm. They pay people to do the stuff you want to do.
Like Ron said, it’s not a dig. I would like nothing better than to have other people deal with the client side while I simply make investment recommendations.
Jones has the scale to hire people to make investment recommendations and hire brokers to sell it. That’s what you do. If you want to make investment recommendations you can, like B24 and some others there, but that’s not what Jones hired you for.
Spiff, B24 - Have you heard about this new program that involves, putting in paramaters (age, etc…) and the program builds the portfolio for us? That’s the kind of thing I don’t like. Advisory is not too far off. I understand Spiff, what you are getting at, but at the same time, you have that retirement conversation once, maybe twice…Everything else is performance. I don’t think I have EVER had a client come in for an appt and not wanna talk about their performance.
Not arguing that, good point, but that doesn't take away the fact that I run my business how I want, within "Jones" guidelines of course. I sell plenty, but I also greatly enjoy building portfolios. I in no way want to be an analyst, but I think an advisor should be very educated on the process, the investments, and know how to build a portfolio properly. Not just shove them in something. Of course i'm sure everyone does that in the beginning...I enjoy the research, because Spiff....then when that person comes to you and says "Can I retire", you can say, "Yes, you can because, you and I developed the right plan and stuck with it", and not say..."Whew...I'm glad Jones partnered with the right companies!...Good job Advisory committee, you didn't screw me this time!"....There are guys like B24 that do things differently at Jones and that’s great. I think B24 is more suited to be an independent, but that will be a decision he’ll have to make.
Wind - Jones didn’t hire you to manage portfolios and select securities for people. They hired you to grow assets and make money for the firm. They pay people to do the stuff you want to do.
Like Ron said, it’s not a dig. I would like nothing better than to have other people deal with the client side while I simply make investment recommendations.
Jones has the scale to hire people to make investment recommendations and hire brokers to sell it. That’s what you do. If you want to make investment recommendations you can, like B24 and some others there, but that’s not what Jones hired you for.
Can't they go to Fidelity for that and not the the 5%?Spiff, B24 - Have you heard about this new program that involves, putting in paramaters (age, etc…) and the program builds the portfolio for us? That’s the kind of thing I don’t like. Advisory is not too far off. I understand Spiff, what you are getting at, but at the same time, you have that retirement conversation once, maybe twice…Everything else is performance. I don’t think I have EVER had a client come in for an appt and not wanna talk about their performance.
B24 - I would say you are in the minority of Jones brokers with the way you do things. THE VERY SMALL MINORITY. I think you do things the right way, but a majority of EJ FA's, me included when I was there, looked at the preferred families, the funds available, hit a breakpoint, sell come Corp and Muni's and all is good. There is nothing wrong with that. I am just saying that is how they do things and for people with less than 250k, that is all you really have to do. IMO.There are guys like B24 that do things differently at Jones and that’s great. I think B24 is more suited to be an independent, but that will be a decision he’ll have to make.
Wind - Jones didn’t hire you to manage portfolios and select securities for people. They hired you to grow assets and make money for the firm. They pay people to do the stuff you want to do.
Like Ron said, it’s not a dig. I would like nothing better than to have other people deal with the client side while I simply make investment recommendations.
Jones has the scale to hire people to make investment recommendations and hire brokers to sell it. That’s what you do. If you want to make investment recommendations you can, like B24 and some others there, but that’s not what Jones hired you for.
I'm not sure it's a good thing, that you schedule your day with "posting on here". Maybe you shouldn't post here :) lol. I cut back about 95% of my posting, you can too!!!.You can do it Spiffer...It’s just not possible for me to run my business, post on here so much, and search the universe of funds for the right combination to use.
This goes back to my commercial bank analogy. You walk into a retail Bank of America branch in my neck of the woods and the "branch manager" is more than likely to be less than 35 years old and more than likely not have a college degree. That's because people with more experience/education would not take that job because of the hours, pay, and sucktitude. If EDJ (or any other captive B/D for that matter) could really have their way, that would be their model, because more money would flow to the top. Their one hindrance is FINRA and the examinations, which the average joe just cant hurdle. I hear alot of bitching about FINRA, but without them, captive reps would start looking like McDonald's fry cooks pretty darn quick.Spiff, B24 - Have you heard about this new program that involves, putting in paramaters (age, etc…) and the program builds the portfolio for us? That’s the kind of thing I don’t like. Advisory is not too far off. I understand Spiff, what you are getting at, but at the same time, you have that retirement conversation once, maybe twice…Everything else is performance. I don’t think I have EVER had a client come in for an appt and not wanna talk about their performance.
I have heard about a program like that. Not sure how far down the road it is, but I believe they're working on it. I think whatever that software looks like it will end up being kind of like Advisory where you can just simply click OK and go for it, or you can pick and choose what part of their scenario you really want to use. I can't imagine them actually telling us to use Fund A over Fund B. I can see them telling us to put 10% in LC Growth and give us a list of LC Growth funds to pick from. I've also heard about an Advisory type account, there's a name for it that escapes me right now, that they're working on that would allow stocks, funds, bonds, UITs, CEFs, ETFs, etc all in one account. The GP that told us about it said that it's in the near future. That was pretty vague, but at least they're thinking about it. I agree that people want to know about performance. But, they don't typically want to hear the specifics. Give them the bottom line, something to compare it to, and they're happy. You need to have that retirement conversation annually. Lots of things can change in a year. It might just be a review to find out if you're still on track for their goals, but if you have the conversation with they've 50 and then again at 55, you're going to miss something. And there are lots of other things to talk about besides retirement. It's those other things that can really become meaningful to your clients.Spiff, B24 - Have you heard about this new program that involves, putting in paramaters (age, etc…) and the program builds the portfolio for us? That’s the kind of thing I don’t like. Advisory is not too far off. I understand Spiff, what you are getting at, but at the same time, you have that retirement conversation once, maybe twice…Everything else is performance. I don’t think I have EVER had a client come in for an appt and not wanna talk about their performance.
I have heard about a program like that. Not sure how far down the road it is, but I believe they're working on it. I think whatever that software looks like it will end up being kind of like Advisory where you can just simply click OK and go for it, or you can pick and choose what part of their scenario you really want to use. I can't imagine them actually telling us to use Fund A over Fund B. I can see them telling us to put 10% in LC Growth and give us a list of LC Growth funds to pick from. I've also heard about an Advisory type account, there's a name for it that escapes me right now, that they're working on that would allow stocks, funds, bonds, UITs, CEFs, ETFs, etc all in one account. The GP that told us about it said that it's in the near future. That was pretty vague, but at least they're thinking about it. I agree that people want to know about performance. But, they don't typically want to hear the specifics. Give them the bottom line, something to compare it to, and they're happy. You need to have that retirement conversation annually. Lots of things can change in a year. It might just be a review to find out if you're still on track for their goals, but if you have the conversation with they've 50 and then again at 55, you're going to miss something. And there are lots of other things to talk about besides retirement. It's those other things that can really become meaningful to your clients. [/quote] Unified Managed Account (UMA)[quote=Ronnie Dobbs]Spiff, B24 - Have you heard about this new program that involves, putting in paramaters (age, etc…) and the program builds the portfolio for us? That’s the kind of thing I don’t like. Advisory is not too far off. I understand Spiff, what you are getting at, but at the same time, you have that retirement conversation once, maybe twice…Everything else is performance. I don’t think I have EVER had a client come in for an appt and not wanna talk about their performance.
I don’t believe that’s a Unified Managed Account. Only thing I’ve ever seen in an UMA is multiple sub-advisors (SMAs) with maybe an ETF here or there.
I think Spiff is referring to an Advisor (FA) Directed Account or Client Directed Account - basically a fee based account that you can practically by everything in.[quote=Wet_Blanket]I don’t believe that’s a Unified Managed Account. Only thing I’ve ever seen in an UMA is multiple sub-advisors (SMAs) with maybe an ETF here or there.
I think Spiff is referring to an Advisor (FA) Directed Account or Client Directed Account - basically a fee based account that you can practically by everything in.[/quote] Hell, I have yet to open one, but here's Investopedia's take: http://www.investopedia.com/terms/u/uma.aspStupid meaning good?
If you want to manage money then go get your CFA. The Series 7 does not qualify you to actively manage people’s retirement accounts. There are specialists with a crapload more education than you and a sh*tton more experience who do this for a living. If you are a broker you are not managing money for a living, you are doing sales and customer service.
Spiff hit the nail on the head when he said he looks at all the pieces of someone’s financial puzzle and pieces them together but farms out the portfolio management to people more qualified to do that.
If you’re picking funds for people in their retirement portfolio you’re doing them a disservice.
What do you know about my plans or my knowledge? I am already enrolled in the AAMS course, then i'm going for my CFP. Aswell, as plans on getting my PHD in Finance. How about you stop being a d***....Theres a start.....If you want to manage money then go get your CFA. The Series 7 does not qualify you to actively manage people’s retirement accounts. There are specialists with a crapload more education than you and a sh*tton more experience who do this for a living. If you are a broker you are not managing money for a living, you are doing sales and customer service.
Spiff hit the nail on the head when he said he looks at all the pieces of someone’s financial puzzle and pieces them together but farms out the portfolio management to people more qualified to do that.
If you’re picking funds for people in their retirement portfolio you’re doing them a disservice.
Isn’t the AAMS an open-book test? There’s a couple of Jonsers in my market with that credential and I can’t see that it’s made a damn bit of difference in their ability to manage money.
The AAMS is required at Jones to move to Seg 4. I've skimmed over the books i recieved for the course, and it can definitly be worth it, if you actually study it. Anyone who has gone to college knows there are 2 kinds of students. The nes who passively get through and the ones who actually study and become very knowledgable. I'm not doing anything just for the designation. As i've said, i very much enjoy the process of building a portflio and want to learn all I can.Isn’t the AAMS an open-book test? There’s a couple of Jonsers in my market with that credential and I can’t see that it’s made a damn bit of difference in their ability to manage money.
I’ve got the AAMS on my card and NOBODY has ever even recognized it. I think Jones made it a requirement so that all of their FAs will eventually have some initials behind their name. They can’t call us VPs or Regional Marketing Directors or some lame made up name like they do at other companies, so they did the AAMS thing. Some folks used to call it CFP lite, but it’s not even close. A good, long weekend with some study time and you’re ready to go.
Wind - kudos for wanting to learn and enjoy the process of portfolio building. I used to feel the exact same way. I wanted to learn about MPT, loved talking with Ice about ETFs vs funds, and just got way too far into the weeds when I was trying to construct a portoflio. One day when I was sitting in my office at 6:30pm, trying to get a portfolio perfectly balanced, lots of alpha and as little SD as possible showing on the reports, I realized that I'd never be able to get as good as the folks at our HQ who already have their CFAs and lots of other experience to boot. Not without going back to school or spending the next 5 years in the home office working my way up to the analyst level. I suddenly became not so interested. You may be just the opposite and can't live without the academia of portfolio building. Just make sure that you balance your time between building your book and building your knowledge base. Jones will terminate a CFP who's on goals just as quickly as they will anyone else.What do you know about my plans or my knowledge? I am already enrolled in the AAMS course, then i'm going for my CFP. Aswell, as plans on getting my PHD in Finance. How about you stop being a d***....Theres a start.....[/quote] The AAMS is a total joke. It isn't even CFP lite, which some refer to it as. It is a total waste and it isn't recognized by anyone. The AAMS and CFP have absolutely zero influence on the management of money. The CFP doesn't help you pick stocks, funds, trades or anything. It is for financial planning not financial analysis. If you have taken the CFP classes you can pass the AAMS tests without buying the books.[quote=BerkshireBull]If you want to manage money then go get your CFA. The Series 7 does not qualify you to actively manage people’s retirement accounts. There are specialists with a crapload more education than you and a sh*tton more experience who do this for a living. If you are a broker you are not managing money for a living, you are doing sales and customer service.
Spiff hit the nail on the head when he said he looks at all the pieces of someone’s financial puzzle and pieces them together but farms out the portfolio management to people more qualified to do that.
If you’re picking funds for people in their retirement portfolio you’re doing them a disservice.
Ok, let me ask you guys a question.
If conventional wisdom is that the majority of an investor's performance is dictated by their investment behavior and their asset allocation vs. the actual investments they hold, then why worry so much about whether your corporate office picks the funds or you do. I think most people would say that the explosion of ETF's and Indexing has really shown that the majority of investors prefer that over individual stock picking. That and the fact that very very few people (and certainly not any Financial Advisors) can 'stockpick' better than professional money managers over the long haul. Even money managers have trouble beating the 'market' over the long haul. The risk adjusted return of actively managed funds, I would argue, is better, but that is certainly an ongoing debate. I'm not digging on EDJ or anything because I don't see any problem with that. To wit, I think it makes alot of sense to not have to design the portfolio of every account. The possible exception is that if you cannot trade individual securities in the account that would bother me if I had clients that traded alot but then, they are traders and not investors for the most part. I can't speak for Gaddock or anyone else, but I know that professional money managers have alot more experience, understanding, and resources than any of us do at 'picking' investments. I honestly think one of the biggest problems with our industry stems from people like Windy who have been in the business less than 5 years and think they can 'out-pick' the professionals. They have just enough knowledge to get in trouble. There is ZERO chance that he can outperform any index or Managed Fund on a risk adjusted basis over a 5+ year span.[quote=LSUAlum]Ok, let me ask you guys a question.
If conventional wisdom is that the majority of an investor's performance is dictated by their investment behavior and their asset allocation vs. the actual investments they hold, then why worry so much about whether your corporate office picks the funds or you do. I think most people would say that the explosion of ETF's and Indexing has really shown that the majority of investors prefer that over individual stock picking. That and the fact that very very few people (and certainly not any Financial Advisors) can 'stockpick' better than professional money managers over the long haul. Even money managers have trouble beating the 'market' over the long haul. The risk adjusted return of actively managed funds, I would argue, is better, but that is certainly an ongoing debate. I'm not digging on EDJ or anything because I don't see any problem with that. To wit, I think it makes alot of sense to not have to design the portfolio of every account. The possible exception is that if you cannot trade individual securities in the account that would bother me if I had clients that traded alot but then, they are traders and not investors for the most part. I can't speak for Gaddock or anyone else, but I know that professional money managers have alot more experience, understanding, and resources than any of us do at 'picking' investments. I honestly think one of the biggest problems with our industry stems from people like Windy who have been in the business less than 5 years and think they can 'out-pick' the professionals. They have just enough knowledge to get in trouble. There is ZERO chance that he can outperform any index or Managed Fund on a risk adjusted basis over a 5+ year span. [/quote] Or maybe it's people like you who can't read. I never said i could outperform a managed fund. I said i enjoy the process and want to learn as much as possible about it myself. Then again, whats the good in picking a managed fund, if you don't understand what you are looking at.....Thats my point LSU....You guys seem to always have it out for newer people, willing to learn more than most.....Always with the "Know enough to be dangerous" speech. Enough already. I don't do things the same as you, nor will I ever. I hae my way of doing things that has worked out very well for me and i'll continue on my path to Seg 4. I enjoy the research of funds/stocks/etc...You don't or don't believe you can do well. That's fine, but thats no reason to doubt my abilities to learn.Continue to do all the research you want. The CFP won’t help you with any of it.
Love the new signature Ron!Continue to do all the research you want. The CFP won’t help you with any of it.
Love the new signature Ron![/quote] Ron would have no existance if he didn't cut jokes at me....[quote=Ron 14]Continue to do all the research you want. The CFP won’t help you with any of it.
Love the new signature Ron![/quote] Ron would have no existance if he didn't cut jokes at me....[/quote][quote=Mr.Blonde][quote=Ron 14]Continue to do all the research you want. The CFP won’t help you with any of it.
Another keyboard ruined.
[quote=Ronnie Dobbs][quote=LSUAlum]Ok, let me ask you guys a question.
If conventional wisdom is that the majority of an investor's performance is dictated by their investment behavior and their asset allocation vs. the actual investments they hold, then why worry so much about whether your corporate office picks the funds or you do. I think most people would say that the explosion of ETF's and Indexing has really shown that the majority of investors prefer that over individual stock picking. That and the fact that very very few people (and certainly not any Financial Advisors) can 'stock pick' better than professional money managers over the long haul. Even money managers have trouble beating the 'market' over the long haul. The risk adjusted return of actively managed funds, I would argue, is better, but that is certainly an ongoing debate. I'm not digging on EDJ or anything because I don't see any problem with that. To wit, I think it makes alot of sense to not have to design the portfolio of every account. The possible exception is that if you cannot trade individual securities in the account that would bother me if I had clients that traded alot but then, they are traders and not investors for the most part. I can't speak for Gaddock or anyone else, but I know that professional money managers have alot more experience, understanding, and resources than any of us do at 'picking' investments. I honestly think one of the biggest problems with our industry stems from people like Windy who have been in the business less than 5 years and think they can 'out-pick' the professionals. They have just enough knowledge to get in trouble. There is ZERO chance that he can outperform any index or Managed Fund on a risk adjusted basis over a 5+ year span. [/quote] Or maybe it's people like you who can't read. I never said i could outperform a managed fund. I said i enjoy the process and want to learn as much as possible about it myself. Then again, whats the good in picking a managed fund, if you don't understand what you are looking at.....Thats my point LSU....You guys seem to always have it out for newer people, willing to learn more than most.....Always with the "Know enough to be dangerous" speech. Enough already. I don't do things the same as you, nor will I ever. I hae my way of doing things that has worked out very well for me and I'll continue on my path to Seg 4. I enjoy the research of funds/stocks/etc...You don't or don't believe you can do well. That's fine, but thats no reason to doubt my abilities to learn.[/quote] I applaud you for wanting to learn. What I was commenting on was your disdain for the way EDJ handles their advisory accounts. The fact that you wanted control, to presumably pick better securities for your clients, is what concerns me. Admittedly, I would want a platform that allowed me to handle individual equities based on my clients' needs / wants. I can understand that. What concerns me is that instead of say, trying to figure out what allocations your advisory accounts are allocated to by your corporate office, you want to figure it out on your own. That shows a bit of arrogance. Hence the 'enough to be dangerous' comments. In the four stages of learning (unconscious incompetence, conscious incompetence, conscious competence, and unconscious competence) you are on the first stage still. That's the dangerous part.The problem with so-called “professional money managers” and investment policy committees, etc. is the theory behind what they are doing. For some reason, most of them (excluding certain types of mutual funds) are benchmarking themselves, and trying to match or beat, an arbitrary index. I am so adamantly opposed to managing money this way. I do not claim to me able to ever pick the “winning stocks” better than many (most) of the fund managers out there. I have neither the time nor the resources. However, it is more important to MY CLIENTS that they meet their goals. If that means slightly underperforming the “indexes” for many years, I am OK with that as long as when the big “game changer” comes along, I don’t lose their shirts and forever change their financial lives.
You must understand the inherent conflict with professional money management. Money managers (SMA's, funds, ETF's, etc.) get paid to manage money. The more money, the more they get paid. The better the performance, the more money flows in, the more they earn. In addition, this is more money ot the management company as well, thus they must satisfy their bosses AND their wallets. But they are MORE concerned about losing their jobs. So what many fund managers do is essentially track the indexes, and then attempt to add some alpha with various bets on top of it. Won't win by too much, but won't lose by too much. Not too risky. So this is why MOST actively managed funds can't beat their index...they are essentially tracking it, with higher expenses, and a 50/50 shot of beating it or missing it, depending on how those little bets work out. So in many cases (especially if you are a "stylebox" investor), just buying the low-cost index fund or ETF makes the most sense. IN ADDITION, most funds that experience some unusual success for a year or two will witness a huge influx of cash. And as we all know, if your prospectus is narowly defined (ex: must invest in mid-cap US equities, and be 80%+ invested at all times), this can seriously reduce your ability to bring any alpha to the table, as you need to make pretty big bets to have any impact on the portfolio. So what to do? Just add more to the "index" positions. Why do you think nearly every large-cap U.S. equity fund always has the same positions in the top 10? Let's see....Microsoft, GE, P&G, IBM, XOM, JnJ, shall we go on? I can tell you, if every damn LC fund has all these same positions, this thing ain't gonna be outperforming anything. Now, I am NOT saying not to use money managers. That's all I use. But you have to be intelligent about the way you design a portfolio. At Jones, if I invested my clients' money the way they honestly answered a risk-tolerance questionnaire, my 55 year-old clients would be in 70% equities. 70%!! That's ludicrous! There is absolutely no need for them to be 70% equities. In my book, they MIGHT be 50% of they were definitely working another 10 years. And even then, it would depend on the economic landscape. I'm not sure why Jones is so pro-equities. This is the case even in advisory, where it doesn't matter WHAT they aer invested in. It's the same fee.[quote=B24]The problem with so-called “professional money managers” and investment policy committees, etc. is the theory behind what they are doing. For some reason, most of them (excluding certain types of mutual funds) are benchmarking themselves, and trying to match or beat, an arbitrary index. I am so adamantly opposed to managing money this way. I do not claim to me able to ever pick the “winning stocks” better than many (most) of the fund managers out there. I have neither the time nor the resources. However, it is more important to MY CLIENTS that they meet their goals. If that means slightly underperforming the “indexes” for many years, I am OK with that as long as when the big “game changer” comes along, I don’t lose their shirts and forever change their financial lives.
You must understand the inherent conflict with professional money management. Money managers (SMA's, funds, ETF's, etc.) get paid to manage money. The more money, the more they get paid. The better the performance, the more money flows in, the more they earn. In addition, this is more money ot the management company as well, thus they must satisfy their bosses AND their wallets. But they are MORE concerned about losing their jobs. So what many fund managers do is essentially track the indexes, and then attempt to add some alpha with various bets on top of it. Won't win by too much, but won't lose by too much. Not too risky. So this is why MOST actively managed funds can't beat their index...they are essentially tracking it, with higher expenses, and a 50/50 shot of beating it or missing it, depending on how those little bets work out. So in many cases (especially if you are a "stylebox" investor), just buying the low-cost index fund or ETF makes the most sense. IN ADDITION, most funds that experience some unusual success for a year or two will witness a huge influx of cash. And as we all know, if your prospectus is narowly defined (ex: must invest in mid-cap US equities, and be 80%+ invested at all times), this can seriously reduce your ability to bring any alpha to the table, as you need to make pretty big bets to have any impact on the portfolio. So what to do? Just add more to the "index" positions. Why do you think nearly every large-cap U.S. equity fund always has the same positions in the top 10? Let's see....Microsoft, GE, P&G, IBM, XOM, JnJ, shall we go on? I can tell you, if every damn LC fund has all these same positions, this thing ain't gonna be outperforming anything. Now, I am NOT saying not to use money managers. That's all I use. But you have to be intelligent about the way you design a portfolio. At Jones, if I invested my clients' money the way they honestly answered a risk-tolerance questionnaire, my 55 year-old clients would be in 70% equities. 70%!! That's ludicrous! There is absolutely no need for them to be 70% equities. In my book, they MIGHT be 50% of they were definitely working another 10 years. And even then, it would depend on the economic landscape. I'm not sure why Jones is so pro-equities. This is the case even in advisory, where it doesn't matter WHAT they aer invested in. It's the same fee.[/quote] Intellectual laziness. It takes work and the willingness to say that the business has fundamentally changed since the 50's. Things we thought were true aren't, and that's a hard pill to swallow, especially if you are an organization that has been training thousands of brokers a year to embrace the bias.I don’t think things have changed. The risks have always been there. Hoenstly, I think Jones really believes in equities for the long-term. Don’t get me wrong. I agree that over the long-haul, quality equities (which is what they advocate, which is good) will outperform bonds. However, most of our clients are not 35, and won’t stay invested in the same stuff for 30 years. So I guess investor attitude has changed. Most of our clients are boomers and older, and their time horizon is NOW. Or at least until the next big bear market. They can’t afford to recover from a 20% or 30% or 40% drop when they are taking withdrawals.
I think the whole investor psychology/time horizon thing is what trips up Jones IMHO. They follow the whole Jeremy Siegel thing. Stocks for the long run. That's fine. But who gives a fukc about a 70-year mountain chart?? 10 years is about how far we can afford to look for clients. And for those that are at or near retirement, we have to look at drawdowns (any timeframe), not 1-year or 3-year or 30-year returns. And we cannot forget COMPOUND returns, not AVERAGE returns. It's about the money stupid, not the %.If someone is 55 years old they should be in 70% equities. With life expectancy in the early to mid-80’s now (and presumably higher in the future) your client can’t afford not to be heavily weighted in equities. Their purchasing power will be radically different if they are not. Dividend growth is the best way to protect their purchasing power. I could honestly argue that at that point (55 and still working with 5-10 years till retirement) that they could easily support being 80-90% in equities.
In fact, even in this so-called lost decade, dividend paying stocks in the S&P have yielded over 5% with dividends reinvested. I don't think this decade taught us that buy and hold is dead (like some say). I think this decade showed us that 1) you need to save your way into retirement not invest your way and that 2) Good ole fashioned buy and hold works with DIVIDEND paying stocks. Fundamentally most people are UNDER allocated to stocks and within their equity allocations UNDER allocated to dividend paying stocks.[quote=LSUAlum]If someone is 55 years old they should be in 70% equities. With life expectancy in the early to mid-80’s now (and presumably higher in the future) your client can’t afford not to be heavily weighted in equities. Their purchasing power will be radically different if they are not. Dividend growth is the best way to protect their purchasing power. I could honestly argue that at that point (55 and still working with 5-10 years till retirement) that they could easily support being 80-90% in equities.
In fact, even in this so-called lost decade, dividend paying stocks in the S&P have yielded over 5% with dividends reinvested. I don't think this decade taught us that buy and hold is dead (like some say). I think this decade showed us that 1) you need to save your way into retirement not invest your way and that 2) Good ole fashioned buy and hold works with DIVIDEND paying stocks. Fundamentally most people are UNDER allocated to stocks and within their equity allocations UNDER allocated to dividend paying stocks.[/quote] I read somewhere that if you must be invested in equities that you can't afford to be invested in equities. I agree with the dividend paying stock thing, if you must (or want to, or whatever) own stocks you should find something with a decent dividend. The trade off offered by companies that don't pay dividends to their shareholders is unfairly biased to the company, and therefore doesn't appropriately compensate the investor for the use of their money.[quote=SometimesNowhere][quote=LSUAlum]If someone is 55 years old they should be in 70% equities. With life expectancy in the early to mid-80’s now (and presumably higher in the future) your client can’t afford not to be heavily weighted in equities. Their purchasing power will be radically different if they are not. Dividend growth is the best way to protect their purchasing power. I could honestly argue that at that point (55 and still working with 5-10 years till retirement) that they could easily support being 80-90% in equities.
In fact, even in this so-called lost decade, dividend paying stocks in the S&P have yielded over 5% with dividends reinvested. I don't think this decade taught us that buy and hold is dead (like some say). I think this decade showed us that 1) you need to save your way into retirement not invest your way and that 2) Good ole fashioned buy and hold works with DIVIDEND paying stocks. Fundamentally most people are UNDER allocated to stocks and within their equity allocations UNDER allocated to dividend paying stocks.[/quote] I read somewhere that if you must be invested in equities that you can't afford to be invested in equities. I agree with the dividend paying stock thing, if you must (or want to, or whatever) own stocks you should find something with a decent dividend. The trade off offered by companies that don't pay dividends to their shareholders is unfairly biased to the company, and therefore doesn't appropriately compensate the investor for the use of their money. [/quote] I disagree with the 'if you must be invested in equities then you can't afford to be' unless you are very near your 70+ birthdate. When you have roughly 10 years left in your horizon then your concerns about purchasing power degradation are much lower and fixed income and lower volatility surpass it on importance. Prior to that though, your primary long term concern is purchasing power degradation. I also am not so much conerned about the current yield on the equity as much as the divedend stability and growth. I'd rather a 2.5% yield with 10% dividend growth than 6.0% with 1% growth over the long haul.[quote=LSUAlum]If someone is 55 years old they should be in 70% equities. With life expectancy in the early to mid-80’s now (and presumably higher in the future) your client can’t afford not to be heavily weighted in equities. Their purchasing power will be radically different if they are not. Dividend growth is the best way to protect their purchasing power. I could honestly argue that at that point (55 and still working with 5-10 years till retirement) that they could easily support being 80-90% in equities.
In fact, even in this so-called lost decade, dividend paying stocks in the S&P have yielded over 5% with dividends reinvested. I don't think this decade taught us that buy and hold is dead (like some say). I think this decade showed us that 1) you need to save your way into retirement not invest your way and that 2) Good ole fashioned buy and hold works with DIVIDEND paying stocks. Fundamentally most people are UNDER allocated to stocks and within their equity allocations UNDER allocated to dividend paying stocks.[/quote] I agree with your ascertion about dividend paying stocks. Hence my commetn on "quality" stocks (that is my basic definition). However, I do not agree on your underlying theory on allocation to equities. I am not going to argue it, since I know many people are of the same persuasion. My biggest obstacle to buying and holding large amounts of equities for someone 55+ is the potential black swan effect and the market valuation problem. Investing in equities when the market is highly overvalued has zero chance historically of working. Now, if you were actively invested, and the market was at a P/E of 8 or 10 or 12 (which happens at the beginning of most bull markets, and the end of most bear markets), then you will be handsomely rewarded. However, if you were 55-60 yrs old, and the market had grown to a P/E of 20-25+, your future prospects are dim at best. This can't be disputed. It is pure market cycle economics. Bascially, market P/E changes dictate large variances from the mean over time. It's just how it works. Now, it's tough to know the depth, breadth, and length of bulls and bears. And even if you have no interest in timing the market, or investing based on these principles, you need to understand that unless you know you are at the front of a long-term bull market, you need to have more diversification than just 70-90% equities. What if your client is 60, and they are 85% equities, and the market loses like 45%? So their nest egg goes from 750,000 to $450,000. Do you just hope that it comes back quickly? Like 65% back? What if we enter a 10 year cycle of sideways growth after that 45% collapse? THEN what do you do? Look at the 70's. Look at Japan. For the most part, most equity classes are very highly correlated. Yes, some will return more or less than others. But in a big bear market, it doesn't matter how well your equities are diversified. Clients don't need 25% returns. They need to modestly exceed inflation and not lose money. Now, for your clients' "never money" (meant for inheritance, or to be saved for 25 years down the road), equities are the way to go. Some solid dividend payers/growers and just let them reinvest in perpetuity. But to tell a client getting ready to retire to just "trust me, hang in there"? That's a tough sell. It would be interesting to see if after the 50% +/- drop on the S&P, DOW, EAFE, etc., if the market just stagnated for a few years instead of exploding, how many clients would be feeling OK??? The scene would be much different.Check this out.......
U.S Stock Market*1884 – 2009
Rolling 3-Year Holding Periods
753 Observations
When the beginning (Schiller) P/E is… 11.54 or less 19.20 or more Median 3-Year Return (annualized) 16.20% 6.85% Average 3-Year Return (annualized) 17.03% 7.07% % of Periods with Negative Return 0.00% 28.10% Best 3-Year Return (total) 194.52% 134.08% Worst 3-Year Return (total) 0.85% (80.84%)
B24 - what P/E do you look at ? Current P/E ? What source ?
You may be starting to influence me on this !A standard way to investigate market valuation is to study the historic Price-to-Earnings (P/E) ratio using reported earnings for the trailing twelve months (TTM). Proponents of this approach ignore forward estimates because they are often based on wishful thinking, erroneous assumptions, and analyst bias.
The "price" part of the P/E calculation is available in real time on TV and the Internet. The "earnings" part, however, is more difficult to find. The authoritative source is the Standard & Poor's website, where the latest numbers are posted on the earnings page. Click on the Index Earnings link in the right hand column. Free registration is now required to access the data. Once you've downloaded the spreadsheet, see the data in column D.
The table here shows the TTM earnings based on "as reported" earnings and a combination of "as reported" earnings and Standard & Poor's estimates for "as reported" earnings for the next few quarters. The values for the months between are linear interpolations from the quarterly numbers.
The average P/E ratio since the 1870's has been about 15. But the disconnect between price and TTM earnings during much of 2009 was so extreme that the P/E ratio was in triple digits — as high as 122 — in the Spring of 2009. At the top of the Tech Bubble in 2000, the conventional P/E ratio was a mere 30. It peaked north of 47 two years after the market topped out.
As these examples illustrate, in times of critical importance, the conventional P/E ratio often lags the index to the point of being useless as a value indicator. "Why the lag?" you may wonder. "How can the P/E be at a record high after the price has fallen so far?" The explanation is simple. Earnings fell faster than price. In fact, the negative earnings of 2008 Q4 (-$23.25) is something that has never happened before in the history of the S&P 500.
The P/E10 Ratio
Legendary economist and value investor Benjamin Graham noticed the same bizarre P/E behavior during the Roaring Twenties and subsequent market crash. Graham collaborated with David Dodd to devise a more accurate way to calculate the market's value, which they discussed in their 1934 classic book, Security Analysis. They attributed the illogical P/E ratios to temporary and sometimes extreme fluctuations in the business cycle. Their solution was to divide the price by the 10-year average of earnings, which we'll call the P/E10. In recent years, Yale professor Robert Shiller, the author of Irrational Exuberance, has reintroduced the P/E10 to a wider audience of investors. As the accompanying chart illustrates, this ratio closely tracks the real (inflation-adjusted) price of the S&P Composite. The historic P/E10 average is 16.3.
The Current P/E10
After dropping to 13.4 in March 2009, the P/E10 has rebounded above 20. The chart below gives us a historical context for these numbers. The ratio in this chart is doubly smoothed (10-year average of earnings and monthly averages of daily closing prices). Thus the fluctuations during the month aren't especially relevant (e.g., the difference between the monthly average and monthly close P/E10).
[quote=B24][quote=LSUAlum]If someone is 55 years old they should be in 70% equities. With life expectancy in the early to mid-80’s now (and presumably higher in the future) your client can’t afford not to be heavily weighted in equities. Their purchasing power will be radically different if they are not. Dividend growth is the best way to protect their purchasing power. I could honestly argue that at that point (55 and still working with 5-10 years till retirement) that they could easily support being 80-90% in equities.
In fact, even in this so-called lost decade, dividend paying stocks in the S&P have yielded over 5% with dividends reinvested. I don't think this decade taught us that buy and hold is dead (like some say). I think this decade showed us that 1) you need to save your way into retirement not invest your way and that 2) Good ole fashioned buy and hold works with DIVIDEND paying stocks. Fundamentally most people are UNDER allocated to stocks and within their equity allocations UNDER allocated to dividend paying stocks.[/quote] I agree with your ascertion about dividend paying stocks. Hence my commetn on "quality" stocks (that is my basic definition). However, I do not agree on your underlying theory on allocation to equities. I am not going to argue it, since I know many people are of the same persuasion. My biggest obstacle to buying and holding large amounts of equities for someone 55+ is the potential black swan effect and the market valuation problem. Investing in equities when the market is highly overvalued has zero chance historically of working. Now, if you were actively invested, and the market was at a P/E of 8 or 10 or 12 (which happens at the beginning of most bull markets, and the end of most bear markets), then you will be handsomely rewarded. However, if you were 55-60 yrs old, and the market had grown to a P/E of 20-25+, your future prospects are dim at best. This can't be disputed. It is pure market cycle economics. Bascially, market P/E changes dictate large variances from the mean over time. It's just how it works. Now, it's tough to know the depth, breadth, and length of bulls and bears. And even if you have no interest in timing the market, or investing based on these principles, you need to understand that unless you know you are at the front of a long-term bull market, you need to have more diversification than just 70-90% equities. What if your client is 60, and they are 85% equities, and the market loses like 45%? So their nest egg goes from 750,000 to $450,000. Do you just hope that it comes back quickly? Like 65% back? What if we enter a 10 year cycle of sideways growth after that 45% collapse? THEN what do you do? Look at the 70's. Look at Japan. For the most part, most equity classes are very highly correlated. Yes, some will return more or less than others. But in a big bear market, it doesn't matter how well your equities are diversified. Clients don't need 25% returns. They need to modestly exceed inflation and not lose money. Now, for your clients' "never money" (meant for inheritance, or to be saved for 25 years down the road), equities are the way to go. Some solid dividend payers/growers and just let them reinvest in perpetuity. But to tell a client getting ready to retire to just "trust me, hang in there"? That's a tough sell. It would be interesting to see if after the 50% +/- drop on the S&P, DOW, EAFE, etc., if the market just stagnated for a few years instead of exploding, how many clients would be feeling OK??? The scene would be much different.[/quote] I'm not concerned about whether the market goes down 45% when they are 65 if they are invested in quality companies that are continuously increasing their dividends. Quality dividend paying stocks will typically pay 3-5% dividend yields. Reinvesting dividends as the market declines is solid wealth building. Regardless of what the market does or does not do, the overriding issue a 65 year old entering retirement has to be concerned with is degradation of purchasing power. They must have a long term horizon, EVEN AT AGE 70, because they will live to be 83 on average. There is virtually no scenario that gives your clients a better chance to increase their standard of living, regardless of age, than equities. Even in your example chart of High PE vs. Low PE the median 3 year return during HIGH PE (read, worst time to buy) periods is 6.85% with a mean of just over 7%. Those returns alone make a better case for equity weighting than I can. Since 1926, 28% of all the years have a negative return through 2007. With only 5 of those years experiencing greater than 20% losses. Interestingly enough, even in the year of 1987 the 'CRASH of 1987' that still had a 5.23% return on the S&P. The Dot.com BUST of 2000...only a 9.11% negative return for the year. 2001 and 9/11 to follow the dot.com bust and the subsequent bear market had return ALL of the losses by 2007, not including the dividend reinvestment. All told, this decade, has over a 5% return on the S&P with dividends reinvested. I'm sorry, but that should convince anyone that even in a 'terrible lost decade' quality dividend paying stocks will still provide a very respectable return. I think the problem most people have is chasing the next google, or amazon with zero dividend growth (or zero dividend at all). They are the ones that get crushed in bear markets. I'm not a high beta stock guy for people over 50 for the most part. That is an area I think we probably agree on.[quote=LSUAlum][quote=B24][quote=LSUAlum]If someone is 55 years old they should be in 70% equities. With life expectancy in the early to mid-80’s now (and presumably higher in the future) your client can’t afford not to be heavily weighted in equities. Their purchasing power will be radically different if they are not. Dividend growth is the best way to protect their purchasing power. I could honestly argue that at that point (55 and still working with 5-10 years till retirement) that they could easily support being 80-90% in equities.
In fact, even in this so-called lost decade, dividend paying stocks in the S&P have yielded over 5% with dividends reinvested. I don't think this decade taught us that buy and hold is dead (like some say). I think this decade showed us that 1) you need to save your way into retirement not invest your way and that 2) Good ole fashioned buy and hold works with DIVIDEND paying stocks. Fundamentally most people are UNDER allocated to stocks and within their equity allocations UNDER allocated to dividend paying stocks.[/quote] I agree with your ascertion about dividend paying stocks. Hence my commetn on "quality" stocks (that is my basic definition). However, I do not agree on your underlying theory on allocation to equities. I am not going to argue it, since I know many people are of the same persuasion. My biggest obstacle to buying and holding large amounts of equities for someone 55+ is the potential black swan effect and the market valuation problem. Investing in equities when the market is highly overvalued has zero chance historically of working. Now, if you were actively invested, and the market was at a P/E of 8 or 10 or 12 (which happens at the beginning of most bull markets, and the end of most bear markets), then you will be handsomely rewarded. However, if you were 55-60 yrs old, and the market had grown to a P/E of 20-25+, your future prospects are dim at best. This can't be disputed. It is pure market cycle economics. Bascially, market P/E changes dictate large variances from the mean over time. It's just how it works. Now, it's tough to know the depth, breadth, and length of bulls and bears. And even if you have no interest in timing the market, or investing based on these principles, you need to understand that unless you know you are at the front of a long-term bull market, you need to have more diversification than just 70-90% equities. What if your client is 60, and they are 85% equities, and the market loses like 45%? So their nest egg goes from 750,000 to $450,000. Do you just hope that it comes back quickly? Like 65% back? What if we enter a 10 year cycle of sideways growth after that 45% collapse? THEN what do you do? Look at the 70's. Look at Japan. For the most part, most equity classes are very highly correlated. Yes, some will return more or less than others. But in a big bear market, it doesn't matter how well your equities are diversified. Clients don't need 25% returns. They need to modestly exceed inflation and not lose money. Now, for your clients' "never money" (meant for inheritance, or to be saved for 25 years down the road), equities are the way to go. Some solid dividend payers/growers and just let them reinvest in perpetuity. But to tell a client getting ready to retire to just "trust me, hang in there"? That's a tough sell. It would be interesting to see if after the 50% +/- drop on the S&P, DOW, EAFE, etc., if the market just stagnated for a few years instead of exploding, how many clients would be feeling OK??? The scene would be much different.[/quote] I'm not concerned about whether the market goes down 45% when they are 65 if they are invested in quality companies that are continuously increasing their dividends. Quality dividend paying stocks will typically pay 3-5% dividend yields. Reinvesting dividends as the market declines is solid wealth building. Regardless of what the market does or does not do, the overriding issue a 65 year old entering retirement has to be concerned with is degradation of purchasing power. They must have a long term horizon, EVEN AT AGE 70, because they will live to be 83 on average. There is virtually no scenario that gives your clients a better chance to increase their standard of living, regardless of age, than equities. Even in your example chart of High PE vs. Low PE the median 3 year return during HIGH PE (read, worst time to buy) periods is 6.85% with a mean of just over 7%. Those returns alone make a better case for equity weighting than I can. Since 1926, 28% of all the years have a negative return through 2007. With only 5 of those years experiencing greater than 20% losses. Interestingly enough, even in the year of 1987 the 'CRASH of 1987' that still had a 5.23% return on the S&P. The Dot.com BUST of 2000...only a 9.11% negative return for the year. 2001 and 9/11 to follow the dot.com bust and the subsequent bear market had return ALL of the losses by 2007, not including the dividend reinvestment. All told, this decade, has over a 5% return on the S&P with dividends reinvested. I'm sorry, but that should convince anyone that even in a 'terrible lost decade' quality dividend paying stocks will still provide a very respectable return. I think the problem most people have is chasing the next google, or amazon with zero dividend growth (or zero dividend at all). They are the ones that get crushed in bear markets. I'm not a high beta stock guy for people over 50 for the most part. That is an area I think we probably agree on.[/quote] respectfully, what quality companies do you have your client's in? Especially when more quality companies have cut their dividend than in the last 50 years. Andex charts and showing people statistics going back to the depression work with a small % of the investing public, tug at their heart and ask about lifestyle and you'll start to speak their language.Most of the companies I recommed to my clients that would be ‘fixed income’ clients to many are boring quality companies.
POM, NI, MO, BP, Royal Dutch Shell, Phillip Morris, Kimberly Clark, JnJ, P&G, Kimber Morgan are some examples. These all boast strong Dividends and/or good dividend growth. There is no reason to have a client in more than 10-15 different individual equities. Even in 2009 amid a recession and low earnings growth, 40 of the S&P 500 companies RAISED their dividends."I’m not concerned about whether the market goes down 45% when they are 65 if they are invested in quality companies that are continuously increasing their dividends. Quality dividend paying stocks will typically pay 3-5% dividend yields. Reinvesting dividends as the market declines is solid wealth building. Regardless of what the market does or does not do, the overriding issue a 65 year old entering retirement has to be concerned with is degradation of purchasing power. They must have a long term horizon, EVEN AT AGE 70, because they will live to be 83 on average.
There is virtually no scenario that gives your clients a better chance to increase their standard of living, regardless of age, than equities. Even in your example chart of High PE vs. Low PE the median 3 year return during HIGH PE (read, worst time to buy) periods is 6.85% with a mean of just over 7%. Those returns alone make a better case for equity weighting than I can. Since 1926, 28% of all the years have a negative return through 2007. With only 5 of those years experiencing greater than 20% losses. Interestingly enough, even in the year of 1987 the 'CRASH of 1987' that still had a 5.23% return on the S&P. The Dot.com BUST of 2000...only a 9.11% negative return for the year. 2001 and 9/11 to follow the dot.com bust and the subsequent bear market had return ALL of the losses by 2007, not including the dividend reinvestment. All told, this decade, has over a 5% return on the S&P with dividends reinvested. I'm sorry, but that should convince anyone that even in a 'terrible lost decade' quality dividend paying stocks will still provide a very respectable return. I think the problem most people have is chasing the next google, or amazon with zero dividend growth (or zero dividend at all). They are the ones that get crushed in bear markets. I'm not a high beta stock guy for people over 50 for the most part. That is an area I think we probably agree on." I think we have to agree to disagree. The weakness in your approach is the fact that during the de-cumulation phase, clients can't afford to withdraw 5% when their account just lost 45%. Example: Client has 750K. They are 70. They need $37,500 per year to live on. Client account loses ~35% and goes to $475K. They still need $37,500, which is now 7.9%of their account. They take out 37500, account is now at 437,500. Account grows 25% next year, so now at 547,000, less 37,500 = 510,000. Next year account grows 25% again. Now at 637,000 less 37,500 = 600,000. We still need another year of 25% to get back to the original 750,000. First, what are the chances that a 70 year-old sticks with enough equities to get 25% 3 years in a row? Second, what are the chances of getting 25% 3 years in a row? Point is, huge losses in equities can box you into a corner.70 percent does seem excessively high…What do you guys think is a better mix for someone that age? (generally speaking)
Off the shelf mix would be 80 / 20 in favor of bonds or 100% Investment Company of America70 percent does seem excessively high…What do you guys this is a better mix for someone that age? (generally speaking)
That is what I was thinking Ron. I just recently put together a million dollar bond ladder for a prospect who is 68 and currently has approximately 80% of his money in equities. I want him to begin transitioning towards that 80/20 mix in favor of Bonds you just mentioned, and he has 1 million that he won’t need/touch for another 10 to 12 years. I built a ladder with some corporate, muni, and government bonds but am a little nervous about the government bonds due to the fact the Fed may be increasing rates here pretty soon. Should I stay away from Govt. bonds right now or are they ok to include in this ladder?
The general rule of thumb for me is that equities should only represent money he will not need until 10-15 years. So here's an example:
Age 65: $1mm nest egg Needs $50,000/yr. I like to use 15 years, so I would put 75% in various fixed income categories from S/T to L/T, corp, muni/treas, TIPS, international, etc. So the balance, $250K would be split between conservative global equities, and a small % (like 5%) into emerging markets. That would represent the stuff being used for 20 yrs+. This is a simple illustration, but my point is that you are not putting anything at risk (relatively) that needs to be used within 10-15 years, and the quality equities and emerging market equities address the long-term inflation concerns.So … you must be “drawing down” some part of the long term money or fixed income platform in order to get him that $50K … otherwise you’re fixed income platform is generating an unbelieveable 6.7% yield.
[quote=B24]"I’m not concerned about whether the market goes down 45% when they are 65 if they are invested in quality companies that are continuously increasing their dividends. Quality dividend paying stocks will typically pay 3-5% dividend yields. Reinvesting dividends as the market declines is solid wealth building. Regardless of what the market does or does not do, the overriding issue a 65 year old entering retirement has to be concerned with is degradation of purchasing power. They must have a long term horizon, EVEN AT AGE 70, because they will live to be 83 on average.
There is virtually no scenario that gives your clients a better chance to increase their standard of living, regardless of age, than equities. Even in your example chart of High PE vs. Low PE the median 3 year return during HIGH PE (read, worst time to buy) periods is 6.85% with a mean of just over 7%. Those returns alone make a better case for equity weighting than I can. Since 1926, 28% of all the years have a negative return through 2007. With only 5 of those years experiencing greater than 20% losses. Interestingly enough, even in the year of 1987 the 'CRASH of 1987' that still had a 5.23% return on the S&P. The Dot.com BUST of 2000...only a 9.11% negative return for the year. 2001 and 9/11 to follow the dot.com bust and the subsequent bear market had return ALL of the losses by 2007, not including the dividend reinvestment. All told, this decade, has over a 5% return on the S&P with dividends reinvested. I'm sorry, but that should convince anyone that even in a 'terrible lost decade' quality dividend paying stocks will still provide a very respectable return. I think the problem most people have is chasing the next google, or amazon with zero dividend growth (or zero dividend at all). They are the ones that get crushed in bear markets. I'm not a high beta stock guy for people over 50 for the most part. That is an area I think we probably agree on." I think we have to agree to disagree. The weakness in your approach is the fact that during the de-cumulation phase, clients can't afford to withdraw 5% when their account just lost 45%. Example: Client has 750K. They are 70. They need $37,500 per year to live on. Client account loses ~35% and goes to $475K. They still need $37,500, which is now 7.9%of their account. They take out 37500, account is now at 437,500. Account grows 25% next year, so now at 547,000, less 37,500 = 510,000. Next year account grows 25% again. Now at 637,000 less 37,500 = 600,000. We still need another year of 25% to get back to the original 750,000. First, what are the chances that a 70 year-old sticks with enough equities to get 25% 3 years in a row? Second, what are the chances of getting 25% 3 years in a row? Point is, huge losses in equities can box you into a corner.[/quote] The flaw in your numbers is that if a person has 750k in equities, paying dividends of 4% they get the money they need to live on from the dividends. If the equities decline in value, the yield on the dividends goes up accordingly. The 'loss' as you put it is not a loss at all. It is fluctuation in value but not a loss since you still own the number of shares. Assuming you used 100% of the dividend income to live on your risk is not market fluctuation at all, but rather risk of dividend cuts. This is a legitimate risk, but even in massive bear markets companies like Altria, Kimberly Clark, etc still pay (and in many cases raise) their dividends. Kimberly Clark has raised their dividend for 37 straight years as an example. If you assume they do not need 100% of their dividend income to live on (many quality dividend paying stocks are paying over 5% now) then the decline in market value is a great opportunity for them to DCA into those with DRIPs and increase their purchasing power moving forward. As for the 'inflation is not a real concern going forward' bear in mind that even at 4% inflation, prices will more than double during an average retirement of 20+ years. By keeping them invested in 70-80% fixed income you are greatly increasing the risk that their standard of living will decrease over time. I beleive that is the major problem with the fixed income strategy. The risk averse strategy for fixed income is a viable concern when a client hits 70+ years old or due to health concerns their time horizon is 10 or fewer years. But to start that strategy in their 50's or early 60's almost assures they will be worse off later on. I don't think that is being financially responsible for my clients.Off the shelf mix would be 80 / 20 in favor of bonds or 100% Investment Company of America[/quote] ICA is primarily high quality dividend paying stocks btw. Currently it's 78.6% US equities and 11.9% International Equities (2.2% Bonds). Hence, your answer is basically the same strategy I'm supporting (although I don't advocate that strategy to clients in the form of MF's). You might be making a dig at the EDJ guys there though.[quote=donte_drink&drive]70 percent does seem excessively high…What do you guys this is a better mix for someone that age? (generally speaking)
Generating 6.7% yield is actually quite easy. Build America Bonds routinely pay 6.5-7.0%. It's very easy to find companies whose dividend yield is 6.5+% right now (T, VZ, POM, MO, NI, etc). Those are just yields, irrespective of potential capital gains.So … you must be “drawing down” some part of the long term money or fixed income platform in order to get him that $50K … otherwise you’re fixed income platform is generating an unbelieveable 6.7% yield.
Yeah, drawing the bond ladder down at 50,000 escalating at compound of 3%, you need about 4.7% average yield. Since we are at rock bottom now, that is certainly doable. Now you end up with an 85 year old individual who should own a mix of stocks and bonds (assuming you stepped down the equity portfolio into bonds the closer you got to the end and a 6% CAGR) of about $800,000. That gets him another 10 years (at the original 4.7% rate) to 95. At that point he is a) selling his home and moving in with progeny; or b) in a nursing home (assuming he purchased the LTC insurance). Lots of unseen variables along the way, but thats it in a nutshell with some pretty conservative growth rate estimates.So … you must be “drawing down” some part of the long term money or fixed income platform in order to get him that $50K … otherwise you’re fixed income platform is generating an unbelieveable 6.7% yield.
I never said that I tried to just live off yield alone. That is a slippery slope, and it rarely works. I use more of a “bucket” method.
Generating 6.7% yield is actually quite easy. Build America Bonds routinely pay 6.5-7.0%. It's very easy to find companies whose dividend yield is 6.5+% right now (T, VZ, POM, MO, NI, etc). Those are just yields, irrespective of potential capital gains.[/quote] Two things ... B24 clearly states this is a fixed income portfolio. So using a combination of dividend paying stocks doesn't qualify. Secondly, any bond grouping would be laddered. Quoting a 6.5% BABs represent the furthest out on the maturity ladder and I'd love to hear how you're getting 7% YTM on those. I'm pretty happy when my ladders are yielding above 5.5 and I haven't gone reaching for yield by substituting in BBB bonds or a plethora of revenue/hospital bonds. But to be fair, I pretty much approximate your approach LSU. I don't know that I advise quite the extent of equity exposure, but I combine bonds and dividend paying stocks to present a retirement income proposal. The income from a group of dividend paying stocks alone will increase five fold in a fifteen year stretch, provide the client with a beta close to a bond portfolio. Run for yourself a morningstar report including 100 shares each of ABT,ADP,CVX,EMR,XOM,JnJ,MDU,TAP,OMC, PEP,TGT,USB,UTX,WAG and WFC for fifteen years, starting in 94. Even when the portfolio decreased in value, the stockholder's income went up.[quote=LockEDJ]So … you must be “drawing down” some part of the long term money or fixed income platform in order to get him that $50K … otherwise you’re fixed income platform is generating an unbelieveable 6.7% yield.
I respect that ... and I'm trying to "pick your brains" here. So then you use the $750K, the yield it represents and decrement as needed the principle position to achieve the income level.I never said that I tried to just live off yield alone. That is a slippery slope, and it rarely works. I use more of a “bucket” method.
In another bucket, you've got $250K that's ... predominantly equity, then? Entirely equity, I'd presume. Do you then move excess gains from "equity bucket" to "income bucket"? It's an interesting thought, one I don't use at least in part because I don't have a predominance of clients that have enough money to separate into buckets.
Regarding the yield on BAB’s. Here is where I probably differ than most, but I feel it blends with my overall approach well.
I am not a big fan of laddering Bonds. Here is why. For someone who has a long term approach I utilize a very equity heavy portfolio, with some short duration bonds and/or CD's and 5-7% cash in most markets. The short duration is the only way to effectively mitigate market risk because longer duration bonds approximate equities. This close correlation means that it's not diversification that yields protection. I diversify on the basis of correlation not asset class. So long duration bonds and equities are in the same 'bucket' to use B24's approach. That being said, when I quote BAB's at 6.5-7% I am only putting clients with a 10 year or less time horizon (i.e. 70+ years old and/or health concerns) and I only put them in 25+ year bonds. The reason is, we are not buying them with the intention of selling them. We are buying them exclusively for the yield. I am not concerned with interest rate fluctuation with these clients. For clients who have shorter time lines, I only put them in short-intermediate durations (3-7 years typically) and that is for their specific time line purchases. I.E. to pay for a specific thing like college, home purchase, daughters wedding, etc. If the timeline is definite, I use Zero's a good deal (As it eliminates the issue of what to invest the interest payments into).[quote=LSUAlum]Regarding the yield on BAB’s. Here is where I probably differ than most, but I feel it blends with my overall approach well.
I am not a big fan of laddering Bonds. Here is why. For someone who has a long term approach I utilize a very equity heavy portfolio, with some short duration bonds and/or CD's and 5-7% cash in most markets. The short duration is the only way to effectively mitigate market risk because longer duration bonds approximate equities. This close correlation means that it's not diversification that yields protection. I diversify on the basis of correlation not asset class. So long duration bonds and equities are in the same 'bucket' to use B24's approach. That being said, when I quote BAB's at 6.5-7% I am only putting clients with a 10 year or less time horizon (i.e. 70+ years old and/or health concerns) and I only put them in 25+ year bonds. The reason is, we are not buying them with the intention of selling them. We are buying them exclusively for the yield. I am not concerned with interest rate fluctuation with these clients. For clients who have shorter time lines, I only put them in short-intermediate durations (3-7 years typically) and that is for their specific time line purchases. I.E. to pay for a specific thing like college, home purchase, daughters wedding, etc. If the timeline is definite, I use Zero's a good deal (As it eliminates the issue of what to invest the interest payments into).[/quote] I may be wrong, but I think you guys are looking at apples and oranges. B24 is thinking more about spending in retirement as opposed to accumulating for retirement. Nick Murray's approach is fairly straightforward. For those IN retirement, stick 2 years worth of spending into cash and short term debt instruments. Spend out of the stock bucket in normal times. If the market crashes, switch to spending out of the cash/debt bucket as to avoid having to liquidate the stock bucket at basement levels. Now if two years of liquid investments are not enough for your or your client's piece of mind, what about 3 or five years? The rest goes into an allocation of stocks and longer term bonds (although I am very pessimistic about bonds at the moment).I respect that ... and I'm trying to "pick your brains" here. So then you use the $750K, the yield it represents and decrement as needed the principle position to achieve the income level.[quote=B24]I never said that I tried to just live off yield alone. That is a slippery slope, and it rarely works. I use more of a “bucket” method.
In another bucket, you've got $250K that's ... predominantly equity, then? Entirely equity, I'd presume. Do you then move excess gains from "equity bucket" to "income bucket"? It's an interesting thought, one I don't use at least in part because I don't have a predominance of clients that have enough money to separate into buckets. [/quote] Sort of. I "dumbed it down" so not to have to over-type. I have several buckets actually (and keep in mind not all clients fall into this method - primarily the ones that have a nest egg that they need to sustain them, and are drawing in the 3-6% range. It doesn't really work for someone with a big pension, and maybe 100K that they just tap when needed). So I will typically have my 3-5 year bucket of very conservative stuff that is bascially principle protected. Fixed annuity/SPIA, CD's, MMKT, short duration bond fund, you get the idea. The exact product will depend on interest rates, type of account (Q/NQ), liquidity needs (SPIA/or not), etc. The next bucket is the 5-10/15 year range. The specific time perdio depends on needs/risk tolerance, etc. This is usually core bond funds/total return bond funds, including international bonds. High Yield bonds are NOT part of my bond portfolio, since those are more highly correlated with equities (they are basically high-yield, low growth equities). I may use high-yield bonds as part of the equity portion for someone that can truly live off their dividends. Not conventional, but I like to allocate by correlation as well as risk/return. After all, why include high yield bonds with bonds, when high yield bonds don't necessarily protect principle? So what I have done so-far is protect (for the most part), 10-15 years of withdrawals, with moderate growth. Now I take then next bucket (15-20/25 years) and allocate to high-quality equities, at least 50% international, sometimes more. I lean towards global allocation funds, and let the smart guys allocate the equities to their best ideas around the world. And again, my strategy might shift a little for people that can live off income - I will lean more heavily towards higher yielding funds. I may smatter in some small cap here as well. The last bucket is the 20-25+ year funds or "never money". That gets allocated to Emerging Markets, and possibly some small caps. This might only be 5-10% (10% at most)The idea here is that over the next 2 decades, EM will likely grow the most, but also be the most volatile. But you take 25-50K and put it into something that could compound at 10% for 20 years, you don't need to worry quite as much about the volatility, and it could grow to something huge. See, my strategy is a little different than trying to get 100% of the portfolio to both kick off enough income AND keep pace with inflation. That is a lot to ask of a portfolio, unless we have a repeat of 1982-1999 (unlikely). As far as moving money into the income buckets...yes, you could do that. Essentially rebalance your allocation each year or two. Or, you could let your equities accumulate for several years. There are many variations on this strategy. Much will depend on behavior of markets and your clients needs. Incidentaly, this is NOT unique. Lots of advisors employ variations of this approach.
[quote=joelv72][quote=LSUAlum]Regarding the yield on BAB’s. Here is where I probably differ than most, but I feel it blends with my overall approach well.
I am not a big fan of laddering Bonds. Here is why. For someone who has a long term approach I utilize a very equity heavy portfolio, with some short duration bonds and/or CD's and 5-7% cash in most markets. The short duration is the only way to effectively mitigate market risk because longer duration bonds approximate equities. This close correlation means that it's not diversification that yields protection. I diversify on the basis of correlation not asset class. So long duration bonds and equities are in the same 'bucket' to use B24's approach. That being said, when I quote BAB's at 6.5-7% I am only putting clients with a 10 year or less time horizon (i.e. 70+ years old and/or health concerns) and I only put them in 25+ year bonds. The reason is, we are not buying them with the intention of selling them. We are buying them exclusively for the yield. I am not concerned with interest rate fluctuation with these clients. For clients who have shorter time lines, I only put them in short-intermediate durations (3-7 years typically) and that is for their specific time line purchases. I.E. to pay for a specific thing like college, home purchase, daughters wedding, etc. If the timeline is definite, I use Zero's a good deal (As it eliminates the issue of what to invest the interest payments into).[/quote] I may be wrong, but I think you guys are looking at apples and oranges. B24 is thinking more about spending in retirement as opposed to accumulating for retirement. Nick Murray's approach is fairly straightforward. For those IN retirement, stick 2 years worth of spending into cash and short term debt instruments. Spend out of the stock bucket in normal times. If the market crashes, switch to spending out of the cash/debt bucket as to avoid having to liquidate the stock bucket at basement levels. Now if two years of liquid investments are not enough for your or your client's piece of mind, what about 3 or five years? The rest goes into an allocation of stocks and longer term bonds (although I am very pessimistic about bonds at the moment).[/quote] Actually I think it's even more simple than that. B24 and I disagree primarily on when to get conservative. If someone is 55 and IN RETIREMENT my approach is the same as if he's not. Because ultimetly he's likely (again with the caveat that health concerns change the timeframe) to live to 83. Whether he's in retirement or not is a function of how much money he has and his spending levels, NOT his risk tolerance. By that I mean that if you have a client who is worried about fluctuations in the market and is age 55, he can't afford to retire. If he does retire his spending habits and account value MUST support fluctuations in the market over the short term. So his age and time horizon is the determining factor NOT whether he is in retirement or not. I have the conversation with clients about whether they 'can retire' or not allot. Risk aversion is a personality type. People that are so risk averse that they can't see the value of rising dividends and/or they hoard money in CD's I don't work with.I respect that ... and I'm trying to "pick your brains" here. So then you use the $750K, the yield it represents and decrement as needed the principle position to achieve the income level.[quote=LockEDJ][quote=B24]I never said that I tried to just live off yield alone. That is a slippery slope, and it rarely works. I use more of a “bucket” method.
In another bucket, you've got $250K that's ... predominantly equity, then? Entirely equity, I'd presume. Do you then move excess gains from "equity bucket" to "income bucket"? It's an interesting thought, one I don't use at least in part because I don't have a predominance of clients that have enough money to separate into buckets. [/quote] Sort of. I "dumbed it down" so not to have to over-type. I have several buckets actually (and keep in mind not all clients fall into this method - primarily the ones that have a nest egg that they need to sustain them, and are drawing in the 3-6% range. It doesn't really work for someone with a big pension, and maybe 100K that they just tap when needed). So I will typically have my 3-5 year bucket of very conservative stuff that is bascially principle protected. Fixed annuity/SPIA, CD's, MMKT, short duration bond fund, you get the idea. The exact product will depend on interest rates, type of account (Q/NQ), liquidity needs (SPIA/or not), etc. The next bucket is the 5-10/15 year range. The specific time perdio depends on needs/risk tolerance, etc. This is usually core bond funds/total return bond funds, including international bonds. High Yield bonds are NOT part of my bond portfolio, since those are more highly correlated with equities (they are basically high-yield, low growth equities). I may use high-yield bonds as part of the equity portion for someone that can truly live off their dividends. Not conventional, but I like to allocate by correlation as well as risk/return. After all, why include high yield bonds with bonds, when high yield bonds don't necessarily protect principle? So what I have done so-far is protect (for the most part), 10-15 years of withdrawals, with moderate growth. Now I take then next bucket (15-20/25 years) and allocate to high-quality equities, at least 50% international, sometimes more. I lean towards global allocation funds, and let the smart guys allocate the equities to their best ideas around the world. And again, my strategy might shift a little for people that can live off income - I will lean more heavily towards higher yielding funds. I may smatter in some small cap here as well. The last bucket is the 20-25+ year funds or "never money". That gets allocated to Emerging Markets, and possibly some small caps. This might only be 5-10% (10% at most)The idea here is that over the next 2 decades, EM will likely grow the most, but also be the most volatile. But you take 25-50K and put it into something that could compound at 10% for 20 years, you don't need to worry quite as much about the volatility, and it could grow to something huge. See, my strategy is a little different than trying to get 100% of the portfolio to both kick off enough income AND keep pace with inflation. That is a lot to ask of a portfolio, unless we have a repeat of 1982-1999 (unlikely). As far as moving money into the income buckets...yes, you could do that. Essentially rebalance your allocation each year or two. Or, you could let your equities accumulate for several years. There are many variations on this strategy. Much will depend on behavior of markets and your clients needs. Incidentaly, this is NOT unique. Lots of advisors employ variations of this approach.[/quote] I like your approach. I also like that you diversify based on risk/reward and not necessarily asset class. One thing I do not like (personal preference I guess) are annuities. The only exception to that is someone who purchases an annuity with a pre-exising medical condition or some other concern that makes getting LTC insurance prohibative. Several companies have decent step up plans for annuities when put into a facility for 12+ months. I would gladly forgoe some income in the short run (2-3 years) by purchasing strong dividend paying stocks (banking on div growth) rather than being locked into today's paultry FA rates.
[quote=LSUAlum]Regarding the yield on BAB’s. Here is where I probably differ than most, but I feel it blends with my overall approach well.
I am not a big fan of laddering Bonds. Here is why. For someone who has a long term approach I utilize a very equity heavy portfolio, with some short duration bonds and/or CD's and 5-7% cash in most markets. The short duration is the only way to effectively mitigate market risk because longer duration bonds approximate equities. This close correlation means that it's not diversification that yields protection. I diversify on the basis of correlation not asset class. So long duration bonds and equities are in the same 'bucket' to use B24's approach. That being said, when I quote BAB's at 6.5-7% I am only putting clients with a 10 year or less time horizon (i.e. 70+ years old and/or health concerns) and I only put them in 25+ year bonds. The reason is, we are not buying them with the intention of selling them. We are buying them exclusively for the yield. I am not concerned with interest rate fluctuation with these clients. For clients who have shorter time lines, I only put them in short-intermediate durations (3-7 years typically) and that is for their specific time line purchases. I.E. to pay for a specific thing like college, home purchase, daughters wedding, etc. If the timeline is definite, I use Zero's a good deal (As it eliminates the issue of what to invest the interest payments into).[/quote] Well, that's a different outlook. Positioning elders with more stdv by way of ltb, only to focus on immediate income. Of course, not always so easy to put into place("i'll be dead by then") but effective. Likewise I use a lot of zeros, but am uneasy with their volativity.[quote=LockEDJ][quote=LSUAlum]Regarding the yield on BAB’s. Here is where I probably differ than most, but I feel it blends with my overall approach well.
I am not a big fan of laddering Bonds. Here is why. For someone who has a long term approach I utilize a very equity heavy portfolio, with some short duration bonds and/or CD's and 5-7% cash in most markets. The short duration is the only way to effectively mitigate market risk because longer duration bonds approximate equities. This close correlation means that it's not diversification that yields protection. I diversify on the basis of correlation not asset class. So long duration bonds and equities are in the same 'bucket' to use B24's approach. That being said, when I quote BAB's at 6.5-7% I am only putting clients with a 10 year or less time horizon (i.e. 70+ years old and/or health concerns) and I only put them in 25+ year bonds. The reason is, we are not buying them with the intention of selling them. We are buying them exclusively for the yield. I am not concerned with interest rate fluctuation with these clients. For clients who have shorter time lines, I only put them in short-intermediate durations (3-7 years typically) and that is for their specific time line purchases. I.E. to pay for a specific thing like college, home purchase, daughters wedding, etc. If the timeline is definite, I use Zero's a good deal (As it eliminates the issue of what to invest the interest payments into).[/quote] Well, that's a different outlook. Positioning elders with more stdv by way of ltb, only to focus on immediate income. Of course, not always so easy to put into place("i'll be dead by then") but effective. Likewise I use a lot of zeros, but am uneasy with their volativity. [/quote] I use LTB in a very similar way that others use Annuities. The reason I prefer them is multifaceted. I prefer them due to liquidity (no surrender charges). Admittedly, they may sell them at the wrong time but it's for emergency. I also prefer them due to the higher yield. (FA's are running 4-5% whereas BAB's are running 6.5%+).LSU, I am not a huge fan of annuities either. Generally, I use them for the short term stuff that is going to get spent, if they present the best guaranteed return (compared to the other short terma lternatives - MMKT, CD’s, short-duration bonds, etc.) for 5 years and less. Right now, they are not the best options. A few years ago, they were for a period of time. I generally don’t use them for anything beyond the immediate 5 year withdrawals. Now, if the interest rate landscape changes, I will re-visit that.
what can us newbies really offer to you seniors though? If I can offer you something, I’d love to
I'm not sure what you mean by how does the wrap fee factor into the equation? You get paid on AUM. The manner of which the income is derived from the account (MF, individual equities, cap ap or dividends) doesn't matter. If you charge a mark up on bonds then charging a wrap fee on top is pretty unethical. As for worrying about dividends being paid or more specifically if they will be paid. Yes, they are not guaranteed. But then again, there is nothing guaranteed short of FDIC or Govi securities. Some have higher default risk than others naturally. Hence the reason you require a higher return from the riskier companies before you buy them. For discussion, MF incomes and values are not guaranteed. Bond funds have no guarantees. In fact, in order to achieve the 6% return you mention above, you must have quite a few of your investments in non-guaranteed securities. Dividends grow over time. And most of the stronger companies grow their dividends faster than the inflation rate. It's not uncommon for dividends to grow at double the inflation rate. Add to that the compounding effect of dividend reinvestment for income that is uneccesary at the moment and of the income from a portfolio of dividend paying equities vs. bonds over a 10+ year horizon is far greater ESPECIALLY on a risk adjusted basis (i.e. the added risk is far less than the added income). The nice thing about dividend cuts in a stock is that 1) it's usually pretty well telegraphed through earnings statements and/or comany news and 2) the equities are very liquid. Company earnings are published and reported on adnauseum. The credit worthiness of a company is far more opaque and thus trading individual bonds has an added level of 'fog of war' risk. Also, the 4% withdrawal rate works for this or any other income strategy with the exception of annuities. I am not saying that it's the only way to skin a cat, I just disagree that 50 years old or there about is when to convert to an income strategy. I think that 70 is that age to move to fixed income and I always want to have a decent (some may say high) equity exposure for clients. P.S. Dividend strategies have been great 'rebuttals' to the "I HAVE TO OWN GOLD TO PROTECT FROM INFLATION". You see Mr. Client, we love inflation because inflation means companies charge more for their goods. Since we own part of the company and they pay us a portion of their earnings, as their earnings grow so does our income. (Simplified for the client, we can discuss in greater detail here if you want).Couple of points (although, admittedly, I didn’t read the last page or so)…
1. I find using dividends for income, personally, as being in a very precarious position. Dividends aren’t guaranteed. You can list all the “quality” companies you want in hindsight, but they are under zero obligation to continue paying dividends. I bet 3 years ago, LEH was on that “quality” list.
2. I haven’t seen much discussion on how you guys get paid. A 4% dividend yield is fine. So is a 5% yield. Are you running these retirement income portfolios and doing all of this planning for a piddly commish here & there for selling some WFC? Most of “us” (not me) are charging a wrap fee of 1 - 1.5%…how does that factor into some of your posts?
3. Simple scenario…with a net return, after fees, of just 5.4%, a client can withdrawal 4% of their portfolio each year, adjust that amount for inflation of 3.1% each year, and their money will last 35.5 years. That takes you over age 100 if you retire @ 65 (which, lets face it, unless you’re unhealthy, you shouldn’t be doing these days).
4. Just for argument sake, because I KNOW it’s coming…if you give yourself an inflation raise of 3.5% every year, instead of the HISTORICAL 3.1%, you can withdraw 4% a year for 37.5 years, if you can manage a whopping 6% per year net return.
Now, I’m not saying this is what I do, but it is something to think about.
Are you a female ?what can us newbies really offer to you seniors though? If I can offer you something, I’d love to
Sorry, I was a little harsh with that one. Check out the following bond funds: DPCFX-they also have a limited term fund, but I don't know the symbol. NECZX Fidelity Advisor Floating Rate[/quote][quote=donte_drink&drive]what can us newbies really offer to you seniors though? If I can offer you something, I’d love to
Appreciate those, and wanted feedback on one if you don't mind-PGBOX It's JP Morgan's Core Bond Fund....I know its yield was 4.29% at the end of Dec. and its annualized returns over the past 3 years is 7.2% but it's only a 3 star fund according to Morningstar...Any idea why it's only 3 star? I mean the DPCFX you gave me is 5star and I know that a lot of the people I talk to check everything I show them on morningstar
I wouldn’t except for the fact that some Fund Fact Sheets include them, and a lot of my clients/prospects look them up if they aren’t on the fact sheet I give them…How do you get around this if/when people point out a morningstar rating?
Fire the client.
Hopefully you can articulate the fact that performance (which make up a majority of the star rating) is related to risk taking. Some times managers take risks that pay off only to revert to the mean later on. Sell the strength of the manager and/or philosophy rather than the 'star' rating which rewards managers who take risks.I wouldn’t except for the fact that some Fund Fact Sheets include them, and a lot of my clients/prospects look them up if they aren’t on the fact sheet I give them…How do you get around this if/when people point out a morningstar rating?
Ben Stein is a douche bag.
[quote=iceco1d]Ben Stein is the man.
[/quote]
Ben Stein is the man, but he’s wrong. That’s why he never finished his economics graduate degree. Law school anybody can graduate.
[quote=Moraen]
[quote=iceco1d]Ben Stein is the man.
[/quote]Ben Stein is the man, but he’s wrong. That’s why he never finished his economics graduate degree. Law school anybody can graduate.[/quote]
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