It's a Stock Picker's Market
If you read or watch financial commentary, I'm sure you've encountered this piece of insight:
"It's a stock picker's market."
I heard a guest say this in a recent episode of WealthTrack. Is it true?
Absolutely. If someone picks the right stocks, they will have a better performance than the market. There's no doubt about it. It's a tautology.
Short-Term Fixed Income: CDs vs Bond Funds
The interest rates are really low these days. If you are trying to rollover a matured CD or if you want to save for something you need in a few years, it's not easy to find a good option.
After rolling over my IRA to my solo 401k at Fidelity, I want invest a small sum in the solo 401k account in short-term fixed income. I went and looked at my options.
Treasuries
What Makes Investing Hard?
I wrote a few weeks ago Investing Is Simple.
"You come up with an asset allocation, open some accounts, pick a few index funds, and you are done. Once in a while you see if anything is out of whack and you redirect your new money to wherever is lagging. It's not complicated at all."
If investing is that simple, then why in the world are there so many talks about investing? There are many books, professional journals, newspapers, magazines, TV shows, radio programs, and now blogs about investing. The Bogleheads investing forum I participate in (user name "tfb") has more than 560,000 posts. If investing is simple, what can't possibly be exhausted in 560,000 posts?
Sold PIMCO Foreign Bond Fund
I sold my entire position in PIMCO Foreign Bond Fund (Unhedged) Institutional (PFUIX). According to its prospectus, this fund invests in
"… Fixed Income Instruments that are economically tied to foreign (non-U.S.) countries, … which may be represented by forwards or derivatives such as options, future contracts or swap agreements."
I bought this fund in late 2004. At the time, there were a lot of talks about the "twin deficits" of United States (budget deficit and trade deficit) and how they would weaken the U.S. dollar. A foreign bond fund protects against a weakening dollar.
The Right Lessons and The Wrong Lessons
It's the one year anniversary of the fall of Lehman Brothers. The media marked that event as the start date of the financial crisis. Several financial podcasts I listen to all ran features on "lessons from the financial crisis." I'm more interested in the lessons at a personal level, not so much at the macroeconomic level because there's nothing I can do about macroeconomics.
After the dot com debacle, people learned it's bad to speculate in stocks, but they also learned they can't lose money in real estate. We all know how that lesson worked out. Today, after another crisis, people are learning more lessons. Will all of them be the right lessons?
Sell at the first sign of trouble. An acquaintance told me she moved all her stock funds into money market in early 2008 because she got nervous from the news of mortgage writedowns. That move was brilliant. It saved her tens of thousands of dollars. She dodged the proverbial freight train. I'm sure she will take that to heart — "when you see trouble, sell." Is it the right lesson? I'm not so sure.
What Is WFG and What Does It Do?
A coworker asked me "Do you know anything about universal life insurance?" This one casual question opened a big can of worms.
He was approached by a friend of a friend who works for WFG. WFG is World Financial Group. It's a financial services marketing company owned by Dutch insurance company Aegon. WFG operates under a multi-level marketing (MLM) scheme. Instead of selling household products like Amway distributors do, WFG salespeople sell financial products.
WFG's products of choice include variable universal life insurance (VUL), variable annuities (VA), and equity index annuity (EIA). Many of these products come from Western Reserve Life (WRL), WFG's sister company also owned by Aegon.
Rebalancing in a Bear Market
The stock market crash in 2008 provides a good case study for rebalancing. If you are not familiar, rebalancing means selling some assets to buy other assets and putting your asset allocation back to what you originally wanted. Rebalancing is good for maintaining a portfolio because you are buying low and selling high.
For 2008, rebalancing means buying stocks and selling bonds. At the onset of the bear market in July 2008, I put together a plan for overbalancing, which buys more stocks than what regular rebalancing would do. "If rebalancing is good, overbalancing must be better." I reasoned.
My plan laid out in the previous post Embrace the Bear Market with Overbalancing was:
Which Broker? You Don't Need One
When people start investing outside their 401k or 403b plan for the first time, their very first question is often "Which broker?" The answer should be "You don't need one."
Vanguard is a great choice for beginning investors (and seasoned investors!), but Vanguard is not a broker. It's a mutual fund company. Vanguard has a brokerage subsidiary, but it is primarily a mutual fund company.
What's the difference between a mutual fund company and a brokerage firm then?
Where Can I Buy California IOUs?
California IOUs (aka "registered warrants") are all over the news. The SEC ruled that they are considered securities. They basically told people not to sell except to established muni bond dealers.
I think the 3.75% tax free yield together with the short maturity (< 3 months) make these IOUs attractive even at face value. Yet no brokerage firms I have account with buy them from the IOU holders, let alone sell them to customers. I'm guessing that's because these IOUs are in paper form, which makes them difficult to buy, sell, and transfer. The brokerage firms' computer systems are just not set up for these.
A legit broker-dealer called SecondMarket* has set up a process for buying and selling these IOUs. It looks quite convoluted to me.
Voting on Vanguard's Proxy Proposals
I received in the mail a booklet from Vanguard. They are asking me to vote on some proposals they put in front of the shareholders. I actually read the booklet. Here's how I'm going to vote.
Proposal 1 – Elect Trustees for Each Fund. I have nothing against the trustees. I don't know exactly what they did but the funds are doing alright. I'm going to vote for all of them.
Proposal 2 – Update and Standardize the Funds' Fundamental Policies. Each mutual fund is actually a separate legal entity. It has its own policies. Vanguard wants to adopt a set of policies that apply consistently to all the funds. This way they don't have to worry about the minor differences in different funds. I like simplicity and consistency. But the proposed new policies all go toward the lowest common denominator. They impose the least restriction. Basically as long as it's legal, the funds are permitted to do it. That's not cool. Other than inconsistency, I don't see how the funds have been limited by the policies currently in place. I don't see any good reason to relax the policies. If Vanguard had gone to the most restrictive policy, I would vote for the proposal. This proposal has seven sub-proposals:
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