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Investing 101 Archive

  • For the past 25 years, the asset allocation pie chart has been the most prominent and widely used tool in financial planning. Type in your age, some basic income and risk tolerance information and out comes a recommended formula for how much money you should have in stocks, bonds and cash.

    In this installment of Investing 101, we take this methodology to the next level, with a look at Risk Parity Investing. Although it has existed for over 50 years, practitioners like Lee Partridge, the CIO of Salient Partners, says by attempting to smooth out returns, it is gaining converts by the day.

    "At its core, risk parity does two things; it targets a specific level of risk, then it divides that risk equally across four component parts of the portfolio to achieve true diversification," Partridge says in the attached video. Compared to a plain vanilla stocks and bonds portfolio where he says a 60% allocation of stocks drives about 95% of the returns and volatility, a risk parity investor's holdings will look totally different.

    "In order to achieve 25% risk from equities, you only need about 20% of your portfolio in stocks," Partridge says, "far less than what individual investors are accustomed to."

    Read More »from Risk Parity Investing: A New Allocation Model Is Here
  • A month ago, news that farmland prices were topping $10,000 an acre was trumpeted in the Wall Street Journal, just as details from the worst drought in half a century were being mulled. To many, it seemed incongruous but to those in the agricultural community, it made perfect sense. That's because, as an asset class, interest in owning and diversifying in farmland has been on the rise, especially at a time when a 10-year Treasury bond won't even get you 2%.

    In this installment of Investing 101, John Taylor of the National Farm & Ranch division at U.S. Trust explains that droughts may come and go, but the global demand for food and grains will only keep rising.

    "Farmland prices over the last five years have continued to go up and they've really gone up more than their historic averages," Taylor explains in the attached video, adding that despite record prices, farmland continues to be a good investment.

    While he says owning farmland is ''clearly not as easy as owning stocks or bonds,'' the research and expectations aren't much different from those used in traditional investing. But the volatility and ''asymmetrical risks." For example, clients who decide to buy a farm are, from the start, urged to think of it on a total return basis that delivers a solid current yield as well as decent long-term appreciation, and to respect the long-term averages on land prices and leases.

    Read More »from Green Acres: The Case for Investing in Farmland Now
  • Wall Street gospel says that investors seeking outsized investment returns need to take on more risk. Nearly all modern portfolio strategy is based on this simple, clean, intuitive idea. According to Larry Swedroe of Buckingham Asset Management the only problem with the accepted relationship between risk and reward is that it's just not true.

    Using beta as a proxy for risk, Swedroe says lower beta stocks perform just as well and, over some time periods, much better than a basket of high-risk plays. Even better, they do so without exposing investors to as many of the terrifying highs and lows that have made investing in the new millennium such a harrowing prospect.

    In this edition of Investing 101, Swedroe joined Breakout to share his beta insights and help us understand what they mean.

    What is Beta?

    Beta is kind of like volatility. It's simply a trailing measure of how a stock or portfolio moves in relation to stocks as a whole. "Beta is just a measure of the risk of a stock or your portfolio or a fund relative to the risk of the overall market."

    For instance if the market gains 1%, a high-beta equity would be expected to rise more. The opposite is true for a down day, with high-beta stocks suffering more than their steady counterparts during down periods.

    Don't Investors Willing to Endure Higher Beta Get Larger Gains?

    Fortune may favor the brave, but Swedroe says brave investors don't increase their odds of making a fortune. "Data shows that stocks with low beta have actually had the same returns as stocks with a high beta."

    Participants in equity markets may seek the thrills of wild fluctuations, but for those sane enough to invest for the purpose of building wealth, there's little to nothing in past data to suggest that emotional stress has any financial payoff.

    Read More »from Building a Low Beta Portfolio

Pagination

(54 Stories)

ABOUT INVESTING 101

Breakout’s Investing 101 helps you gain insight on money management and trading. Whether you’re managing your own retirement account, just beginning, or an advanced investor in need of a good refresher, Investing 101 will help you learn, grow, and keep you informed of the basic steps to effectively manage your money. Expect investing tips that focus on trading strategies, asset allocation, and portfolio management.





Investing 101

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