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Investing 101 Archive

  • In times of uncertain global markets and low rates on Treasuries, many investors are turning to bonds for safety. The problem is that fees and other semi-hidden expenses add up fast. Making matters worse, the "relative safety" of bonds may not be all it appears. In this edition of Investing 101, Larry Swedroe of Buckingham Asset Management gives viewers some tips and words for the wise on how to maximize their bond investments.

    1. Understand your fees

    While not begrudging a broker's right to make a fee on business transactions, Swedroe cautions investors to know exactly what they're being charged. Hint, it may be more than they think.

    "The Supreme Court has actually ruled that even fees as much as 6% are not unreasonable," says Swedroe in the attached video. They may not be unreasonable in the eyes of the court, but paying 6% for a bond yielding 3% puts investors in a severe hole. Ask your broker outright about his fees and make sure you're comfortable with them.

    2. Use Mutual Funds or ETFs

    Rather than going out and buying one bond or another Swedroe suggests using bond ETFs or mutual funds. Available ETFs range from the popular iShares Barclays 20+ Yr Treasury Bond (TLT) for longer term government securities to the SPDR Barclays Capital High Yield ETF with the appropriate ticker (JNK).

    Sure, they all have fees as well but "at least with the ETF's you get broad diversification," says Swedroe.

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  • 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."

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  • 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.

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(42 Stories)

ABOUT INVESTING 101

Breakout’s Investing 101 is a new way to 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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