sa·pi·ent | ˈsāpēənt | (adjective): full of knowledge, wise, discerning; having judgment gained through experience.

How Much in U.S. Stocks vs International Stocks?:  Strategic Allocation

Posted by Kevin Means, CFA on Feb 23, 2019 12:45:00 PM

Next to the stocks vs bonds allocation, the U.S. vs international stocks decision is the most important for most portfolios.  Unlike the 60/40 traditional stocks/bonds mix, there is no well-recognized default position for this choice.  I recommend a middle path between two extreme views, with significant flexibility in tactically implementing around the long-term strategic allocation target.

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Why You Should Under-Weight Government Bonds

Posted by Kevin Means, CFA on Feb 20, 2019 6:20:02 PM

Although they are often excellent diversifiers of equity market risks, government bonds are not likely to be good investments going forward.  Their yields are low (or in some cases, negative!).  The marginal buyers for government bonds are often motivated by considerations other than risk and return.  This keeps their prices structurally above the levels that would make them attractive to most investors.   

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Why You Should Avoid Long-Term Bonds

Posted by Kevin Means, CFA on Feb 18, 2019 2:39:45 PM

Long-term bond yields are low by historical standards.  For bonds, current yield = future expected return.  Interest rates have much more room to go up than go down, with the risk of losing money on long-term bonds looming large compared to a very modest increment of yield.  Stay away from long-term bonds until their incremental yields over short-term bonds justify their much higher level of risk.   

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How Does Diversification Work?

Posted by Kevin Means, CFA on Feb 15, 2019 10:14:10 AM

Most people intuitively understand the appeal of diversification—spreading your risks around so that if something goes wrong in one investment hopefully some others will be doing well.  It has to do with the old saying, “don’t put all your eggs in one basket.”  But how do you measure diversification?  And how much difference does it make in portfolio returns and ending wealth?

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How Much Interest Rate Risk in Bonds?: A Tactical Approach

Posted by Kevin Means, CFA on Feb 13, 2019 9:00:00 AM

The single most important decision in managing a bond portfolio is deciding how much interest rate risk to accept.  In an earlier article I introduced the concept of using current market conditions to tactically rebalance around a long-term strategic asset mix.  This methodology I call the “Dynamic Model.”  This article will apply the same concept to tactically managing the interest rate risk in a bond portfolio and present some back-test results using that approach.

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How Much in Stock vs Bonds?: A Tactical Approach

Posted by Kevin Means, CFA on Feb 11, 2019 9:15:00 AM

 In an earlier article I introduced the concept of using current market conditions to tactically rebalance between stocks and bonds around a long-term strategic asset mix.  This methodology I call the “Dynamic Model” approach to managing the asset mix.  In this article, I will explain the model’s methodology and compare its' back-tested performance to a static 60/40 stock/bond asset mix. 

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When Should I Rebalance?: A Tactical Approach

Posted by Kevin Means, CFA on Feb 7, 2019 1:38:02 PM

Many investors assume that their strategic asset mix is somehow sacrosanct.  They have been told that they should rebalance back to the strategic targets if their portfolio gets out of whack.  This is despite the fact that the quality of the analysis behind the setting of the strategic asset allocation is usually subjective and often quite weak.  I believe that using current fundamentals to estimate expected returns of stocks and bonds should guide the tactical rebalancing around the strategic targets. 

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Topics: Insider

Is Now a Good Time to Invest in Closed-End Funds?

Posted by Kevin Means, CFA on Jan 30, 2019 6:25:39 PM

In a word, yes.  Now is an exceptionally good time to invest in closed-end funds (CEFs) because the average closed-end fund trades at a price well below the value of its portfolio.  Closed-end funds typically trade at a discount to net asset value (NAV), but at present the discounts are unusually large. 

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