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Will You Add? - How to Control Excess Volatility in Your Portfolio
Whether you call it a Project Plan or a Project Timeline, it is absolutely imperative that you develop and maintain a document that clearly outlines the project milestones and major activities required to implement your project.This document needs to include the date each milestone or major activity is to be completed, and the owner of each. Your project plan also needs to be created at the beginning of the project, and a baseline version approved by the team as soon as possible.Although you will probably not know all of the major activities required to implement your project in the beginning, it is important that you create a draft of the activities you think may need to be tracked via a formal document.Take some time and really think through what you know about the objective of your project. Look at some historical data from similar projects. You can even have a few informal meetings with knowledgeable individuals you can use as a sounding board to make sure you aren't completely off base. You'll be surprised how good a draft you can develop if you put in a little effort.With this draft you will be able to speak with subject matter experts (SMEs) and stakeholders to flesh out the project
Online Asset Allocation Tools are … well … “Canned”: Many brokers and mutual fund companies include an online tool on their websites that you can use to generate recommended asset allocation percentages for your portfolio. These tools can be helpful as you consider the different factors in your situation and what impact each should have on your allocation decision. But many of these online tools are too simplified and may not be able to take into account certain critical factors in your own unique situation. Suffice it to say that these canned tools don’t really substitute for an in-person interview with a good financial planner or advisor.
Maximum Downside Risk Should be Considered: When you seek guidance on the right asset allocation mix for you, be aware that you can get wildly different answers from different advisors, and from different canned online tools. There are various reasons for this; but one main reason you can get very different answers from the experts is the kind of measure they use to define risk. Many advisors use statistical measures of “historical market volatility” that do not effectively take into account the m
Corporate ‘life’ is a nasty oxymoron.Jam-packed days, endless demands to do more with less, impossible goals, rally the troops, jump on a plane. Miss your kid’s birthday.You know these painful facts all too well. An existence? Yes. A path to a paycheck? Certainly. But, a life? A well-balanced, appropriately challenged life? No way.Is it any wonder that you are filled with dreams of escape? You’re not alone. Recent Conference Board surveys reveal that:• 40% of employees feel disconnected from their employers• Two-thirds of American workers do not feel motivated to drive their employers’ business goals• 25% of employees are just “showing up for a paycheck”These surveys validate the Gallup Employee Engagement Index Poll which finds that a majority, or 54% of workers are “not engaged” with the objectives of their organization. Even worse, 17% of employees are considered actively disengaged -- to the point of undermining what their engaged co-workers accomplish.Why, then, do so many professionals stay in jobs they dislike so intensely?The obvious answer is the pay and the perks. But the real reasons go deeper, and involve the dynamics of fear, proc
This kind of portfolio diversification is called “asset allocation” because it involves allocating different percentages of your portfolio into different types of asset classes.
• Bonds, cash and real estate are all different types of asset classes that may be expected to offer some protection during a serious bear market.
This is the traditional approach to designing a portfolio mix that will help to control excess volatility; and it involves setting unchanging, fixed allocations in the different asset types (such as 60% in stocks, 30% in bonds and 10% in cash).
• Then there is a newer, more active style of portfolio management that involves adjusting the allocations for the different asset types as market conditions change. The active style is generally referred to as “dynamic asset allocation” or “tactical asset allocation”.
Traditional Asset Allocation -- Balancing Risk and Reward
How do you design a portfolio mix in the traditional way that will maximize returns yet not expose you to more risk than you can handle? That’s the $64,000 question.
Stocks are the “growth engine.” So you want as much stock market exposure as you can handle in the form of mutual funds, index funds and diversified groupings of individual stocks. But you have to balance stocks’ higher growth potential against the risk of a “destructive storm” because the stock market has historically taken dives of as much as 40%, 50% and even 90% during bear markets.
• Since traditional asset allocation techniques are based upon a “buy and hold” approach, the trick is to decide what percentage of your portfolio should be in stocks so you get some of that growth engine working for you, but not so much that you can’t weather a destructive storm if it were to hit.
The right portfolio mix for you will be a reflection of very individual circumstances. The right mix should be consistent with your “risk tolerance”. If you could not weather a short-term portfolio loss of more than 25%, then you may not want stocks to represent any more than about 50% of your portfolio (if you assume that the next destructive storm wouldn’t be worse than a 40% to 50% drop in the market). In that event, a 50% loss in your stock market holdings would translate into a 25% hit to your overall portfolio (assuming the other half is invested in cash or money market funds).
You Can Take More Risk When You are Young
The conventional wisdom is that the younger you are, the more stock market risk you can take. The simple thinking behind this is that a younger person has many more years in which to recover from a “destructive storm” and reap the ultimate benefit of holding stocks in the long term. Clearly, a worker close to retirement could not easily recover from such a destruction of value because there isn’t enough time. By the same token, retired people may have the lowest tolerance for stock market risk since they may be living on a fixed income and can’t afford any loss of value.
• However, young people just entering the work force may have good reasons to avoid taking much risk in the early years. Just like someone approaching retirement, young workers likely have several important, near-term objectives for using their savings: (1) buying a home, (2) paying back school loans and (3) starting a family. Too much portfolio risk could be counter-productive.
At the other end of the age scale, retired people may need to introduce more stock market exposure into their portfolios to have some growth potential that can offset rising expenses during their increasingly longer lifetimes. The rising costs of medical care, combined with the general rate of inflation can do serious damage to a fixed income over 15, 20 or 30 years … and that’s how long many retirees can expect to live.
What to Watch Out For
Deciding upon the right portfolio mix for your particular situation is a delicate question and should involve careful consideration of a broad range of factors. There are a number of important caveats you should understand before entering into a traditional asset allocation exercise with a broker or financial planner.
Bonds Go Down Too: Don’t be mislead that bonds never go down. There is only one instance in which the value of a bond doesn’t change … that is when you hold it to maturity and, like a Certificate of Deposit, it will return the original, face value of the bond. At any other time prior to maturity, the market value of a bond goes up or down in response to the changing level of interest rates. If you own a bond mutual fund, the market value of the fund changes daily with the movement of interest rates. A mutual fund holding long term bonds has the potential to lose as much as 10% to 20% in value during a period of steeply rising interest rates.
Online Asset Allocation Tools are … well … “Canned”: Many brokers and mutual fund companies include an online tool on their websites that you can use to generate recommended asset allocation percentages for your portfolio. These tools can be helpful as you consider the different factors in your situation and what impact each should have on your allocation decision. But many of these online tools are too simplified and may not be able to take into account certain critical factors in your own unique situation. Suffice it to say that these canned tools don’t really substitute for an in-person interview with a good financial planner or advisor.
Maximum Downside Risk Should be Considered: When you seek guidance on the right asset allocation mix for you, be aware that you can get wildly different answers from different advisors, and from different canned online tools. There are various reasons for this; but one main reason you can get very different answers from the experts is the kind of measure they use to define risk. Many advisors use statistical measures of “historical market volatility” that do not effectively take into account the ma
Each year, more and more consumers are surfing the internet to find a particular product or service that they are in need of, throwing out the conventional methods of telephone books and newspaper ads. Why? The World Wide Web is faster and easier, as the internet, the world’s fastest growing medium, is already in homes and offices across the globe.So what does this mean for the businesses that thrive on consumers? Obtaining the maximum level of success in the business and professional world is the reason businesses operate. In order to be successful, one needs to be an innovator, a trendsetter, a leader in a particular field, and not just another face in the crowd. The fastest way to set yourself apart from the masses of mainstream business is with a unique website, complete with fully custom web design.Custom web design is a simple, yet incredibly important tool in sorting out the amateurs from the professionals within one’s area of expertise. The use of generic templates and amateur styling relays one message to potential clients and consumers – “We are a generic and amateurish company”.Consumers, in general, tend to trust the larger companies with solid reputations that have usually been i
How do you design a portfolio mix in the traditional way that will maximize returns yet not expose you to more risk than you can handle? That’s the $64,000 question.
Stocks are the “growth engine.” So you want as much stock market exposure as you can handle in the form of mutual funds, index funds and diversified groupings of individual stocks. But you have to balance stocks’ higher growth potential against the risk of a “destructive storm” because the stock market has historically taken dives of as much as 40%, 50% and even 90% during bear markets.
• Since traditional asset allocation techniques are based upon a “buy and hold” approach, the trick is to decide what percentage of your portfolio should be in stocks so you get some of that growth engine working for you, but not so much that you can’t weather a destructive storm if it were to hit.
The right portfolio mix for you will be a reflection of very individual circumstances. The right mix should be consistent with your “risk tolerance”. If you could not weather a short-term portfolio loss of more than 25%, then you may not want stocks to represent any more than about 50% of your portfolio (if you assume that the next destructive storm wouldn’t be worse than a 40% to 50% drop in the market). In that event, a 50% loss in your stock market holdings would translate into a 25% hit to your overall portfolio (assuming the other half is invested in cash or money market funds).
You Can Take More Risk When You are Young
The conventional wisdom is that the younger you are, the more stock market risk you can take. The simple thinking behind this is that a younger person has many more years in which to recover from a “destructive storm” and reap the ultimate benefit of holding stocks in the long term. Clearly, a worker close to retirement could not easily recover from such a destruction of value because there isn’t enough time. By the same token, retired people may have the lowest tolerance for stock market risk since they may be living on a fixed income and can’t afford any loss of value.
• However, young people just entering the work force may have good reasons to avoid taking much risk in the early years. Just like someone approaching retirement, young workers likely have several important, near-term objectives for using their savings: (1) buying a home, (2) paying back school loans and (3) starting a family. Too much portfolio risk could be counter-productive.
At the other end of the age scale, retired people may need to introduce more stock market exposure into their portfolios to have some growth potential that can offset rising expenses during their increasingly longer lifetimes. The rising costs of medical care, combined with the general rate of inflation can do serious damage to a fixed income over 15, 20 or 30 years … and that’s how long many retirees can expect to live.
What to Watch Out For
Deciding upon the right portfolio mix for your particular situation is a delicate question and should involve careful consideration of a broad range of factors. There are a number of important caveats you should understand before entering into a traditional asset allocation exercise with a broker or financial planner.
Bonds Go Down Too: Don’t be mislead that bonds never go down. There is only one instance in which the value of a bond doesn’t change … that is when you hold it to maturity and, like a Certificate of Deposit, it will return the original, face value of the bond. At any other time prior to maturity, the market value of a bond goes up or down in response to the changing level of interest rates. If you own a bond mutual fund, the market value of the fund changes daily with the movement of interest rates. A mutual fund holding long term bonds has the potential to lose as much as 10% to 20% in value during a period of steeply rising interest rates.
Online Asset Allocation Tools are … well … “Canned”: Many brokers and mutual fund companies include an online tool on their websites that you can use to generate recommended asset allocation percentages for your portfolio. These tools can be helpful as you consider the different factors in your situation and what impact each should have on your allocation decision. But many of these online tools are too simplified and may not be able to take into account certain critical factors in your own unique situation. Suffice it to say that these canned tools don’t really substitute for an in-person interview with a good financial planner or advisor.
Maximum Downside Risk Should be Considered: When you seek guidance on the right asset allocation mix for you, be aware that you can get wildly different answers from different advisors, and from different canned online tools. There are various reasons for this; but one main reason you can get very different answers from the experts is the kind of measure they use to define risk. Many advisors use statistical measures of “historical market volatility” that do not effectively take into account the m
Robots.txt is possibly the most miss understood file that a website can contain.Many people think that by using a Robots.txt file on their website they are protecting pages and folders from thieves and hackers. In fact it is totally the opposite! Robots.txt opens up an enormous security hole that hackers and thieves will use to easily gain access to the parts of your website that you don't want them to.What is Robots.txt?Robots.txt is a file that you create and upload to your websites root directory that is used by search engine spiders to determine which parts of your website they should index and which folders/pages that you, the website owner, don't want listed in search engine indexes.Why would not want pages indexed?There are many reasons why you might not want search engines to index pages on your website, such as private membership pages or exclusive training pages and such like.If you are an Internet Marketer selling your own ebook or other digital product, you wouldn't want your thank you pages indexed either!And this is where the misunderstanding comes to the fore, and Robots.txt becomes your foe.Many online marketers who provide ebooks
You Can Take More Risk When You are Young
The conventional wisdom is that the younger you are, the more stock market risk you can take. The simple thinking behind this is that a younger person has many more years in which to recover from a “destructive storm” and reap the ultimate benefit of holding stocks in the long term. Clearly, a worker close to retirement could not easily recover from such a destruction of value because there isn’t enough time. By the same token, retired people may have the lowest tolerance for stock market risk since they may be living on a fixed income and can’t afford any loss of value.
• However, young people just entering the work force may have good reasons to avoid taking much risk in the early years. Just like someone approaching retirement, young workers likely have several important, near-term objectives for using their savings: (1) buying a home, (2) paying back school loans and (3) starting a family. Too much portfolio risk could be counter-productive.
At the other end of the age scale, retired people may need to introduce more stock market exposure into their portfolios to have some growth potential that can offset rising expenses during their increasingly longer lifetimes. The rising costs of medical care, combined with the general rate of inflation can do serious damage to a fixed income over 15, 20 or 30 years … and that’s how long many retirees can expect to live.
What to Watch Out For
Deciding upon the right portfolio mix for your particular situation is a delicate question and should involve careful consideration of a broad range of factors. There are a number of important caveats you should understand before entering into a traditional asset allocation exercise with a broker or financial planner.
Bonds Go Down Too: Don’t be mislead that bonds never go down. There is only one instance in which the value of a bond doesn’t change … that is when you hold it to maturity and, like a Certificate of Deposit, it will return the original, face value of the bond. At any other time prior to maturity, the market value of a bond goes up or down in response to the changing level of interest rates. If you own a bond mutual fund, the market value of the fund changes daily with the movement of interest rates. A mutual fund holding long term bonds has the potential to lose as much as 10% to 20% in value during a period of steeply rising interest rates.
Online Asset Allocation Tools are … well … “Canned”: Many brokers and mutual fund companies include an online tool on their websites that you can use to generate recommended asset allocation percentages for your portfolio. These tools can be helpful as you consider the different factors in your situation and what impact each should have on your allocation decision. But many of these online tools are too simplified and may not be able to take into account certain critical factors in your own unique situation. Suffice it to say that these canned tools don’t really substitute for an in-person interview with a good financial planner or advisor.
Maximum Downside Risk Should be Considered: When you seek guidance on the right asset allocation mix for you, be aware that you can get wildly different answers from different advisors, and from different canned online tools. There are various reasons for this; but one main reason you can get very different answers from the experts is the kind of measure they use to define risk. Many advisors use statistical measures of “historical market volatility” that do not effectively take into account the m
For many people, this is one of the first questions they ask. When can we go live? And this question is usually asked by people who want their website to be live tomorrow, or next week at the latest. It’s not about the go live date, it’s about your business.You can try to answer the following questions: How long did it take to build your business? How long did it take to get the customer base you have? How long did it take to get a decent bank account sorted? How long for your letterheads, business cards and so on?Rome wasn’t built in a day: neither should your website.Think twice about website designers who promise to have a website built within a matter of days and who have a go-live date within a week.Depending on your products and services, for some – if not most - of your clients, your website is the first thing they see when they find out about your business. Having your website designed, developed, and taken live within a matter of days – it will probably show! And it will turn away your potential clients – FOREVER!Cheap websites will look cheap. A ?25 template website will look like a ?25 template website. If that is what you want your customers to see, if that is w
What to Watch Out For
Deciding upon the right portfolio mix for your particular situation is a delicate question and should involve careful consideration of a broad range of factors. There are a number of important caveats you should understand before entering into a traditional asset allocation exercise with a broker or financial planner.
Bonds Go Down Too: Don’t be mislead that bonds never go down. There is only one instance in which the value of a bond doesn’t change … that is when you hold it to maturity and, like a Certificate of Deposit, it will return the original, face value of the bond. At any other time prior to maturity, the market value of a bond goes up or down in response to the changing level of interest rates. If you own a bond mutual fund, the market value of the fund changes daily with the movement of interest rates. A mutual fund holding long term bonds has the potential to lose as much as 10% to 20% in value during a period of steeply rising interest rates.
Online Asset Allocation Tools are … well … “Canned”: Many brokers and mutual fund companies include an online tool on their websites that you can use to generate recommended asset allocation percentages for your portfolio. These tools can be helpful as you consider the different factors in your situation and what impact each should have on your allocation decision. But many of these online tools are too simplified and may not be able to take into account certain critical factors in your own unique situation. Suffice it to say that these canned tools don’t really substitute for an in-person interview with a good financial planner or advisor.
Maximum Downside Risk Should be Considered: When you seek guidance on the right asset allocation mix for you, be aware that you can get wildly different answers from different advisors, and from different canned online tools. There are various reasons for this; but one main reason you can get very different answers from the experts is the kind of measure they use to define risk. Many advisors use statistical measures of “historical market volatility” that do not effectively take into account the m
Though there are many people offering their content for free, maybe (surely if you are reading this) you are one of those willing to make a profit from your web site. You might want to make a living from your Internet experience, or just to generate an extra income instead. In any case there are several ways to earn money with your site.SELLING PRODUCTSElectronic commerce is the most obvious way to generate revenue from your site. Of course you need something to sell, and Internet is not the best marketplace for all products. To succeed selling you need to:Sell something that is not sold anywhere else: Offering a unique product is the best way to ensure that your site is chosen by Internet users to buy it. Take advantage of the lack of competition while you are the only seller and make your site the reference for that kind of product.Sell something that is not sold in a given area: Offer something that, even though not being unique, it is not distributed in a certain location (country, city...).Sell something at best price: With so much competition on the Internet and so many comparison too
Online Asset Allocation Tools are … well … “Canned”: Many brokers and mutual fund companies include an online tool on their websites that you can use to generate recommended asset allocation percentages for your portfolio. These tools can be helpful as you consider the different factors in your situation and what impact each should have on your allocation decision. But many of these online tools are too simplified and may not be able to take into account certain critical factors in your own unique situation. Suffice it to say that these canned tools don’t really substitute for an in-person interview with a good financial planner or advisor.
Maximum Downside Risk Should be Considered: When you seek guidance on the right asset allocation mix for you, be aware that you can get wildly different answers from different advisors, and from different canned online tools. There are various reasons for this; but one main reason you can get very different answers from the experts is the kind of measure they use to define risk. Many advisors use statistical measures of “historical market volatility” that do not effectively take into account the maximum loss potential of a major “destructive storm”. These advisors are more likely to recommend you put a much higher percentage of your portfolio into stocks. Before accepting such a recommendation, know that the stock market has lost between 40% and 50% of its value three times in the past 35 years, most recently earlier in this decade. And of course, the Great Depression was much, much worse.
Needed: Years of Patience
If you had invested in the stock market in 1964, you would have bought in just before one of those destructive storms rolled in. This storm was a monster and you would have waited 17 years before breaking even on your investment … actually about 27 years if you take the effects of inflation into account.
The drawback of the traditional asset allocation technique is its reliance on a “buy and hold” philosophy. The method is based upon the belief that you can’t successfully time the markets … that you just have to sit tight and collect your average historical return of about 7% per year on stocks over the long run. In fact, it can be the very long term. Studies show that in many previous years, going back 100 years, investors have had to wait 20 to 40 years to actually achieve that average long-term market return.
Stepping Aside to Avoid the Destructive Storms
This painfully obvious problem with the traditional approach has fueled development of a more active investment style that seeks to avoid most of the ravages of destructive storms, when they arrive. The active approach can reduce the risk involved with holding stocks; and can allow the average investor to tolerate a higher percentage in their portfolio. So if the “traditional” allocation approach says you can only tolerate 40% in stocks, the “active” approach might allow you to tolerate up to 75% when the market is bullish.
But it takes timing of the markets to be successful. While the timing success of market “gurus” has long been suspect, the reputation of market timing has grown steadily among sophisticated investors given the increasing reliability of computerized models that analyze a host of quantitative factors about the market.
The point of these computer models is to identify longer-term market trends and invest in them until the trend falls apart. A strategy for actively changing the asset allocation of a portfolio can be driven by this kind of market timing analysis. For example, such a dynamic strategy would have had you heavily invested in stocks during most of the 1990’s while the bull market was raging. Then it would have moved your portfolio out of stocks and into something else in 2000 after the market peaked and a new stock market downtrend became evident … thereby avoiding most of the damage suffered by the average buy and hold investor.
Active portfolio management is now accessible to the average small investor because there are a growing number of individual investment advisors, market timing services and investment newsletters that employ these techniques with success. Some of these services can even be used to help you manage a 401k portfolio. Now you can weather the destructive storms by moving your portfolio out of their way and sitting happily on a dry dock or enjoying better weather in some other climate.
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