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What are the Various Types of Orders?

Posted on September 7, 2016 by Daniel DollingerMay 2, 2017

In Short

When someone buys or sells stocks, mutual funds, ETFs, etc. they have the choice to use multiple types of orders.

Market Order

The order is done immediately at the current security price. Market orders have to pay the bid-ask spread. For every security there is a difference between how much people are willing to pay for it and how much people are willing to sell it for. The difference is the bid-ask spread.

Limit Order

The order is put in at particular price. The order will execute when the price is at that point or better. For example: Stock has a current price of $30.00. You put in in a limit buy order at $29.00. The order doesn’t execute until the price drops to $29.00 or below. Limit orders don’t pay the bid-ask spread.

Stop Order

One of the above orders is automatically triggered once the price goes in the wrong direction. For example: You put a stop market buy order in on a stock at $30.00. The current price is $29.00. The order doesn’t execute until the price rises to $30.00 or higher. Than it goes though as a market order. Another example would be a stop market sell order. Here the market order automatically triggers when the price drops to some value. Stop orders can be fixed or trailing (they automatically adjust based on the price of the security).

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

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Investment Newsletter for the end of August, 2016

Posted on September 2, 2016 by Daniel DollingerMay 2, 2017

The Dow was down this month. It started at 18,432.24 and ended at 18,400.88. A very small loss I admit, but I have a point to make. Every one of your portfolios was up, but the Dow was down. How is this possible? Remember, I am attempting to mirror the market with the equity piece of your portfolios and I have an allocation to fixed income for almost all of you. If the Dow represents the market, how am I beating it?

The answer here is that the Dow Jones Industrial Average is not the market. The Dow is an index made up of 30 very big stocks. There are many thousands of stocks in the market ranging from very big to very small. It is convenient to glance at the Dow and say the market is up or down. I do the same thing many times every day. It is fast and more or less accurate. After all, the different pieces of the market have a tendency to move together.

On the quarterly reports, I always present five indexes to compare your results against. I present the Dow Jones Industrial Average, the Nasdaq Composite Index, the Russell 3000 index, the Russell 2000 index, and the S&P 500 Index.

The S&P 500 represents 500 big companies. These companies are very large and include the 30 Dow companies as well as 470 others. This index is a wider representation of the market. The Russell 2000 represents 2,000 smaller companies. The Wilshire 5000 represents 5,000 small and big companies. There are many dozens of indexes. None of them are perfect representations of the market. They are samples with different methodologies. So we use the Dow for a quick and dirty guess.

It is not always accurate, however. Big stocks and small stocks may go up and down at different times. Smaller stocks also outperform larger stocks. They may not in any particular month or even year but over time they will outperform. I have focused your portfolios on smaller capitalization stocks because of the higher potential gain. You have very little exposure to Dow type stocks and only a small exposure to larger stocks in general. An index that presents smaller stocks is more appropriate in your case.

This particular month, smaller cap outperformed larger cap. The Dow was down .17%. The S&P was down .12%. The Russell 2000 index was up 1.6%. This month was an example of the small cap premium. It was only a month. So by itself, it is not statistically important. The statistics become more meaningful over longer periods of time. Year to date the Dow is up 5.5% and the Russell 2000 up 9.1%. Eight months is more interesting than one month but is still not that important. I also focus on value stocks rather than growth as value will outperform growth over time.

It is unknown what the future will bring. I’m keeping the portfolios allocated according to plan. I rebalanced several weeks ago as you know. I took some gains off the table and reduced your risk. Rebalancing is occurring roughly every 500 points using the Dow as a measure.

Thank-you all for your business and support. Call me with any questions you might have.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

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What is Currency Devaluation?

Posted on August 31, 2016 by Daniel DollingerMay 2, 2017

In Short

When a currency becomes less valuable relative to another currency.

Explanation

The value of all currencies (US Dollar, Euro, Pound, etc.) are defined relative to each other. For example: right now one US dollar is worth about .762 Pounds. One pound is worth more than a US dollar. Tomorrow if a US dollar is worth .8 Pounds than the pound has devalued relative to the US dollar. Think of all currencies as items in a big supermarket. If an item devalues relative to the currency you have in your pocket, you can buy more of that item for your money. Think of the bread at the market being marked down in price so you can buy more of it.

Advantages and Disadvantages of Currency Devaluation

Devaluation when it occurs (either naturally or via currency manipulation) has both advantages and disadvantages.

Advantages to the Country Devalued

It lowers the cost to foreigners of buying domestic goods. If everything is equal, if something is cheaper you buy more of it. If the Pound devalues relative to the US Dollar it becomes cheaper for people with US Dollars to buy British products.
Lowering costs to foreigners will aid the tourism industry.
That increase in foreign demand for domestic products causes the companies that make those products to ramp up production. Higher production requires more workers, which means unemployment goes down.

Disadvantages to the Country Devalued

Importing goods becomes more expensive. Therefore companies that depends on foreign goods for their operations have to raise prices to maintain profit margin. Then domestic companies that depends on the goods of those companies have to raise their prices to maintain profit margin. Then companies who depend on those companies for goods have to raise their prices to maintain margin. The end result is that everything is more expensive to buy.
It might scare off institutional investors from investing in your country.
If the country owes money to a foreign country, institution, etc. devaluating currency causes the country to effectively owe more money.

Conclusion

Whether devaluation is a net good or a net bad for a country depends on a multitude of factors such as where they are in the business cycle, the strength of their economy, the unemployment rate, etc.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

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What is a Good Rate of Return on a Portfolio?

Posted on August 29, 2016 by Daniel DollingerMay 2, 2017

Risk Vs. Return

Before that question can be answered, it is important to understand the relationship between risk and return. In the financial/investing world there is a direct relationship between the two. For example: a treasury bond is very low risk (the US government is unlikely to default), but as a result the return is also very small. A micro-cap stock is very high risk (very likely to go bust), but if it survives the returns will be very large.

Fluctuation

However, even if something is guaranteed to survive it might still be very risky. Risky investments have a lot of fluctuation (it might be down when you need the money). An example of something guaranteed to survive is the S&P 500 (SPY is the name of the ETF). The S&P 500 is composed of 500 large-cap companies that are part of the U.S stock exchange. It is a good approximation of the US economy; it will survive as long as the United States survives.

Managing Portfolio Risk

Portfolio risk can be raised or lowered based on the allocation to short term bonds. For example, if you were entirely short bonds and CDs, you would have very low return and low risk. If you were 100% stock, the risk would be high as the account would be bouncing up and down.

Sharpe Ratio

So one would evaluate whether a particular portfolio return is good or bad by adjusting the return to the risk. One way of doing that is with the Sharpe Ratio. That is (portfolio return – risk free rate) / portfolio standard deviation. The risk free rate is the return from treasury bills (it is presume to be zero risk). Portfolio standard deviation is a measure of how much fluctuation there is within the portfolio.

Evaluating Portfolio Rates of Return

So a particular rate of return might be either good or bad based on the level of risk taken. For example: 7% would be very good annual rate of return if one had a risk adverse portfolio. It would be a poor annual rate of return if one had a high risk portfolio.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

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What is a Security Settlement Date?

Posted on August 26, 2016 by Daniel DollingerMay 2, 2017

Definition

When you buy a security there is time between when you buy the security and when you pay for that security. The date you buy is the buy date. The date you pay the money is the settlement date. The inverse is also true. If you sell a security, you won’t get the money right away. The value of knowing how long it takes for a transaction to settle is that you don’t need the money when you buy, you just need the money when you settle.

For Example

Let’s say I have no money but I know I will have money tomorrow. I can buy a security now (even though I have no money) because I know there will be enough money in my account before the settlement date.

Importance of Settlement Dates

Different types of securities have different settlement dates. That information that is essential to know to ensure you always have enough money to pay for what you buy. Stocks and ETFs settle t+3. That means a stock’s settlement date is the third day after the stock was bought. So if you buy on Monday, it settles on Thursday. Mutual funds settle t+1. So if you buy on Monday, it settles on Tuesday. So if you simultaneously sell a stock and buy a mutual fund thinking the proceeds from the stock will cover the mutual fund, your plan will fail because the mutual fund will require that money earlier than the stock provides it.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

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What is an ETF?

Posted on August 24, 2016 by Daniel DollingerMay 2, 2017

In Short

An ETF (Exchange Traded Fund) is a basket of securities that attempts to duplicate the performance of a multiple of an index. See here for the definition of a stock index. There are also commodity indexes.

Their Benefit

They are extremely low cost (in terms of management fees), and will usually include some diversification. See here for the benefits of diversification. So it is thereby easier for an investor to gain diversification will needing to invest a lot of money.

How they Work

Every index is made up of a basket of securities and/or commodities. The items that are included in the index are publically available. The ETF manager buys and sells these items so the ETF proportionally matches a multiple of the index. By multiple I mean the manager can either try to duplicate the index perfectly (1x multiple), try to duplicate the inverse of the index (-1x multiple) by using short selling (see here for definition), or use derivatives (see here for definition) to try to get a greater multiple (>2x multiple or <-2x multiple).

How They Trade

An ETF trades exactly like a stock. To buy or sell, just give the symbol to your broker.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

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Questions for the comments

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What is the Standard Deviation of a Stock Portfolio?

Posted on August 22, 2016 by Daniel DollingerMay 2, 2017

Defining Standard Deviation

Standard deviation refers to the fluctuation in the value of your portfolio. The ups and downs of a portfolio can be thought of as a roller coaster. How scary is the roller coaster? A roller coaster that is perfectly flat has no standard deviation. It does not go up or down. A roller coaster with sharp ups and downs has a big standard deviation. Standard deviation is a measure of risk. It could be upside fluctuation or downside.

Why It Should Be Maximized

The greater the risk, the greater the potential reward over time. As standard deviation goes up, profit goes up. No risk means no profit.

Why It Should Be Minimized

The problem with risk is that the roller coaster could be heading down when the investor needs the money. Depending on their age, they may not have the time to wait for the upswing. There is a correct amount of risk based on age, temperament, etc. An old person cannot afford to take as much risk as a young person.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Also, if you would like to submit a post to my blog, please contact me.

E-Book Download

Questions for the comments

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Is It a Bad Idea to Take Out a Loan to Start an Investment Portfolio?

Posted on August 17, 2016 by Daniel DollingerMay 2, 2017

In Short

Probably. I would generally not suggest taking out a loan to create a portfolio (although I did exactly that once).

The Investment Returns Cannot Be Counted Upon to be Higher Than the Loan Interest

It would make sense if the investment returns were greater than the interest rate on the loan. You can not count on that being true. Over ten and fifteen year periods, it would usually be correct. The market whips, cycles, and generally makes a fool out of the experts over short periods. There are often several year periods when the market is significantly down. The statistics get really fuzzy.

The Loan Interest is a Constant Drain

Meanwhile as you are waiting for years to make money, your loan demands to be fed. You have to pay the loan on a regular schedule. A line of credit has no schedule but instead has a very high interest rate. Do you have the financial resources to carry and payback that loan without the investments coming through?

Loans Add Financial Pressure

20 years ago I refinanced a mortgage and took out an additional $40,000 to invest. I had the ability to pay back the total loan over time but it was still a dumb move. I could have put additional pressure on my family. By luck, the market went up and I made money.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

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Questions for the comments

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What is Compounding?

Posted on August 15, 2016 by Daniel DollingerMay 2, 2017

In Short

As a portfolio gets larger, the growth occurs on an expanding base, which means the amount of growth you experience each year is increasing. Compounding means you are earning money on your past earnings.

For Example

Say you have a $100,000 account and it is growing 10% per year. The first year you will make $10,000 and your account will at the end be worth $110,000. The second year you earn $11,000 (10% of your new initial account balance). At the end of the second year your account is worth $121,000. After 30 years your account is worth $1,740,000.23. For the 31^st year, your account value increases by $174,000.20. So yearly growth went from $10,000 per year to $174,000.20 via compounding. You can think of getting a raise at your job every year. You can also think of a snowball rolling down a hill. Even if it starts very small, eventually it will grow very large.

Conclusion

Albert Einstein called compound interest the 8^th wonder of the world. It is very powerful and can grow your portfolio very large. Compounding is not fast, but returns require patience. It takes time, but if you are willing to spend that time, you will be handsomely rewarded.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

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How Does Daniel Dollinger Invest?

Posted on August 12, 2016 by Daniel DollingerMay 2, 2017

Introduction

If you look at a security, there is a lot of noise. Every day the security goes up and down, sometimes by a few cents and sometimes by many dollars. If you average out all those prices, you get an average value for that security. Over time that value will trend up or trend down based on the underlying worth of the security.

How I Invest in the United States Economy

I am a passive index investor. I try to invest in the United States economy as a whole, because I believe over time the country will keep growing economically. I’m invested in many indexes, for any particular asset class or industry can die, but the country will live on. Every industry and sector has its own curve, times when it does well and times it does badly. When you average all the curves, you get a trend line (there still is some fluctuation but very little). That trend line represents the United States economy.

How I Invest in the World Economy

If the account is large enough, I also invest in the world economy as a whole. I know the world’s economy will keep growing. I like investing in foreign indexes for it diversifies out my portfolio. While I believe the United States economy will keep growing in the long run, in the short term it can falter and I want to compensate for that. I don’t emphasize it because I have a greater familiarity with the legal and accounting standards of United States companies. Sometimes foreign companies act according to legal and accounting rules that I don’t understand. There are risks (political, economic, regulatory etc.) that I also don’t understand.

Why My Understanding is Important

I do my best to understand, for I want to provide my clients with that diversification, but ultimately I am trying to do the best job possible for my clients. I will not take unnecessary risks with other peoples’ money. I strongly believe that I do not have that right.

My Attempt to Minimize Transaction Costs

The reason foreign investment depends on the account size is that I am doing my best to minimize transaction costs for the client. I want there to be a large enough amount of money invested in each index, so when I make buys and sells, the benefit outweighs that cost.

Conclusion

I tell my clients that I invest their account into various pistons. Each piston (domestic and/or foreign) moves up and down at different times, but ultimately they are running the machine that is propelling my clients forward to a better future.

Fee Structure

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

Learn About My Business