Home→Blog - Page 15 << 1 2 … 13 14 15 16 17 … 19 20 >>

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

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.

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

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

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

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

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

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

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

Learn About My Business

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

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

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

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

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

What is a Financial Ratio?

Posted on August 10, 2016 by Daniel DollingerMay 2, 2017

Overview

All companies on the stock market are required to provide information on their company to the public. They are required to provide financial statements (income statement, balance sheet, statement of cash flows). See previous post for information on those statements. In addition, various financial ratios are provided. Below, I’ll explain some of the most common ones.

Price/Earnings Ratio

This ratio is the price per share divided by the earnings per share. The earnings number is usually the earnings over the previous 12 months. Earnings are sales (value of everything sold) – cost of goods sold (how much it cost you produce the goods sold) – any other expenses. It reveals how much value is placed on each dollar of earnings.

Price/Book Ratio

This ratio is the price per share divided by the book value per share. Book value is equal to shareholder’s equity (what you own that isn’t beholden to debt). For example say your house is worth $200,000. You still owe $100,000 on your loan. Your equity is thus $100,000. It reveal how much value is placed on each dollar of book value.

Price/Sales Ratio

This ratio is the price per share divided by the sales per share. The sales number is usually the sales over the previous 12 months. Sales is the value of everything sold. It reveal how much value is placed on each dollar of sales.

Price/Cash Flow Ratio

This ratio is the price per share divided by the cash flow per share. Cash flow is usually how much cash flowed into the company over the course of the last 12 months. It reveal how much value is placed on each dollar of cash flow.

Return on Equity Ratio

This ratio is earnings per share divided by the shareholders equity per share. It reveals how efficiently the company uses what they have to generate profit.

Dividend Yield (%)

Another piece of information (that is not a ratio) is dividend yield, which is a percentage. It is how much company paid out in dividends per share over the last year divided by the price per share. That number is then multiplied by 100. The percentage reveals how big the dividend is relative to the price.

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

How Do I Start Personal Investing?

Posted on August 8, 2016 by Daniel DollingerMay 2, 2017

Determine An Inventory Of Your Situation

Think of it like a balance sheet in accounting if you are familiar with the set up. List all your assets at fair market value. Then list all your debts, amounts AND interest rates. Finally list your other factors: age, health, family requirements, expected inheritances, etc. You have to know where you are before you can determine a goal of where you want to be. I want to see your expected cash flows in and out over the next five plus years. Ten would be better. Do NOT use money that you need immediately for personal investing.

Determine The Goal

What do you wish to achieve and over how many years. Be realistic. Investments have tremendous fluctuations. The cycles can last many years. The last five or six years have been very good. There is no promise that those results will repeat themselves over the next five years. In the last fifteen years, there have been two major crashes. If your agenda is to buy a house in three years or pay for an education next year, the market contains too much risk. If your goal is to provide for your retirement in ten years, the market is a great place. Make Sure personal investing fits your goals.

Determine How Much Risk Is Acceptable

Ask yourself how much decline can you handle before you freak out. 10% decline – no problem? 20% decline – stressed? 30%? This question is a sensitivity analysis to market declines. Personal investing entails a lot of risk; make sure you can tolerate that risk.

Determine How Best To Achieve Your Goal

Start educating yourself as to how the market works. Vanguard’s founder John Bogle wrote several good books on portfolios and personal investing. I am fond of Vanguard funds, various ETF’s, and DFA. In essence, I am an index investor. I do not believe that it is possible to time the market. I think day trading is junk and virtually all academic research agrees.

Interest Rate of Your Debt

Above I asked for the interest rates of your debt. I am not embarrassed using money to pay down a debt. What is the difference between achieving a long term investment return of 5% and getting rid of a debt that costs you 5%? Over long periods of time, the market returns 8% to 10%, depending on how much risk you are willing to accept. If you have debt that is more expensive than that, such as a credit card at 18%, you are better off paying off the debt than personal investing.

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

Investment Newsletter for the end of July 2016

Posted on August 3, 2016 by Daniel DollingerMay 2, 2017

The market roared ahead this month and now has hit an all-time high. The Dow went up 502 points (2.8%). The S&P went up 75 points (3.6%). The Russell 2000 (small cap companies that I like) went up 68 points (5.9%).

Last month I mentioned fear pits, the irrational panic around whatever event. Recently it was Brexit. Before that the Greek crisis and something else before that. The press amplified the emotion and the herd ran out of the market screaming. The market recovered within a few days. It could have taken months to recover. Sometimes the herd takes a little longer to switch directions.

The opposite emotion is greed. It happens when the herd comes rushing in. They want to buy because they think they can make a lot of money. Their friend did; the guy on TV did (maybe it is even true-who knows); The neighbor just bought a new car. Of course, all those are the wrong reasons. Because the market did well, it does not mean it will do well again. Greed is just as stupid as fear.

We see that same greed/fear cycle in real estate also. Right now everybody thinks they can make money investing in real estate. Waterlogged tear downs are going for $200,000 over asking in Seattle. Portland is just about as bad. We are seeing major greed. It is clearly a bubble but I just cannot tell you when it will pop. When it eventually does pop, I cannot tell you if it will pop suddenly or in a long slow hiss. I can tell you that I would not touch real estate right now. I bought a townhouse three years ago that was a short sale on the market for a year. The real estate industry was so panicked that nothing was selling. The townhouse was in great condition and I have made out well.

The market is now hitting records. Is it a bubble? I do not know. I have not received many phone calls demanding to buy. These highs can continue for some time, months even. It can continue to get higher. Eventually, the herd will run out of greed. Then the market will go down. It may go down fast or slow. It may happen around some event or the press will invent some reason.

Short-term fluctuations are meaningless. Think of the drunk staggering around a light pole. In finance, even one or two year periods are considered to be statistical junk. Over longer periods, ten years or more, these fluctuations wash out. The market then resembles the long term economy. I believe the market is relatively efficient. That means in effect that it is impossible to time the market. I do not know when the fear pits and bubbles will wear off. I do know the herd is always too late to the party.

My solution is to follow a set allocation. 20% for this fund, 13% for this other fund, etc. As the market whips, I buy and sell to keep these percentages constant. The result is that I keep your risk level constant. I have also made very decent money for clients over the up and down cycles. The clients that have made the most money are the ones who have been with me for both the up and down cycles. Interestingly enough, the fear pits are more irrational than the bubbles are. My rebalancing works. It does not necessarily work this quarter, etc. I will be rebalancing again very soon. I last rebalanced at Dow 18,011. It is now 18,400. Before I rebalance again, I want there to be a 500 to 600 points difference (18,511-18,611).

I have set up secure vaults on my website (danieldollinger.com). I’ve sent all my clients sign up invitations and can send them to you again. You can sign in on my web site with your user name and password. I will be posting reports and newsletters there. Later on tax returns, etc. I will be happy to walk you through the setup. Let me know if you need another invitation link. Let me know if you would rather keep getting paper and I will of course do so.

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 newsletter make sense? Do you agree or disagree with what I said?

Learn About My Business