3 Ways To Avoid Going Off A Stock Market Cliff With The Buy-And-Hold Herd

Published October 21, 2014

The stock market is teetering right now. The S&P 500 fell below its 200-day moving average on October 13. I think more investors — especially older ones — should sell equities if we are still below this mark on Halloween.

That advice is probably going to upset some respectable people. In a Bloomberg interview last month John Bogle — Vanguard Group’s venerable maestro of passive strategies — once again extolled the wisdom of buy-and-hold investing. Small investors who actively trade in and out of the market, Bogle said, “are going to cut their own throats.”

Bogle published his famous book, Common Sense on Mutual Funds, in 1999 — at the end of what had been a long and steady bull market. At that time, the numbers did paint a nice picture of the benefits of passive investing. Bogle pointed out, in a chapter called “On Indexing,” that the S&P 500 had “outpaced a stunning 96% of all actively managed equity funds.”

Plenty of academic research backed that view. And Bogle’s refrain — stick through the rough patches and you’ll come out OK — has become an anthem for Baby Boomers readying for retirement. But have you noticed that the other voices from the passive-investing choir become a good deal fainter when the stock market symphony hits a crescendo and starts to drop — as it has over the past few weeks?

The last decade has seen some pretty perilous falls, so it’s no wonder that people begin to choke up when they think we’re in for another round. No matter how much investors like to sing the buy-and-hold tune, it becomes a lot harder as the market heads down. In fact, recent research from Morningstar has shown that the average mutual fund generates higher returns than the individual investors in the funds themselves earn.

One reason for the discrepancy: human psychology. Few people have the discipline to execute a true buy-and-hold strategy. They get too excited and buy into late-stage bull markets and get frightened when the market falls, bailing out at what ends up to be the near bottom of a bear market.

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Why Apple's New Bonds Are Less Juicy Than These 5 Junk Bonds

Published August 18, 2014

It happens every month or two. I get a slightly nervous call from one of my newer clients. Why, they ask, are we investing in high-yield bonds? Why take the risk?

Why not, they ask, put everything into “investment grade” bonds from the U.S. government? Or perhaps a corporate titan, like Apple?

Good old Apple. In April 2013 it issued a record-breaking $17 billion in bonds that were rated AA-plus—as solid as the U.S. Treasury’s.

The company reportedly turned away $30 billion in

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Microsoft, Intel, GE, Attract Dividend Seeking Retirees, But Are They Bad Bets For 2014?

Published January 3, 2014

Retired investors think they need income, which often leads them to favor large-cap value stocks paying fat dividends. Except, as Investment Strategies columnist William Baldwin has repeatedly pointed out, it’s not “income” you need in retirement, but cash, and you can get cash by selling appreciated stocks. Moreover, when you’re investing through a taxable account (i.e. not an IRA or 401k), taking capital gains is more tax efficient than receiving dividends, since you can offset capital gains with capital losses and can control when you realize income.

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6 Pointed Questions To Ask Before Hiring A Financial Advisor

Published September 20, 2013

Despite what you might read elsewhere about managing your own finances, it is often a good idea to get some help. It’s for roughly the same reason you hire an attorney. You don’t have the skills to handle a divorce or a property dispute.

First, though, you need to understand a little bit about the mind-bending terminology Wall Street uses to describe those who want to help you enlarge your nest egg. This basically comes down to two words: advisor and broker.

An advisor is a professional you hire to pick stocks, bonds, real

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Why Do Colleges And Charities Speculate With Your Donations?

Published March 1, 2013

A lot of attention is paid to how efficiently charities spend the public’s donations. Indeed, it has long been a focus of the Forbes Largest U.S. Charities list. But in this guest post, veteran investment manager Kenneth G. Winans raises important questions about how not-for-profits invest your contributions in the years before they spend it on their missions. He points to new data showing that operating charities, foundations and universities have all been increasing their exposure to higher fee alternative investments, including hedge funds.

Winans’ answer is to take a cue from Microsoft co-founder

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How To Fix Your Lousy 401(k) Retirement Plan: Pool It, Like a Pension Fund

Published October 11, 2012

Worried that your employees aren’t getting the return they should from their 401(k) savings? You could steer them into the target date funds offered by the likes of Fidelity, Vanguard and T. Rowe Price. Or, you could offer them the sort of managed accounts pioneered by Financial Engines. But in this intriguing guest post, veteran investment manager Kenneth G. Winans argues that there’s a better alternative.

If you’re an entrepreneurial business owner, you’re probably not inclined to crib a

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Bond Funds Are For Losers, Be A Winner With Your Own Ladder

Published June 19, 2012

The great corporate-bond bull market continues unabated with the Dow Jones Corporate Bond Average up 46 percent since 2008. The iShares iBoxx Investment Grade Corp. Bond (LQD) ETF is up 4.5% year-to-date. The below-investment grade has stayed above water, with the SPDR Barclays Capital High Yield Bond (JNK)ETF and iShares iBoxx High Yield Corporate Bond (HYG) up 2.8% and 3.5%, respectively.

If you have decided that the stock market is too volatile and that you want to switch to the historical safety of bonds, you are not alone. The baby boomers are retiring and need investment income,

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Foreign Stocks Look Like Junk, Step Up To American Quality

Published January 9, 2012

Investors in foreign-stock funds got hammered in 2011. Exchange-traded funds in developed countries shed 14% of their value on average. The MSCI EAFE Index ETF dropped 12.2%.

Emerging-market ETFs got hit even harder: Brazil (down 26%), Russia (down 31%), India (down 37%) and China (down 20%).

Meanwhile, the S&P 500 produced a total return of 2%, including dividends. The S&P MidCap 400’s total return was negative 2%.

This kind of breathtaking underperformance by foreign-stock ETFs was not what their boosters have been projecting.

In 2008, when many overseas stocks were near record highs, you’d hear talk of how America was going the way of Japan, perhaps even the Roman empire. Investment advisors would wave pie charts in our faces and insist that it was essential to move a goodly chunk of our portfolios into foreign stocks.

Doing so, they said, would increase our returns and reduce portfolio risk.

Those pie charts guys were wrong. Some are changing their minds. Those who are sticking to their guns are still wrong. Go ahead and sell those volatile foreign funds and use the proceeds to buy U.S. blue chips instead.

You can start with low-cost ETFs that track the S&P 500 and the S&P MidCap 400. Then, consider picking up the handful of stocks in top performing U.S. companies that derive much of their revenue from foreign countries. I recommend Apple, Chevron, Nike, McDonald’s and Praxair.

First, let me explain why I’ve become such a naysayer on foreign-stock ETFs.

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Bearish Warning From A System That's Beaten Buy-And-Hold Since 1979

Published September 8, 2011

Is a buy-and-hold strategy for suckers? Some data seem to say so, and to add that now is a great time to exit the stock market.

If you’re a buy-and-hold investor, you’ve tried mightily to ignore the market’s gyrations since 2010. You may be in dwindling company. The Investment Company Institute reported last month that investors withdrew $10 billion from domestic stock funds in the week that ended Aug. 3, double the amount of selling in early July. And a survey of individual investor sentiment by Decision Research in Eugene, Ore., showed investors in a dark mood, with 58% of them convinced that the poor outlook for stocks and other financial challenges would limit their “objectives in life.”

For now, the majority of small investors still do hold

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Low Ratings, Hidden Treasures: Bonds You Need To Own

Published May 31, 2011

A major economic meltdown should spark a revival of common sense as investors wise up to the faulty ideas that led them to disaster.

So why does anybody still listen to the credit-rating agencies?

Standard & Poor’s and Moody’s Investors Service cheered the credit bubble right up until it burst, and yet investors continue to trust their declarations about which investments are safe (rated with at least one “A”) and which are not (rated “BB+” or worse).

Does nobody recall that both ratings agencies assigned triple-A ratings to what turned out to be toxic mortgage bonds issued by Fannie Mae and Freddie Mac, the Sodom and Gomorrah of the housing mess?

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Forget The Dogs, For Rich Income Look To Dow Preferreds

Published March 8, 2011

It’s been heartening to see American stocks roar back from the great meltdown of 2008. Unfortunately, just when it feels safe to invest with U.S. companies again, everything is expensive—especially if you’re hungry for rich income.

The Dow Jones industrials pay an average dividend yield of 2.5%. Five-year Treasury bonds pay 2.4%. Single-A-rated debt due in 2016 pays a measly 3%. Even the “Dogs of the Dow”—the 10 highest-yielding stocks in the Dow Jones Industrial Average—pay an average dividend yield of just 4%.

For anybody hoping to live on the cash flow from investments, these are discouraging numbers. Even worse: Those 2% to 4% yields are pre-tax.

If your capital is going to earn you a living, it will likely need to produce 5% to 8% yields. You can tease that kind of income out of your investments. The secret isn’t buying junk bonds, or shares of the weakest real estate investment trusts. It’s an alternative security that most of us forget: the blue-chip preferred share.

The preferred share is the platypus of the investing world. Like a bond, it pays a fixed income, but, like a stock, the dividend can be suspended if a company has a financial emergency. In that case, the company will promise to resume paying the preferred dividend plus any missed payments once its business improves.

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Winans Investments 2015 Conference at the Marin County Country Club - Part 1 of 3 featuring Stephane Fitch, Fitchink

Winans Investments 2015 Investment Conference at the Marin Country Club - Part 2 of 3 with Richard Peterson, M.D. MarketPsych

Winans Investments 2015 Conference at the Marin County Country Club - Part 3 of 3 featuring CEO Ken Winans