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The Importance of Total ReturnAs rates remain low, many investors overlook the risks of higher-yielding fixed-income assets; instead, they should maintain low-cost, well-diversified portfolios, says Vanguard's Fran Kinniry.
Coming out of the global financial crisis, as we all know, the Federal Reserve really lowered interest rates . If you look back over the last 30 years, the yield on a portfolio, a balanced portfolio with stocks and bonds, has -
Bruno: 4% Rule a Good Starting Point, but Mind AllocationMany retirees are creating hybrid withdrawal plans--with ceilings and floors--to adjust for market volatility, but a balanced portfolio is key amid fluctuating rates, says Vanguard's Maria Bruno.
portfolio. The thought behind it is that it produces a somewhat stable income stream over 30-plus years with a high probability of not depleting your portfolio during that time frame. The big consideration in today's environment is the low-interest-rate environment. What does this mean? Does that still resonate, or what are the challenges? It is certainly a consideration, and that's a struggle for retirees today with the interest rates being so low. But if you think about it in terms of not investing for income, but investing for total return--again, thisthe surpluses. So it's really become more of an issue as the interest rates have come down. So it's really talking about this balance, and rather than investing for income, because there is danger there in -
Rising-Rate Concerns Push Investors to Noncore AssetsMay flows data show investors are putting money to work in nontraditional fixed-income holdings, as well as emerging-markets equities, for perceived better returns.
not getting the spread from potential improvements in credit. You have fixed interest rates you don't have the floating rate that the bank loans offer. So people have been very skeptical about adding money into these straight, traditional, safe core bond funds, government-bond funds. I say "safe" because they're safe if interest rates are in a flat or down-trending environment. These other nontraditional categories would be considered riskier. But they're going to hold up better when interest rates rise and in fact they did last month. So last month the PIMCO Total Return mutual fund fell about 2%. The PIMCO Unconstrainedto your portfolio. These other segments, they may hold up better if interest rates rise but they're not going to be as strong if the equity markets sell off. And so you have to ask yourself, "How -
A Dress Rehearsal for the End of QE3?MetWest's Tad Rivelle says recent swings in the fixed-income market are representative of conditions when QE3 ends, and he is eyeing asset classes with low Treasury correlations.
contracts that contingently provide the fund with payments in the event that interest rates go above a certain level. And a fourth thing is to focus on asset classes that will probably have less correlation with -
Jain: Emerging-Markets Consumer a Secular Growth StoryEmerging-markets consumer stocks are one of the few areas of long-term growth as the people are buying, eating, and drinking better, says Virtus Foreign Opportunities manager Rajiv Jain.
just get worse, if you look at what's happening in Italy and Spain ; Greece was, as you know, just downgraded to emerging-markets [status] again. Japan we feel the whole massive amount of quantitative easing may not be the solution, especially because it's an extremely leveraged country. A third of their government revenue, give-and-take, already going for debt service , and interest rates are under 1%. So, if they're successfully in raising inflation, the question is what happens to interest rates and what happens with debt service ? The United States , as you know, has massive amount of quantitative easing with zero interest rates , and how would the economy react once they sort of start tapering off? We have already started seeing some implications. So, one -
Mental Preparation for Market VolatilityMorningstar's Christine Benz offers tips on how to handle your portfolio's stock, bond, and cash stakes when markets shake investor confidence.
the money their way rather than to the hot-performing funds. Stipp: Psychologically speaking , market turbulence can really be a tough time to make good investment decisions because they're stressful. So you have some tips to psych yourself up for some market volatility , and the first one has to do again with that cash stake. Benz: Right, making sure that you have cash on handhave a manager like that working on your behalf in times of market turbulence . Stipp: Well, Christine, we hope that we don't see that market turbulence , but if things do get bumpy, we'll all be better off thanks to your tips. Thanks for joining me. Benz: Thanks, Jason. -
The Friday FiveFive stats from the Conference and the stories behind them: 10 more years of financial repression, three retirement train wrecks, 7% more dividends on the S&P, and more.
least at this conference, don't think that a huge tightening from the Federal Reserve is coming anytime soon. They said if you look exactly at what Bernanke is saying, if you look at that unemployment rate -
High-Quality High-Yielders Still the Best Game in TownJosh Peters tells markets editor Jeremy Glaser that he still sees attractive values in dividend stocks.
and even when I had the chance, I kept blowing it, is Southern Company , one of the very largest utilities, fully regulated utilities in the United States. I would also argue one of the best. It has outstanding regulatory relations in the four states it operates in: Georgia , Alabama , Mississippi, and Florida. They earn some of the highest returns on equity in the country of any regulated utility, but yet thecame back down and now just recently I was able to buy Southern Company right at its average P/E, its average dividend yield, and its average price to book multiple over the last 16 years. We've had some very high interest rates over the last 16 years, as high as almost 7% on the 10-year Treasury. I'm very comfortable paying that kind of a price for something like Southern Company here. Glaser: What's another name you like right now? Peters: Another name that's come back into buy territory for us is Clorox, -
De Vaulx: There's Still Value in JapanAfter a nasty 25-year bear market, Japan is still far cheaper than both U.S. and European equities, despite its huge rally, says IVA CIO and portfolio manager Charles de Vaulx.
towards better businesses. We're more in the Warren Buffett camp than the Ben Graham's net-net and cigar butts. We also have a clear bias toward owning stocks in companies with a significant insider ownership. Our experience -
Rethinking Retirement Strategies in the Low-Yield WorldT. Rowe Price senior financial planner Christine Fahlund discusses how low interest rates may impact annuity decisions, asset location, and the timing of Social Security.
Let's also talk about the implications of the current low-yield environment for Social Security , and why you think very low yields make deferring Social Security an even smarter move than ever. It was before, but you think it's even more so right now. Fahlund: Even more so right now, because if you know the yields on bonds, and you compare that to the formulas for Social Security , every year you delay taking your Social Security , that initial benefit goes up 7% to 8%. So that's a formula. It's not something that's dependent on the markets. You know right now that that's what you'd get. So take advantage of what you know and capitalize on it. Benz: You have also noted, though, that in other market environments, specifically down market environments, even though maybe your intention was to delay receipt of Social Security as long as possible, in some cases it might actually make sense to speed up that date a little bit. Fahlund: Itsize of those withdrawals and maintain your budget? Accelerate the payment of Social Security . If you're married, maybe accelerate the payments from one person's Social Security . Benz: Chris, it's always great to hear your insights. Thank you so much for taking the time to be here. Fahlund: It's