The False Promises of Annuities and Annuity Calculators
with 4 Comments

The entire selling point of the immediate fixed annuity is a lower return in exchange for a guarantee. But when analyzed, the purchase price is a loss from which you can never recover.

Valuable Property
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“Real estate investment trusts should be much more than an optional selection in a balanced investment portfolio.”

Muni Forecast: Lots of Clouds
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“A growing link between municipal bond and U.S. stock performance could be very bad if equities fail to rise robustly over the next few years.”

Investing In Gold
with 1 Comment

Direct ownership of gold has become more popular, despite some lingering fear that the government could again ban private gold ownership. With ongoing concerns about the global financial system and gold hitting a record high, many people are interested in this “safe haven.”

Four Reasons Convertible Bonds Are Flawed
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Generally speaking, financial complexity is a curtain behind which the finance industry can extract its fee. When the curtain is pulled back, convertible bonds fail to add value for four specific reasons.

Hedge Funds Trail Vanguard Index Funds
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In another edition of “you can make the numbers say whatever you want” two financial industry studies are contradicting each other.

Technology Sector Doing the Best YTD, Energy the Worst
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Sector rotation would suggest that we are still at the beginning of a market recovery. This is probably the bottom of energy stocks.

Risk – Return Decisions
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Portfolio construction begins with the most basic allocation between investments that offer a greater chance of appreciation (stocks) and those that provide portfolio stability (bonds). There is no such thing as a safe investment that pays market rates of return.

Emerging Market Bond Funds
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Emerging market bonds are an attractive way to get a higher yield, but historically they have come with higher volatility and a high incidence of default. But that has been changing.

Radio: Ten Best ETFs of 2012
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David John Marotta was interview on radio 1070 WINA’s Schilling Show discussing why you shouldn’t hold gold or cash, how governments can destabalize economies, and what investments you should hold instead.

$ ?s: Three Reasons to Be Thankful You Avoided the Facebook IPO
with 1 Comment

Huge financial incentives motivate a newly minted public stock to attempt to keep their best foot forward just long enough for the early investors to maximize their profits.

How Have Emerging Market Equities Performed?
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I was on the radio today and someone called in claiming that Vanguard Emerging Market ETF (VWO) had done nothing but go down in value.

Mailbag: I’d Like to Withdraw Money from My IRA to Purchase Physical Silver
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Precious metals will, on average, just keep up with inflation, but your after tax return would mean you fell behind inflation by the 28% tax you must pay.

When Large Cap is Relatively Cheap It Will Outperform Small Cap
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Currently large is relatively cheap and small cap is relatively expensive. For that reason, the R1000 or S&P 500 should outperform the R2000 small cap.

Shiller P/E Implied Market Return
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A low P/E 10 bodes well for the next 20 years of investing, whereas a higher P/E 10 suggests a lower expected return.

How Is the Shiller P/E Calculated?
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The Shiller P/E ratio is computed by taking the current price and dividing by the average inflation-adjusted earnings from the previous 10 years.

Why Is the Regular P/E Ratio Deceiving?
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The highest peak for the regular P/E was 123 in the first quarter of 2009. It was much higher than the historical mean of 15, yet it was the best time in recent history to buy stocks.

The Shiller Ten-Year P/E Ratio
with 2 Comments

What we would really like to measure are the changes in price (P) that cause a company with a good long-term track record to look relatively cheap. Economist Robert Shiller created just such a measurement.

Style Boxes and the Efficient Frontier
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The Marotta allocation method is a proportionally weighted allocation based on the square of each Sharpe ratio. Squaring the Sharpe ratio drastically reduces asset categories in proportion to their distance from the efficient frontier.

$ ?s: Dividend Portfolios Carry Hidden Risks (Part 2)
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Q: Do you recommend dividend-paying stocks? If not, what investment strategy do you recommend for retirees like me who are seeking income from our portfolios?

Asset Allocation and the Efficient Frontier
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Crafting portfolio asset allocations is a combination of art and engineering. Just as a blending of colors can produce cerulean, so a blending of indexes produces a unique shade of risk and return.

$ ?s: Dividend Portfolios Carry Hidden Risks (Part 1)
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Dividend investors are too easily lulled into the temporary comforts of portfolio income.

Capital Gains Tax Rising
with 4 Comments

Starting in 2013, pending further legislation, the capital gains tax will go up to 20%.

The Efficient Frontier
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The efficient frontier measures all investments on a scale of risk and return. Risk is commonly placed on the x-axis, and return is placed on the y-axis.

Buffett is Winning $1M Wager with Hedge Funds
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Buffett estimates that he has a 60% chance of winning. This is in line with statistics suggesting that low cost funds beat high cost funds more than half the time.

Double-Taxed Dividends: Going Up
with 2 Comments

The qualified dividend tax rate is currently at a maximum of 15%, as are capital gains. Starting January 1, 2013, dividend tax rates will go up to the investor’s ordinary income rate.

Value: The Third Factor of Investing
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A stock’s valuation is measured on a continuum from “value” to “growth” In broad strokes, value stocks are cheap and growth stocks are expensive.

Size: The Second Factor of Investing
with 2 Comments

The second factor of investing is size as measured by a stock’s total capitalization. Over time small cap will outperform large cap even after factoring out measurements of volatility.

CAPM: The First Factor of Investing
with 7 Comments

Modeling investment returns seeks to find an equation to predict your expected returns as much as possible. The simplest equation for the markets would be “Return equals 11.71%.” This has been the average return from 1927 through 2010, the zero factor model.

$ ?s: Secondary Annuities Are Second Class
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Once you buy this product, you’re stuck. All structured settlement transfers must take place through a court order…

Freedom Investing 2012
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Now at year end, I will review how freedom investing fared in 2011 and in the decade since 2002.

In My Dream I Explained Why 2011 Was Not a Financial Mulligan
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I had a dream in which I saw a map similar to the one above and I heard myself explaining why 2011 was not a financial mulligan

Are All ETFs Created Equal?
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Much of the recent conversation about ETFs has to do with the hidden risks of “synthetic ETFs,” risks which are not present in their mundane relatives known as “physical ETFs.”

Mailbag: How Do You Measure How Far Out of Balance a Portfolio Is?
with 2 Comments

We compute an asset allocation deviation or “out of balance” number for each household’s primary retirement assets and rebalance to lower this number.

Foolish Ideas
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“Successful active management is a fantasy stoked by the financial services industry.”

$ ?s: Investment Advice for Those Who Don’t Need the Money
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Q: I am a 65-year-old retired widow and I have a large IRA. How should I invest if I don’t need this money?

Indexing Works
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“Many investors think active managers can shift out of stocks in time to stem losses in bear markets. Not true.”

Debt, Uncertainty and Volatility in 2011
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The world markets groaned as the burden of the rising American debt and the European deficit weighed down more productive countries.

The House That Bogle Built
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Learn about the index preferred by the person who invented index funds with the Vanguard S&P 500. And no, it isn’t the S&P 500.

The Devil’s Invention
with 1 Comment

“A blindfolded chimpanzee throwing darts at The Wall Street Journal can select a portfolio that can do just as well as the experts.”

Being Reasonable
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“One of an advisor’s greatest challenges? Directing client expectations – and meeting them with portfolio performance.”

Book Review: The Investment Answer
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When Gordon Murphy, an investment banking veteran, was told he only had six months to live, he decided to use his last days to write a book aimed at changing the way most individual investors think about investing.

The Talmud Strategy
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“Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.”

$ ?s: The Quagmire of Socially Responsible Investing
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Q: I would like to see a portion of my investments make a difference in the world. Can you suggest an approach to socially responsible investing?

Dangerous New Rules if You Use Average Cost Accounting for Mutual Funds
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New rules go into effect January 1, 2012 which change the way you need to compute the cost basis for mutual funds if you use average cost accounting. We recommend you change the method you use to something which allows better tax management.

Investing Mostly in Bonds Means a Lower Lifestyle in Retirement
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In the midst of this turmoil, especially after this past summer’s sharp drop, many investors wonder if they should put all of their investments into something safe and avoid the markets altogether.

Mailbag: My Home is 32 Times What I Paid for It. Isn’t that an Investment?
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Although the house does not pay me any money on an ongoing basis, I think it will represent a very good return on my money invested should I decide to sell.

Is My House an Investment?
with 1 Comment

Just because something costs a lot doesn’t mean it is an investment. An investment is something that pays you money.

Money ?s: Shorting Uncle Sam’s Debt
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Q: Is it now time to short Treasuries? What do you think about using inverse ETFs to play the inevitable bear market for U.S. bonds?

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