High Yield Retirement Portfolio

A Platinum member submitted the following portfolio for analysis.  The portfolio is designed to throw off income for a retiree and as you can see, the historical yield is a very high 4.6% so the portfolio is meeting that goal.  Take note that the portfolio outperformed the S&P 500 and did it with much lower risk.

The projected return over the next six to twelve months is 7.6% or very close to our goal of 8.0%.  This projection is assuming the S&P 500 will grow at 7.0% per year.  The projected standard deviation is 15.1% is just a tad over the desired upper limit of 15.0%.  The Diversification Metric at 36% is just shy of the 40% goal.  This is not a serious deficiency.  What do other readers have to say about this portfolio?  Would you employ the ITA Risk Reduction model to hold down volatility or would you just let this dividend oriented portfolio run?

Retirement Requirements: Stress Testing the Gauss Portfolio

Assume you are using the Gauss Portfolio asset allocation plan for your retirement portfolio and you want to know if you can survive a three sigma event just prior to retirement.  The provided link or the Dashboard shown below lays out the Strategic Asset Allocation plan for the Gauss.  What is required in the way of savings for a 40-year old who has only saved $100,000 thus far and expects to retire in 27 years at age 67 on an income of $50,000 in today’s dollars?  Inflation is pegged at 3.5% and the S&P 500 is projected to grow at 7.0% annually.  The assumption of a two to three sigma negative market decline is a reasonable assumption as it happened to many of us several times over our investing lifetimes.  The last two times we experienced a two to three sigma market decline happened in 2001-2002 and again in 2008 and early 2009.  Don’t think it won’t strike again as the same skulk of foxes are running loose in the chicken house and we tolerate an impotent SEC.

[Read more…]

Keep It Simple: And I Mean Really Simple

Yesterday I was discussing Hedrick Smith’s new book, Who Stole the American Dream, with a relative and we talked about how ill prepared Americans are for retirement.  Part of the discussion focused on some new information where I learned a group of workers in a well-known institution had an average of $50,000 saved in their 401-k plans.  Can you imagine going into retirement with so little saved?  Now to be fair, many of these workers still have years to save, but there are many who are not taking advantage of the matching funds available from the employer.  Employees are leaving good money on the table and that is foolish – if not stupid.

If a company will match 3% to 6% of your salary in a one for one match of every dollar you put into the plan, max out the employer match.  Save 3% of your salary if they will match that saving.  Never leave free money in the office of the employer.

I’ve yet to read Hedrick’s book, but I’ve been told it is must reading for every worker in this country.

How simple is really simple?  If you are a beginning investor, open up a broker account and begin to put money away in Vanguard’s Total Stock Market ETF, VTI.  Do nothing more than that.  Just use one ETF, VTI, as it will cover the entire U.S. Equities market.  Later you can branch out into other asset classes as we do in all the ITA portfolios.  But to get started immediately, begin a monthly saving plan and put all your eggs in this well-diversified ETF.  And start as soon as possible.

Follow The Golden Rule of Investing.

QPP Projections for “Swensen Six” On March 15 of 2009

What was the Quantext Portfolio Planner (QPP) software projecting for the “Swensen Six” Portfolio back on March 15th of 2009?  I use the Swensen as an example portfolio since it is simple and it includes most of the basic asset classes we use with ITA portfolios.  In addition, March 15th was about the market bottom, so it is of interest to see what the projections were when we were all biting our finger nails.  Here is the analysis as one would have found it back near the bottom of the last bear market.  After examining this screenshot, we will look at the performance figures to check the accuracy of the projections.

The future projections are for this portfolio to grow at 8.2% annually and we can expect the volatility to bounce around 15.5% per year.  If you check the Historical Data section of the analysis below you will see that this portfolio performed much better than the S&P 500 during a very rough market period.  There were 15 months of soul searching included within this three-year period.

Now that we have the future projections available, just how well did this portfolio perform over the next year as that is about as far in the future as one might expect from the QPP?

[Read more…]