Q&A: I Have Too Much Cash but I Am Scared of the Market, What Should I Do?

I have too much cash but I am feeling scared to put it into the market, what should I do?

Here is my current portfolio breakdown:

• Cash 16.5%
• International Bonds 0.8%
• US Bonds 1.7%
• International Stocks 21.8%
• US Stocks 56.7%
• Alternatives 2.5%

I know I need to dump that cash somewhere as it is growing mold and inflation will eventually eat it. I am just not sure where I should be putting it. I know it is bad to time the market but I personally feel the market will be coming down soon, and I don’t want to throw it all in along with my other cash. But I don’t want it to sit either.
Where is best to put it for the time being? CDs suck, Savings suck. What is best?

Decision paralysis is usually the result of not having an adequate plan. Your asset allocation indicates the presence of a partial plan, but it’s missing an important piece.

The missing piece is the part that that protects you from being wrong, which is a perfectly natural consequence of making decisions in an uncertain environment. Every investor spends a lot of time being wrong because the future of complex systems like markets and economies is unknowable. Being wrong is OK – if you plan for it.

For example, let’s say you found something you’d like to invest in but were nervous about the overall valuation of the market Continue reading →

Q&A: What Portfolio Would Outperform the S&P 500 Over the Past Ten Years?

What Portfolio would outperform SP500 in the past 10 years? My wife has about $120K to invest in her IRA account. We’ve looked at various portfolios out there to either use or model after, but we’ve been disappointed to find that nearly all of them underperform the SP500. And when the market crashed in 2008, all the portfolios also crashed. It nearly seems like the portfolios are merely an underperforming version of the SP500? Can someone explain or point to portfolios that either performed better than SP500 or made it through much better during the crash of 2008?

Despite ubiquitous warnings that “past performance does not guarantee future results,” questions like yours are very common. It’s part of being human. We have an instinctive tendency to judge recent events as more valid than older events. This is known as “recency bias” and has been tripping up investors throughout history.

Finding a portfolio or strategy that would have beaten the market over the last ten years is pretty easy – off the top of my head, any combination of gold and emerging markets would have worked. They both outperformed the S&P 500 over the last decade pretty handily. Of course, this is information that would have been very useful to know ten years ago.

If you are looking at investing a lump sum today, it’s the next ten years you have to be concerned with and hindsight isn’t much help here. Rather than trying to predict an unknowable future, let’s focus on a couple of priorities that are achievable: Continue reading →

Conservative Investors Should Rethink Their Reliance on Bonds

Conservative investors need to stay vigilant

As I write this today, many of my clients who consider themselves to be conservative, long-term investors are holding positions in what most people would characterize as risky investments. Securities that represent commodities like coffee and natural gas. Foreign stock markets like Greece and Spain. Junk bonds. Foreign junk bonds. You get the picture.

These investments have been made on my advice. As someone charged with the responsibility of ensuring that the investments I make or recommend be suitable for that person, these are not decisions that have been made lightly. In fact, these investments are made precisely because of that responsibility.

Conventional wisdom says that a conservative long-term investor that is primarily interested in the preservation of capital should hold mostly bonds. History tells us that this approach may seriously underestimate the substantial, long-term risks of that advice. Continue reading →

Outliving Your Money: 2.279 Billion Case Studies

Outliving Your Money
It’s said that everyone has a double somewhere in the world. That seems unlikely, in the physical sense, but I bet most of us can imagine a professional doppelganger. A retired Italian physician. A French chemistry professor. An Irish engineer. Someone with a similar amount of money, living a similar lifestyle. Someone just like us in all respects except where they live. A real person that shares our same aspirations and fears.

One of the most common fears shared by people in or near retirement is the risk of outliving their money. This is the basic reason behind most saving and investing in the first place. People want to be protected from the vulnerability that comes along with being financially dependent on someone else. Unfortunately, the investment approach many people choose for their savings sometimes ends up creating the problem they were trying to avoid. Continue reading →

Is A Fee-Only Financial Advisor Always A Better Choice Than A Broker Paid By Commission?

A fee-only financial advisor is not always a better choice than a broker. The job should determine the method of payment.

A lot of the marketing that is done by investment advisors and financial planners is focused on their form of compensation. “Fee-only” is often the primary message, placed right at the top of the home page, sometimes it’s even incorporated into the name of the firm. There’s nothing wrong with being a fee-only financial advisor, but investors should question whether or not that arrangement is always in their best interest.

The appeal of the fee-only message is that this form of payment removes the influence of transaction-based commissions or incentives. The idea is that if the advisor’s only form of compensation are the fees paid directly by the client, he is more apt to provide unbiased guidance. That idea has merit, but it’s also laughably superficial. Continue reading →