Why You Should Own Stocks And Bonds

Stock Market LossNo other asset class lives up to the long term returns of stocks. Despite that fact, most investors don’t stick it out long enough during the periods when stocks perform poorly and the big losing years tend to drive investors insane.

Of course, accepting that losses are inevitable helps to deal with the year to year results many investors obsess over. There are ways to invest, using different assets, that help make those stock losses more bearable. By combining two assets like stocks and bonds, you get a smoother ride over time because stocks and bonds don’t always move together.

Your allocation doesn’t need to be complex either. One of the most often cited allocations is a 60/40 Portfolio. It’s made up of 60% stocks and 40% bonds. How you choose to build each portion is up for debate. Continue Reading…

How Often Stocks and Bonds Move Together

Templeton Diversification QuoteWhat happens when you combine a six year bull market in stocks with low interest rates and a persistent view the Fed will raise rates soon? You get a lot of speculation that stocks and bonds might both fall in value. The big concern lately is how will investors react if stocks fall and see the bond portion of their portfolio fall too.

The idea that stocks and bonds act as a counterweight of sorts is the basis of diversification. Having that balance disappear, could cause investors to overreact and change their allocation to stem off further losses.

To that end I thought I’d dig into just how often stocks and bonds fall in the same year and what happened the rest of the time. Continue Reading…

Dividend Growth Investing Case Study

Time is the Friend - Buffett QuoteDividend investing seemed to get more popular after the financial crisis. Not that investors didn’t want dividends before then, but a good crisis can make investors rethink and change their strategy. In hindsight, the trend toward dividends makes sense. But why?

From my perspective there are a couple reasons. The financial crisis was harsh enough that investors turned toward “safer” investments.

Dividend stocks aren’t really safer than other stocks. They have their own unique risks. By safer, I mean less volatile, which generally is true, and less volatility was in high demand after the crash. Continue Reading…

Putting the CAPE Ratio Into Context

Ben Graham QuoteThe past few years has seen a growing discussion around how to best value the market. More recently, the argument turned toward just how overvalued is the market and what does it mean? I thought I’d try to answer those two questions.

Several market valuation tools have become more common since the crisis. I use the term loosely because none of the valuation tools are 100% accurate and some are terribly inaccurate. In reality, people want a market timing tool. Keep that in mind while reading further.

One of the more popular tools is the CAPE ratio (Cyclically Adjusted PE Ratio) or Shiller PE named after it’s creator, Robert Shiller. Shiller is a Yale professor who realized the market is hardly efficient, wanted a way to measure that inefficiency, and wrote a book about it appropriately named Irrational Exuberance. Continue Reading…

10 Lessons Learned From Shelby Davis

The Davis DynastyWho the hell is Shelby Davis? That was my first thought after I heard the name from a reader’s comment on recommended investing books. So I added it to my growing wishlist to check out later. Later finally happened and here’s the answer. He’s probably the best investor you never heard of.

The story of Shelby Davis is reminiscent of today. Interest rates were at all time lows. Bonds were loved and stocks were loathed. Davis did the one thing most investors wouldn’t do. He bought the most hated, boring stocks he could find and stuck with it his entire life.

Davis was an unknown. He didn’t build a company or manage a fund. He avoided the media. He only managed his money wisely. He was THE millionaire next door until the Forbes 400 list of richest Americans outed him in ’88.

Davis lived by the principles we so often forget or ignore. The Davis Dynasty shows us what’s possible even if we get started late. Continue Reading…