Real-Time Demonstration of How Rebalancing Works in a Stock Portfolio
It has been a couple of months since my last post. The reason is simple, but not as simple as the holiday season!
I prepared a series of articles for this blog but my marketing people asked me to hold off publishing them. The Gaffer Wealth System, the investing system on which the articles were based, is about to go through a massive relaunch in a much expanded format.
But there is something from it I can share with you: the practice of regular rebalancing.
The model portfolio has just had its one year anniversary and it was time to take some profits and to add to stocks that had not done so well, despite the portfolio as a whole having gained 32.7% in the past year versus the S&P 500’s 23.45% gain.
People who are hooked on foreign exchange markets or day trading may thumb their noses at such results, but the system is carefully designed to be ultra-conservative and protective of capital. It is designed to build solid retirement income and not as something with which to have fun and excitement.
Also, once a portfolio is set up, it takes a full one hour each year to look after. It’s for people who want to set it and forget it instead of being tied to their computer screens day and night.
Go to http://www.sydneytremayne.com/Dec09-rebalanced.html and you will get a demonstration of rebalancing in real time.
Write to me here and I will answer questions and comments.
The Stock Market For Beginners: Best Investment Returns and There’s Proof – Part 2
Here is Proof of Where the Greatest Gains and Maximum Safety Lie
Sydney Tremayne
In the previous article in this Stock Market for Beginners series we began to find out what the best and worst investment choices were.
So what is the best investment over time? The evidence is clear. Stocks lead the pack by a country mile over time. That does not suggest that everyone should immediately invest in stocks and believe instant wealth is bound to be theirs. You have to weigh your temperament.
It’s not always because company titans are so smart that we can make money from their shares. (We have seen them pull so many brainless stunts just in recent months. What person in touch with reality would have the gall to attend a Senate meeting to ask for a bailout – and travel in their own private jet? Sure, we don’t have our own jets, but if we had would we mere mortals have such a lack of commonsense?)
Little to do with the companies you choose
One reason we make money from shares has nothing to do with the companies themselves; inflation is the cause – and there is massive inflation ahead for the U.S. and some other countries that borrowed heavily to get through the recent recession. That money has to be paid back and one way to do this will be by printing more currency with less real value.
That is the reason the U.S. dollar is already plunging on world currency markets. The smart money knows what has to come. Forecasting this element of our future doesn’t take tea leaves or palmistry! A sinking dollar means it is less attractive to other countries. That makes imports more expensive – and that spells inflation. 1 + 2 = 3.
Inflation is a sure bet
Those who in the past have wanted to own U.S. dollars find gold and other currencies more appealing now. Inflation is not guesswork; it is a looming reality. But what about hard assets? Inflation will make them more costly to replace so the value of existing hard assets (factories, production machinery, raw materials) will rise in U.S. dollar terms and shrink in terms of most other currencies.
Shares in companies that control hard assets must also rise in value even if sales and production do not because in U.S. dollars their assets will be more valuable.
Like anything else, you need to understand the basic rules first. Beginner investing is not at all hard. It is so-called professionals who make it seem hard. Of course, we make things worse by going along with them! Consider this: if all of us realized how simple investing really is there would be no need for professionals with their mega pay checks.
Six simple strategies give almost certain results
There are about six simple no-guesses, logical, no-math, no-experience elements and you will learn them here over the next weeks.
But you don’t need to think it is just my opinion that stocks make the most profitable investment vehicle long term. The Federal Reserve Board has statistics going back to 1928. That’s the year prior to the Great Depression when the United States was enjoying what seems like one long happy pleasure trip.
Had you invested $100 in a 90-day treasury bill that year and reinvested that $100 and its return into a new treasury bill every 90 days, by the end of 2008 you would have amassed $1,964.64! This is assuming you had lived for the entire 80 years. Of course, inflation and taxation would have made your 80-year savings virtually without value today.
Relative stability of bonds has a price
So how about bonds, believed by many older investors to be more stable than stocks? To a degree, they are more stable, but at a price. Many bond investors have fixed incomes and rely on them for predictable interest payments. They hope to avoid risk.
But 1931, 1941, 1956, 1958, 1959, 1969, 1980, 1987, 1994 and 1999 among others were years when returns were negative two percent or more. Bond investors are typically timid, asking simply that their financial assets be preserved and provide reasonable interest. Most fail to realize they can be just as volatile as stocks. Gains of 20% or 30% have not been unusual during the past 80 years – along with losses of five- to more than eight percent.
How would bondholders invested in 10-year treasury bonds have made out, compounding interest? Their $100 would have increased to a slightly more worthwhile $6,013.10…minus tax and inflation.
Is there a better alternative without undue danger?
Don’t disbelieve in knee-jerk fashion
How about stocks? Stocks? I hear your strangled cry! Let’s see what would have become of that original $100 even after the worst two years in decades and after a net decline in value for the past 10 years. Add to that The Great Depression, various wars and assassinations, multiple recessions, occasional fraud and every other negative thing that could be thrown at the economy. Stocks finished 2008 with $112,868.13, all from a single $100 investment left alone. (And taxes would have been at a lower rate.)
You don’t need to be a genius or even very bright to recognize when the deck is stacked favorably. Stocks are the best investment vehicle and the safest over time. That $112,868.13 was with absolutely no thought or work. Talk about the stock market for beginners! Imagine the result with a little thought!
The Stock Market for Beginners: What Is The Safest Type Of Investment? – Part 1
You’ll Be Amazed By Which Is The Most Dangerous Over The Long Term
The stock market for beginners? Is there something else that is safer that stocks yet still profitable? What about a bank savings account in these troubled times?
Sydney Tremayne
Obviously the answer depends on your objectives and your temperament but for the average person the hands-down answer is corporate shares. The numbers alone prove it.
Of course, you’d expect me to say this; this is what I have been doing for the past 55 years. But let me share with you what the Federal Reserve database in St. Louis says. Their records begin from the start of 1928 when stocks rose a lofty 43.81% – just before the beginning of The Great Depression – to December 31, 2008.
The Fed data records returns on three-month treasury bills, ten-year treasury bonds and the stock market. In all cases, total capital invested was $100 80 years ago. The treasury bills were rolled over every three months. The ten-year bonds include capital appreciation and stocks assume dividends are reinvested.
Banks: the most dangerous investment of all
Any knowledgeable adviser will warn of the danger of investing in bank savings accounts for more than three to six months and then only with cash saved for a specific short-term purpose. Treasury bills and money market mutual funds are not much different in their results – dismal!
$10,000 saved in treasury bills over time has yielded average annual interest of just $380. Not terrific but a long way from today’s low rates. When interest rates improve once more (after all, inflation is just around the corner and will be caused by the falling dollar) banks will offer higher savings rates and think they have something to boast about. They will give just a small part of the real story in their advertisements.
They fail to mention that the IRS on average will deduct $95 as their right. On top of this there are local taxes averaging $36.86. But the biggie is inflation which, over the same 80-year period, has averaged 3.4%. There goes another $340 of your $380 of oh-so-generous income!
A guaranteed loss
For the benefit of lending the bank $10,000 so it can lend it to others at far greater rates of interest, your purchasing power declined by $91.86. That’s for one average year. Calculate that over any number of years and you will fully understand why banks and similar vehicles are dangerous places for investment capital.
Safety is not about preserving dollars; it is about protecting purchasing power. For your generosity in lending banks your cash from which they can make more cash you should be able to buy more goods in future years, not less.
In an effort to keep these articles reasonably brief I’ll continue with returns on bonds and stocks in another article. Find out where wealth is gained over the long term! You’ll be shocked by what $100 becomes even after The Great Depression and all the market plunges and recessions after it.
In the stock market for beginners, keep an eye of who’s making money off your back.
The Stock Market for Beginners: Housing Or Shares? The Age-Old Discussion Among Investors
Sydney Tremayne
Study May Be Shocking To Some Investors
For stock market beginners does housing or do shares make more money? This is an age-old discussion among investors.
I have had this conversation with many friends who have done well with real estate. For those who are successful, property is just fine thank-you-very-much!
I had the same argument with the man who shoots my videos, but for him the evidence is in his bank account. Of course people make money with real estate – if the timing is right, the buyer negotiates well, and then sells at the right time. But what about the value of houses over the long term?
Even producing reputable studies does no good.
Home prices unchanged in 100 years, now lower
Professor Robert Shiller, Yale economist co-founder of Standard & Poor’s Case-Shiller Home Price Index, is reported as saying home prices in 1990 corrected for inflation were the same as they were in 1890. The argument of course is that they don’t make more land and that land prices compensate them.
That’s quite true, but real property ages and declines in value. “Housing is a manufactured good and they depreciate,” Shiller said. “If they go up in price they will make more of them.”
He added: “Most people think they will go up in price; they are wrong.”
Shiller says there are 10 million property owners in the United States whose debt is larger than their home value and this has broad implications for how Americans feel about their wealth and spending habits.
No quick recovery seen
“The current hopeful consensus – that house prices will bottom soon and then begin to recover – is most likely a dream. Housing markets don’t usually have ‘V-shaped’ recoveries. And even if house prices stabilize in normal terms, after adjusting for inflation most people will continue to lose money.”
I know people who have had good luck with real estate, buying and selling at the best times. But investing in anything successfully and consistently requires knowing what we are doing. Or lots for luck!
Rental property, properly managed, should result in profitable investment if rents actually pay the mortgage and maintenance. But as I learned the tough way it is hard work. Also, as many know, real estate can take a long time to sell, unlike stocks that can be disposed of in seconds.
Aren’t stocks dangerous?
Giving you investment knowledge is what this series of articles is intended to do: To show you in simple terms what took me 55 years to learn about successful stock market investing.
But isn’t it dangerous? I am often asked. Sure it is if you refuse to take time to learn something about it. That applies to life.
Understand what I will teach, simple rules that take no special aptitude, and if you start in your 20s or 30s I will turn an unusual number of you into millionaires on the small amount of cash most of us waste every day without even realizing it. Start later and you will still improve your fortunes if you follow this easy plan.
It favors protection and avoids gambling. If you want thrills and spills you’re in the wrong arena. Straight and steady like the tortoise wins the rewards.
The Stock Market For Beginners: How To Save Money For Your Future When The Present Is Already Tough Enough
Sydney Tremayne
How to save money for your future was something I promised last time (before some heavy equipment smashed through all local phone and Internet lines) even if you might think it out of the question.
Now you will also find out what that little black book, the one I handed to the coffee-addicted woman, was all about. If you believe it’d take some kind of magic to help you save, here’s pure magic!
Your first step: get a small notebook that easily fits in a pocket or purse and another for your spouse (if you have one). It can be any color; black was my strange sense of humor!
For one month make a note of every single expense, usually as soon as you pay it so you don’t forget – particularly the small things like the quarter in the parking meter. Ask your spouse to do the same. But promise you will not criticize or laugh at his or her expenses; this must be a willing collaborative effort. No divorces, please!
Not easy to remember
It isn’t easy when we are distracted to remember all the small expenses, particularly if we are with someone else who has our attention, so recap your day with your spouse when you get home. Most of your savings will come from among these insignificant expenses.
It does not matter if you both write down the mortgage or other expenses. Duplicates will be taken care of later.
At the end of the month cross off your lists every essential expense: the roof over your head would be one.
Be careful to write down each item of food and its cost separately. This is essential. Just: “Food, $150,” will not be helpful. Cross off from your list only food you see as essential.
Don’t be too enthusiastic of you will fail
Your original list is now shorter. But don’t try to save the equivalent of the remaining expenses. This is not how to save money. Giving up those things you see as necessary to your lifestyle will soon result in distress and doom a savings plan to complete failure.
Get the pencil working once more and, with full agreement from your partner, decide which of the remaining expenses are significant to your lifestyle. Maybe some food items get added back in, a hobby or sport, movies. You decide: it is your life. Cross off what you want to keep.
This done, you will likely find there is a small list of expenses left. It might include pop, snacks, the “what” is not important. The exercise has shown you have some purchases you have agreed are a waste of money. This is something you have agreed to; it has not been imposed upon you.
Get you bank to help but avoid their investment suggestions
When you are in agreement, cut out those remaining purchases in the following months. At the beginning of the next month save the amount those items were costing. Do it right from your pay check before you even have that money in your hands. Ask your bank to automatically set that amount aside every month. This is how to save money without pain!
It’s easy to go through $6.67 a day. It doesn’t sound important at the time but it’s $200 a month, sufficient for a 25-year-old to retire with more than $1.1 million on a 10% return.
How do you gain 10% or more? Now you have discovered how to save money, keep reading!
The Stock Market for Beginners: No Money for Investing: Is it True?
Sydney Tremayne
“But we have no money for investing! How can we possibly save with all the bills?” That’s a common cry, especially in these times.
All the wishing in the world can’t make you wealthy if you are unable to save. That’s plain logic and for many people that unfortunately is their situation.
So let’s not start right away by demonstrating how to invest successfully; there’s no point if you have no money for investing. Let’s start with where the money comes from and then, if we can overcome this hurdle, we’ll talk in future articles about how to make that money grow carefully, cautiously, and with just one hour of your time each year. The lack of work is no exaggeration.
Want to be sure of retirement savings?
In the process, we’ll find ways to get rid of investment worries, deal with bear markets and defeat our worst enemies: panic, greed and impatience. What I talk about is not for everyone – no single answer ever is – but it is for people who simply want to save with some assurance those savings will grow sufficiently for that dreamed-of retirement.
There is one thing you can be sure of, and can prove to yourself before even investing a single penny: it works and it works well.
Now let’s get back to where the money comes from to begin with. With an income of $30,000 or better – even with bills, bank loans, food, baby formula and housing to be paid for – I might be able to help you.
Visited by a nervous woman
The tale begins when a nervous woman visited my office one lunch hour. She had massive debt and feared she would lose her husband.
During our conversation she told me she bought as many as five or six cups of takeout coffee each working day. I don’t remember the cost each month but it was chunk of change. You do the calculation over 20 working days!
I suggested she should use a Thermos®, a can of her favorite coffee, and make her daily needs before leaving for work. The hundreds of dollars she would save each month could begin to pay off her high-interest credit cards. Meanwhile, she would not suffer caffeine withdrawal.
A little black book
I also gave her a little black book; you’ll hear more about it in the next article in this series. It’s pure magic for people who think they can’t save money for investing!
People in financial difficulty are not the only ones who sometimes need help with their savings plan. A professor and his piano-teacher wife came to see me. After telling me when they wanted to retire and how much they needed, I did a series of calculations of the sort I now show people just like you how to do. When they came back, I told them: “You need to save $600 a month.”
The immediate response was: “Oh, we can’t do that!” I nodded, putting on my understanding face. “Then you need to change your goals.” “But we can’t do that either!” his wife gasped.
Silence while they considered options
We sat in silence for a while, while they considered their options. “Well…if we start to save can we change the amount later?” I assured them they could and then added: “It’s amazing, but by the end of three months you will discover you don’t miss the cash.” I’d seen it often enough.
About four months later, the woman came back. I thought silently as she was shown into my office: “Oops, I guess $600 was too much.” Instead, she gave me a wide smile and said almost breathlessly: “That $600? You were right; we could even save more!” With the greatest pleasure I told her she didn’t need to. “Go out and spend the extra!”
Some years later, they retired with about $960,000 that would grow to well over $1 million. They had also bought a new car for cash and took a cruise to Alaska. From small beginnings, entire lives can be changed.
It’s a lot easier than you think
Most of us fail to recognize how easy and uncomplicated it can be to put money for investing aside. There’s a sure-fire trick to it that I’ll tell you about next time when I reveal how to easily find cash you didn’t realize you had to build for your future.
The Gaffer Wealth System Click the link to see how amazingly easy it is to be a successful investor working only one hour a year. Tremayne’s entertaining multimedia investment course reveals insider secrets bankers will not tell you.
The Stock Market for Beginners: Cutting the Learning Curve
Sydney Tremayne
The stock market for beginners looks so easy at first but I remember how stupid I felt later!
It was my first time “investing”. I felt so worldly!
I was 20, living in a single room in a rooming house with a pet alligator. I had £20 in a savings account at the main branch of one of the largest London banks.
Imagine this place: dark polished wood, glittering brass, dim lighting, a ceiling several stories in the gloom above…a place where whispers seemed more appropriate than normal conversation, where staff glided from place to place as if wearing slippers.
How times have changed!
I called the manager from a pay phone. The manager! Of a place like a cathedral! And he actually answered the phone. No gatekeeper: here was the Big Cheese himself!
“I have some money,” I said, “and I want to invest the entire amount. What do you recommend?”
I had no idea until years later when some were brokerage clients of mine that most bank managers know little or nothing about stocks. I just assumed that since banks dealt with money their managers must know how to invest it.
He recommended a South African goldmine that I later discovered was so obscure it was listed in just one paper in Britain – the most expensive one specializing in investments and written in a language half of which I did not understand. It certainly did not explain the stock market for beginners.
With the same forward movement as a rocking horse
For a month I watched this silly South African stock rise a penny only to fall a penny the next day, over and over again while I spent many pennies daily on a newspaper so I could read one tiny line of type.
A month later, I called the bank manager again. “I don’t think this stock is very good. Please sell my entire holding!”
How he didn’t bust a gut laughing I will never know. British bankers must starch and iron their faces!
That was 55 years ago, the beginning of a wildly successful private and professional career as an investor.
Helping you to avoid my mistakes
The Stock Market for Beginners and other efforts today are devoted to helping you to avoid all the many mistakes I made. When you realize that a 25-year-old must save twice as much as a 20-year-old to get the same result in retirement (and a 29-year-old must save three times as much) you understand the value of time and the importance of starting out early and with as few mistakes as possible.
Investing successfully is easy! Forget all the mumbojumbo fed to us by a self-important investment industry that would be out of business if everyone knew how easy it truly is.
We will strip down in this space to bare and simple essentials. The rules I will provide you are logical and most can be proved with a basic pocket calculator. You need no degree (or particular amount of intelligence).
You will learn a system to protect against inevitable falling markets and the panic they cause. You will discover how to take control of your own financial future instead of leaving it in the hands of a commission-based salesman. You will learn in a few weeks what took me 55 years to learn.
As we go along, please ask questions and I will do my best to answer them; just don’t ask for my latest stock tip. You will learn how easy it is to choose stocks for yourself – and how little the selection really matters under the protective conditions I will give you. Those who spend their time agonizing over choices largely waste that time; there is a better way.
If you’re looking for instant wealth you will not get it here. If you want excitement, thrills and spills, you won’t get them here. But if you want a cautious, patient approach that will bring you better returns than you likely get now, or if you’re in your 20s or 30s and you want a sensible shot at retiring a millionaire, you are in the right place.
All this on one hour a year – just a single hour a year – of work. Think this is unbelievable?
Welcome to The Stock Market for Beginners (and for those honest enough to know there is still more for them to learn). Click on the orange RSS button to be alerted when each new post is made.
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