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Re: what is risk?

You made the bold statement that the variance of one year or even ten year is irrelevant if your holding period is 20 years. I'm asking for an example where in fact that is true in the context of a Boglehead like you or I. After all I can estimate the 20-year sigma in my head from the 1 year sigma,...
by Kevin M
Tue Sep 30, 2014 8:06 pm
 
Forum: Investing - Theory, News & General
Topic: what is risk?
Replies: 108
Views: 3695

Re: what is risk?

Point two is true but violates the assumptions of the question. :) Namely someone setting up an asset allocation of funds (so presumably rebalances in some fashion) and using bond funds not individual bonds. One of the reasons to build TIPS ladders is in real terms and in terms of selling early (mi...
by Kevin M
Tue Sep 30, 2014 12:34 pm
 
Forum: Investing - Theory, News & General
Topic: what is risk?
Replies: 108
Views: 3695

Re: what is risk?

Grayfox explained an important point. I'd like to elaborate on that point a bit. The academic definition of investment risk is uncertainty of expected return over the investor's holding period. If your holding period is 20 years, then risk is the variance of of your expected investment return at the...
by Kevin M
Mon Sep 29, 2014 7:03 pm
 
Forum: Investing - Theory, News & General
Topic: what is risk?
Replies: 108
Views: 3695

Re: Why not 100% CD's?

TIPS do provide more certainty than CDs in real terms. The problem is that a 5-year TIPS provides certainty of about a 0% real return if held to maturity, and has term risk that could show up if real rates increase much in the next few years. I Bonds are much better, with a real yield of close to 0%...
by Kevin M
Sun Sep 28, 2014 6:35 pm
 
Forum: Investing - Help with Personal Investments
Topic: Why not 100% CD's?
Replies: 73
Views: 4953

Re: IRA Beneficiary - Should a Trust ever be the beneficiary

Thanks for your insight. I was advised by members of this site to keep my 401K and Roth IRA separate from my will. I'm working with Vanguard and the administrators of my 401K to list beneficiaries. I have two heirs - my brothers. The Vanguard CS told me that if the one died first, 100% would go to ...
by Kevin M
Sat Sep 27, 2014 7:48 pm
 
Forum: Personal Finance (Not Investing)
Topic: IRA Beneficiary - Should a Trust ever be the beneficiary?
Replies: 22
Views: 1491

Re: IRA Beneficiary - Should a Trust ever be the beneficiary

If I keep the IRA's out of the trust and my wife and I name each other as beneficiaries with the kids as secondary beneficiaries, we could stretch the payout over quite a few years. So, assuming one of us becomes the owner of a beneficiary IRA, this can be stretched according to IRS tables for the ...
by Kevin M
Sat Sep 27, 2014 7:35 pm
 
Forum: Personal Finance (Not Investing)
Topic: IRA Beneficiary - Should a Trust ever be the beneficiary?
Replies: 22
Views: 1491

Re: Read too many books... help untangle

I was thinking of publishing a blog post titled, "The More I Learn, the Less I Know". I personally tilt to small and value, but have less confidence that it's the right thing for me to do than I did a few years ago. As I went beyond reading "retail" investment books, and started ...
by Kevin M
Sat Sep 27, 2014 6:53 pm
 
Forum: Investing - Theory, News & General
Topic: Read too many books... help untangle
Replies: 35
Views: 2401

Re: Why not 100% CD's?

Then the question is how many CDs can you purchase at one credit union and stay under the 250K insurance protection. Would you put the full 250K in a taxable CD? In a taxable account, you can easily get FDIC/NCUA coverage of up to $1.25M by using POD accounts with a total of five beneficiaries. The...
by Kevin M
Sat Sep 27, 2014 4:12 pm
 
Forum: Investing - Help with Personal Investments
Topic: Why not 100% CD's?
Replies: 73
Views: 4953

Re: Why not 100% CD's?

The529guy, thanks for the links, but I'd already read those and, unless I missed it, there's nothing in there about whether individuals can buy the maximum annual amount of ibonds with their own social security number (say $20k), and then in the same year buy an additional $20k with their trust tha...
by Kevin M
Sat Sep 27, 2014 4:00 pm
 
Forum: Investing - Help with Personal Investments
Topic: Why not 100% CD's?
Replies: 73
Views: 4953

Re: Chartway offers 2.5% 5-year CD, only 90 day penalty!

Is there confirmation that the penalty is only 90 days? I can't seem to find it listed anywhere. I just searched through the disclosures on the web site, but could not find anything about it. I posted this question in the forum thread at DepositAccounts.com ( 2.52% APY 5 Year CD, Chartway FCU. Quic...
by Kevin M
Sat Sep 27, 2014 3:41 pm
 
Forum: Investing - Theory, News & General
Topic: Chartway offers 2.5% 5-year CD [with uncertain terms]
Replies: 12
Views: 2162

Re: Why not 100% CD's?

My current AA is 30/70. OK, so same as mine. Have you evaluated your risk tolerance in terms of ability, willingness and need to take risk? Using that framework, your posts make it sound like like your willingness to take risk may be decreasing. It also seems that perhaps you don't have the need to...
by Kevin M
Fri Sep 26, 2014 9:00 pm
 
Forum: Investing - Help with Personal Investments
Topic: Why not 100% CD's?
Replies: 73
Views: 4953

Re: Why not 100% CD's?

What is your current AA? My preference is to make AA changes gradually. Although I now have about 50% of my portfolio in direct CDs, I got here by gradually selling bond funds as rates dropped and prices rose, and using the proceeds to buy CDs. I also have been buying CDs when rebalancing out of sto...
by Kevin M
Fri Sep 26, 2014 3:43 pm
 
Forum: Investing - Help with Personal Investments
Topic: Why not 100% CD's?
Replies: 73
Views: 4953

Re: Chartway offers 2.5% 5-year CD, only 90 day penalty!

Excellent rate and early withdrawal terms! You can read some reviews here: Chartway Federal Credit Union Reviews and Rates $10K minimum to get the 2.5% rate. A forum post has been made at depositaccounts.com, 2.52% APY 5 Year CD, Chartway FCU. Quick Look. , but no blog post yet by Ken Tumin, and thi...
by Kevin M
Fri Sep 26, 2014 3:09 pm
 
Forum: Investing - Theory, News & General
Topic: Chartway offers 2.5% 5-year CD [with uncertain terms]
Replies: 12
Views: 2162

Re: New VG upgraded account feature - shows "in progress"?

I haven't yet been offered the opportunity to upgrade to the merged system, but have been seeing the "IN PROGRESS" indicators. I actually found it a little confusing at first, since this indicator appears for brokerage holdings that have open limit orders (for which there's nothing really ...
by Kevin M
Thu Sep 25, 2014 3:09 pm
 
Forum: Personal Finance (Not Investing)
Topic: New VG upgraded account feature - shows "in progress"?
Replies: 13
Views: 1016

Re: What 3 funds should I have in my taxable account?

I'm looking for advice as to what 3 funds I should carry in my Vanguard taxable account. Right now I have VBTLX, VGTSX, and VTSAX. However, from what I've gleaned on the forums one should not carry VBTLX in a taxable account? I'm looking at suggestions as to what I should replace it with? Also woul...
by Kevin M
Wed Sep 24, 2014 6:47 pm
 
Forum: Investing - Help with Personal Investments
Topic: What 3 funds should I have in my taxable account?
Replies: 8
Views: 1404

Re: The Case Against Mid Caps? (Say it ain't so!)

For Vanguard funds, mid-cap is much closer to small-cap than it is to large-cap, both in characteristics and performance. For example, check out the relative market capitalizations: http://s28.postimg.org/855kmbv0d/Market_Capitalization_VG_small_mid_large_tota.png As far as mid-caps being unloved, V...
by Kevin M
Sun Sep 21, 2014 12:50 pm
 
Forum: Investing - Theory, News & General
Topic: The Case Against Mid Caps? (Say it ain't so!)
Replies: 23
Views: 2590

Re: Vanguard SV/SG funds vs. CRSP indexes

Don't know how this affects your result but Vanguard has a history of switching indexes making long term statistical analysis problematic ... Yes. As I said in the OP, part of the motivation for doing the analysis was to compare the actual funds' performances and factor loadings (over a time period...
by Kevin M
Sat Sep 20, 2014 1:08 pm
 
Forum: Investing - Theory, News & General
Topic: Vanguard SV/SG funds vs. CRSP indexes
Replies: 7
Views: 646

Re: Fama: Active Management a Bad Bet

Interesting (to me) quotes: He spoke about the idea of isolating various risk factors within a portfolio--sometimes called strategic beta or smart beta strategies--and said that, while real, such "dimensions of risk" are still not well understood. He said such factor-based investing works,...
by Kevin M
Fri Sep 19, 2014 5:09 pm
 
Forum: Investing - Theory, News & General
Topic: Fama: Active Management a Bad Bet
Replies: 3
Views: 646

Vanguard SV/SG funds vs. CRSP indexes

In various discussions about the relative performance of Vanguard small-cap value and small-cap growth funds, the impact of using different indexes over the years has been mentioned as a factor. For example, it has been pointed out that doing regressions of the funds on the Fama-French factors is no...
by Kevin M
Fri Sep 19, 2014 4:22 pm
 
Forum: Investing - Theory, News & General
Topic: Vanguard SV/SG funds vs. CRSP indexes
Replies: 7
Views: 646

Re: Let me get this straight about SCV & factor diversificat

My goal is to do everything online from a Chromebook if possible, so found a site that would execute R script online, and used that. I just stumbled on a Google sheets function that generates the linear regression outputs: LINEST. I tried it, and it generates exactly the same regression coefficient...
by Kevin M
Tue Sep 16, 2014 2:31 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9172

Re: Let me get this straight about SCV & factor diversificat

First output looks like R, right? Yes. I am a complete novice on this, and simply copied the R script from a tutorial on http://www.CalculatingInvestor.com (very cool site, which I'm now digging through), and did slight modifications as necessary. My goal is to do everything online from a Chromeboo...
by Kevin M
Mon Sep 15, 2014 10:47 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9172

Re: Let me get this straight about SCV & factor diversificat

Ketawa, point taken about the changes in indexes. It would be interesting to see regressions of the returns on the different indexes that Vanguard's value funds tracked in the past vs. the CRSP indexes they are tracking now. At least this would help us understand how much of the puzzle is explained...
by Kevin M
Mon Sep 15, 2014 6:15 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9172

Re: Do I need to hold my emergency fund in cash?

If you have enough in taxable accounts, I don't think it's necessary to think in terms of "emergency fund"; I never did. You do need to think about liquidity, which in my mind includes not having to sell an asset at a disadvantageous time. I'd prefer not to sell stocks after a big decline-...
by Kevin M
Sun Sep 14, 2014 6:56 pm
 
Forum: Investing - Help with Personal Investments
Topic: Do I need to hold my emergency fund in cash?
Replies: 29
Views: 3286

Re: The dangerous practice of rebalancing...

What I've read, and it seems reasonable, is that there can be a decent rebalancing bonus in volatile markets without a strong, longer-term trend, but rebalancing is more likely to work against you in long, trending markets. It seems that we were offered some excellent opportunities to generate a reb...
by Kevin M
Sat Sep 13, 2014 10:51 pm
 
Forum: Investing - Theory, News & General
Topic: The dangerous practice of rebalancing...
Replies: 191
Views: 13995

Re: Let me get this straight about SCV & factor diversificat

Kevin, this whole ex post regression thing is not that reliable. Look at the 95% confidence intervals the PV site gives you when clicking detailed stats. Usually you better better results with a so called holdings based analysis. Morningstar does this for their style boxes, for example. Our problem...
by Kevin M
Sat Sep 13, 2014 10:26 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9172

Re: Why is REIT only sector fund recommended in slice & dice

This thread is drifting way off topic. There are many threads on tilting to small-cap and value stocks; probably one started almost every day. We are well into page 3, and OP has not participated since page 2. Perhaps the thread has run its course.

Kevin
by Kevin M
Sat Sep 13, 2014 10:06 pm
 
Forum: Investing - Theory, News & General
Topic: Why is REIT only sector fund recommended in slice & dice?
Replies: 113
Views: 7891

Re: Need some advice on expanding my portfolio!

In the taxable side of things, what might be a good setup? I'm thinking here go slightly heavier in the bonds as we (my wife and I) are mainly doing this as a liquid/accessible way to get some better returns on our cash. I'm still good with a fair amount of risk here. Plus I'll be adding 1000-1500/...
by Kevin M
Sat Sep 13, 2014 9:57 pm
 
Forum: Investing - Help with Personal Investments
Topic: Need some advice on expanding my portfolio!
Replies: 6
Views: 867

Re: Let me get this straight about SCV & factor diversificat

<snip>If you switch to a four factor regression you see the reason for this behaviour: Momentum of -0.08 (LV) vs. -0.01 (TSM) <snip> We see that momentum can offset value. We also see that there is a size difference between largecaps and the market portfolio. Nothing new so far, I'd say. More good ...
by Kevin M
Sat Sep 13, 2014 3:20 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9172

Re: Let me get this straight about SCV & factor diversificat

The annual alpha is approximately in line with the expense ratio. Historical premiums have been about 6% for Market over the risk free rate, 2% for Size, 4% for Value, and 7% for Momentum. Multiply all those numbers together with the factor loadings and subtract the fund's expense ratio, and you ge...
by Kevin M
Sat Sep 13, 2014 3:06 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9172

Re: Percentage of bond money in foreign bonds

Portfolio Watch doesn't know about the 70% of my fixed income that is direct CDs (held at banks and credit unions, not at Vanguard). I doubt you'll find a single Vanguard research paper that recommends buying CDs from banks and credit unions, but I'm confident that it is a superior strategy (for me)...
by Kevin M
Fri Sep 12, 2014 10:44 pm
 
Forum: Investing - Help with Personal Investments
Topic: Percentage of bond money in foreign bonds
Replies: 8
Views: 910

Re: The dangerous practice of rebalancing...

But isn't this essentially what Dr. Bernstein recommends: <snip> Not exactly. This is what he recommends for investors near or in retirement--an LMP to meet basic needs, and an RP for assets beyond that. For young investors, a portfolio of 100% stocks, highly tilted to small-value is rational, sinc...
by Kevin M
Fri Sep 12, 2014 10:25 pm
 
Forum: Investing - Theory, News & General
Topic: The dangerous practice of rebalancing...
Replies: 191
Views: 13995

Re: Let me get this straight about SCV & factor diversificat

Browser, thanks for clarifying. Do you have a portfolio now? An investment policy? (Sorry, didn't search your posts to see). From what you say, it sounds like if you have a portfolio, it's probably something like the three-fund portfolio, and you are exploring the idea of modifying your investment p...
by Kevin M
Fri Sep 12, 2014 6:54 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9172

Re: Why is REIT only sector fund recommended in slice & dice

jay22 wrote:Small cap index (NAESX) is also recommended for those who slice & dice, isn't it?

Yes, some recommend it as part of a sliced/diced/tilted portfolio, but small-cap is not a sector as the word typically is used.

Kevin
by Kevin M
Fri Sep 12, 2014 5:38 pm
 
Forum: Investing - Theory, News & General
Topic: Why is REIT only sector fund recommended in slice & dice?
Replies: 113
Views: 7891

Re: Let me get this straight about SCV & factor diversificat

Browser, based on your various posts, it seems like sticking with total market investing probably is an appropriate choice for you. Probably also for many if not most others. Are you really struggling with this, or just looking to confirm your bias toward total market investing (no negative inferenc...
by Kevin M
Fri Sep 12, 2014 5:35 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9172

Re: Should I break my CD at Ally and get a new one's ?

I neglected to mention one really nice feature about PenFed early withdrawal penalties: they do not eat into principal! So if you buy a PenFed CD, then a month or two later they increase their rates significantly, you only lose the one or two months of interest if you break the CD and buy the new CD...
by Kevin M
Fri Sep 12, 2014 5:19 pm
 
Forum: Investing - Help with Personal Investments
Topic: Should I break my CD at Ally and get a new one's ?
Replies: 14
Views: 1839

Re: Interest rates - Bond effects?

I’m a little vague in my undemanding why bonds become less valuable when interest rates rise. <snip> But, how interest rate increases directly affect the value (price?) of bonds still isn’t entirely clear to me. Hopefully the explanations so far have helped. To fully understand this topic you just ...
by Kevin M
Fri Sep 12, 2014 5:10 pm
 
Forum: Investing - Help with Personal Investments
Topic: Interest rates - Bond effects?
Replies: 7
Views: 948

Re: Should I break my CD at Ally and get a new one's ?

Right after the 3% special Penfed's rates plummeted. Currently a 5/7 year are only at 1.21%. It costs little to join PenFed just in case. But, with their rate so low now; I doubt they will go from 1.21 to 3+% this year end. Of course no one knows, but as a calibration point, PenFed's 7-year CD rate...
by Kevin M
Thu Sep 11, 2014 10:19 pm
 
Forum: Investing - Help with Personal Investments
Topic: Should I break my CD at Ally and get a new one's ?
Replies: 14
Views: 1839

Re: Should I break my CD at Ally and get a new one's ?

Good rates at PenFed typically last a month or two. Since this a taxable account, should be no problem to join and open a CD within a few days (can take 2-3 weeks to do an IRA transfer, but that's another story). If you are planning on continuing to use CDs longer term, you'll probably do well at Pe...
by Kevin M
Thu Sep 11, 2014 9:40 pm
 
Forum: Investing - Help with Personal Investments
Topic: Should I break my CD at Ally and get a new one's ?
Replies: 14
Views: 1839

Re: Need some advice on expanding my portfolio!

A few comments. Looks like you basically like the idea of the 3-fund portfolio (somewhat modified in the Target Retirement funds by adding a total international bond fund). You state you want 80/20 stock/bond. TR funds do US/International stocks at 70/30 ratio, so for an 80/20 portfolio that works o...
by Kevin M
Thu Sep 11, 2014 8:08 pm
 
Forum: Investing - Help with Personal Investments
Topic: Need some advice on expanding my portfolio!
Replies: 6
Views: 867

Re: Should I break my CD at Ally and get a new one's ?

These are now more like 3.5/4-year CDs, so those are the rates to use for a fair comparison. The 60-day EWP is valuable, especially if you're using for an emergency fund. Although I have a bunch of Ally CDs purchased when their rates were more competitive and the EWP was 60 days of interest, I would...
by Kevin M
Thu Sep 11, 2014 7:20 pm
 
Forum: Investing - Help with Personal Investments
Topic: Should I break my CD at Ally and get a new one's ?
Replies: 14
Views: 1839

Re: Let me get this straight about SCV & factor diversificat

I still haven't seen a reasonable, numerical analysis/explanation of how a fund can have a positive, statistically significant regression coefficient in a multifactor model without "capturing" whatever premium that factor delivered. For example, I could see how the effect of another factor...
by Kevin M
Thu Sep 11, 2014 4:32 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9172

Re: Let me get this straight about SCV & factor diversificat

Well, it failed to make its way into better returns then its growth counterpart, despite the academic research suggesting that its been a great decade for value, VBR have been underperforming VBK since the inception of the 2 ETFs. Regardless of whether it captured "value", it certainly mi...
by Kevin M
Wed Sep 10, 2014 10:36 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9172

Re: Let me get this straight about SCV & factor diversificat

Yeah, that is the biggest reason to be skeptical about the value premium. It seems to be remarkably sensitive to how you try to capture it. Vanguard failed to capture any of it. This does not make sense to me. The regression of VG SCV (VISVX) on the FF research factors for the period 06/01/1998 06/...
by Kevin M
Wed Sep 10, 2014 10:09 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 153
Views: 9172

Re: Rather macabre but necessary question

Did not see anything from OP about wife's work history, but assuming she worked enough to qualify for social security benefits, then starting the survivor benefit as soon as OP quits working is a good suggestion. Can then think more about deferring collecting on own record for the additional longevi...
by Kevin M
Wed Sep 10, 2014 9:54 pm
 
Forum: Personal Finance (Not Investing)
Topic: Rather macabre but necessary question
Replies: 74
Views: 6172

Re: would like to protect principal

It mostly comes down to a trade-off between risk and return, except that currently you can get a somewhat better trade-off on FDIC-insured deposit accounts. At the bottom of the risk/return pyramid is a risk-free, FDIC-insured savings account earning 0.95% pre-tax, which is 0.7125% after tax at a 25...
by Kevin M
Wed Sep 10, 2014 8:07 pm
 
Forum: Investing - Help with Personal Investments
Topic: would like to protect principal
Replies: 15
Views: 993

Re: Ultimate Buy and Hold - 8 slices vs 4

Given how overlooked Mid Cap is, and the sheer number of investors now tilting toward small and small value would it not be prudent to also include the very "unloved" (generally speaking) Mid Cap and Mid Cap value in a portfolio like this one? I've posted a lot about this elsewhere. If yo...
by Kevin M
Wed Sep 10, 2014 6:42 pm
 
Forum: Investing - Theory, News & General
Topic: Ultimate Buy and Hold - 8 slices vs 4
Replies: 624
Views: 214766

Re: "Why 97% of People Don't Use 529 College Savings Plans."

I have never understood how stable value funds can offer liquidity, a stable NAV, and yields much higher than money market funds. Because the insurance companies offering the SV funds take much of the risk; i.e., they invest in riskier assets, like longer-term bonds, expecting higher returns in the...
by Kevin M
Wed Sep 10, 2014 6:15 pm
 
Forum: Investing - Theory, News & General
Topic: "Why 97% of People Don't Use 529 College Savings Plans."
Replies: 110
Views: 10576

Re: So far, so good? Vanguard Total International Bond

<snip>I think it is interesting that international bonds have outperformed domestic bonds for the past year, while the opposite is certainly true on the equity side...I don't have an explanation for that <snip> The bond part should be fairly straightforward. Other than defaults, the return is purel...
by Kevin M
Wed Sep 10, 2014 5:57 pm
 
Forum: Investing - Theory, News & General
Topic: So far, so good? Vanguard Total International Bond
Replies: 45
Views: 4241

Re: Bond Funds and Interest Rates Question

Higher yield almost always means higher risks. The "almost" is an important qualifier, especially if you think in terms of "fixed income" instead of just "bonds". Some big exceptions in the current environment are certain federally insured (FDIC/NCUA) deposit accounts....
by Kevin M
Wed Sep 10, 2014 5:02 pm
 
Forum: Personal Finance (Not Investing)
Topic: Bond Funds and Interest Rates Question
Replies: 17
Views: 1283

Re: "Why 97% of People Don't Use 529 College Savings Plans."

I'm in California. I haven't read very much about 529 plans, is it worth pursuing if you've maxed out all your other retirement funds? Also a CA resident, and as mentioned above, I use the Colorado 529 just to get access to the stable value fund earning 2.64% in 2014 (was earning 3% in 2013 when I ...
by Kevin M
Wed Sep 10, 2014 4:29 pm
 
Forum: Investing - Theory, News & General
Topic: "Why 97% of People Don't Use 529 College Savings Plans."
Replies: 110
Views: 10576
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