ITA Wealth Management

Much attention is given to market indicies as they are used to convey information as to how well a stock market is performing.  If someone says, the market is up or the market is down, they are generally referring to the Dow Jones Industrial Average (DJIA), an index that goes back to the late 1800s.

For our benchmark, we use the VTSMX index fund as it covers a wider range of investments than does the DJIA 30 stocks.  Rob Arnott writes in “The Fundamental Index” that “an index is a portfolio that is objective, formulaic, transparent, historically replicable, and has low turnover.”  The VTSMX meets the Arnott standard.

In addition to the VTSMX, the Mosaic spreadsheets also include the S&P 500 under the guise of VFINX.  You will also see something I call the “Blend Index,” an effort to see how closely the portfolio is tracking the ETFs and stocks that make up the portfolio.

Lowell Herr

Photograph:  U.S. time trials at Alpenrose - Portland, OR.

This information is available on the Premium Content side of this blog.  Cost is $6.99 per month.

On the Premium Content side of the blog I posted the first of several entries on knowing when a possible entry point is merited.  It no longer seems prudent to buy as soon as possible, as advocated during the 1982-1999 bull market.

The Premium Content is available for $6.99 per month.

The following portfolio information was sent to me by someone I’ve corresponded with over a number of years. The following portfolio is a testimony to the benefits of following an asset allocation policy. - Lowell Herr

History of a Passive Portfolio

This portfolio is funded by profits derived from a part-time publishing business with three principals. The pension plan is a money purchase plan that uses Vanguard Fiduciary as the Trustee. Over the years it has varied between quarterly and annual contributions. Currently it receives $375 per quarter and is distributed in such way as to try to maintain balance in the various allocations. When I first started corresponding with Lowell (2001?) we had met on the NAIC e-mail list where Lowell was trying to interest people in the AA vs. stock selection debate. I decided this small portfolio would be a good test vehicle and in 1/2002 redistributed the existing fund allocations, Asset Allocation Fund, Health Care Fund and Growth Fund into Vanguard’s Large Value, Large Growth, Mid-cap Blend, Small-cap Value, Small-cap Growth, REIT, International Total Stock and Short Term Government Bond Index funds. The table below shows the allocations at the end of each year.

My newest target allocations goals are LV – 14%, LG – 7%, MV – 14%, MG – 7%, SV – 14%, SG – 7%, Inter – 18%, Emerge – 9%, REIT 10%. The mid-cap has evolved because when I began, Vanguard did not offer separate value and growth funds in this cap category. As you can see, 2008 has hit this portfolio as hard as others. Lowell convinced me not to hold a bond allocation after discussing the concept of a virtual allocation behind SS benefits and any other defined benefit pension income.

Current IRR 8.8%, S&P 500 4.1%

Are you thinking of retiring early? Read this article with care and then consider crawling back on the bicycle.  If one is retiring before “social security” age, be sure you have saved a sufficient amount to last even if you require full-time medical care.  Assume that care will run between $70,000 and $100,000 per year in today’s dollars.

Workers who truly enjoy their job and find pleasure in going to work every day really have no need to retire early unless there is another passion waiting in the wings.  Don’t retire too early as it is difficult to get back into the work force once one leaves.

Lowell Herr

Photograph:  Time trials for U.S. Nationals.  Image captured at Alpenrose Velodrome.

Readers of this blog may be interested in watching and listening to a slide show I prepared for a service today. Here are the instructions.

1) Go to http://www.photodex.com
2) Just to the right of center you will see an option called “Sharing.” Click on that pull down menu.
3) Next you will see the option, “Online Sharing.” Click on that option.
4) Near the bottom of the screen you will see a box asking for “Browse Member.” Type in “physlab” as my member name. Omit the quotes.
5) Look for the show called Worship. You will see “God is Faithful” on the center of the show. Click on that show and allow it time to load.
6) You will hear the music, “Salvation is Created.”
7) Move your cursor over the center of the screen after the show has loaded. Click to start the show.

8)  To view in full screen, right click the mouse and ask to view in Full Screen.  The Program must be running before you request Full Screen.

9) If you have never watched one of my shows you will will need to download the free plugin or player in order to see and listen to the show. Turn up your speakers and enjoy.

Lowell Herr

My classical music recommendation for this week is Jessye Norman singing sacred songs such as Ave Maria, Sanctus, Amazing Grace, and The Holy City. The recording I have is a Phillips No. 400019 CD featuring the Royal Philharmonic Orchestra with conductor Sir Alexander Gibson.

If you enjoy vocal music and are a fan of Ms. Norman, this is a CD one should add to their collection.

Lowell Herr

Photograph: Pulling up to Harpoon Hanna’s in Ocean City, Maryland. This restaurant is positioned on the Delaware-Maryland border.

Back on April 16th I posted an entry about MEDA Trust, a non-profit organization set up to help folks in struggling countries. My wife and I got involved in helping set up businesses in Nicaragua and Afghanistan about a year ago. If you have an interest in help people gain access to a little capital in order to build their own business, check out MEDA Trust.

Please note that money donated is a contribution. When the loans are paid, that money will return to your account to be reinvested with another entrepreneur.

Lowell Herr

Photograph: Antigua, Guatemala city square.  I am not sure what happened to the sky in this photograph.  I do remember there were rain showers close to the city.

Are there blog readers who would like access to a spreadsheet they can use to track portfolio performance as well as one of three benchmarks? If so, post your request in the comments section of this entry.  The spreadsheet I am referring to calculates the Internal Rate of Return for the portfolio and it does the same for the VTSMX benchmark as if one invested the same dollars in this index fund.  The spreadsheet also allows one to set up target percentages for asset classes of interest and then tracks the portfolio with respect to these asset allocation targets.

For more details as to using this spreadsheet, subscribe to Premium Content and watch the development of four portfolios. Those portfolios are; AA-Mosaic, Mosaic2, GLW, and Scrappy.

Lowell Herr

Photograph: Image taken on the Assawoman Bay (I kid you not) overlooking a sizable wetlands and on to the Ocean City, Maryland hotels. Visible is the water tower of OC and the famous pyramid hotel.

ITA Wealth Management is the antithesis of Jim Cramer’s approach to investing. We do not shout, rant, or even claim to have all the answers to investing. Instead, ITA is the tortoise approach to saving and investing. The ITA Wealth Management approach is one of saving regularly, investing conservatively in a broad array of index funds or ETFs, and letting the market do its work over many years. We are not traders, but rather long-term investors. This is not the “water cooler” approach to investing as followers of this investment style are not the ones with the latest and greatest hot stock tip. In fact, we eschew hot stock tips, choosing rather to go with value investments. Why? Because of the abundant research that guides our investment style.

Take time to smell the flowers, be patient with your investments, follow your portfolio plan, keep the asset classes in balance, and avoid risky investments. Do not get caught up with all the media flimflam designed to stir you into making bad decisions.

Are you able to manage your own portfolio? If your answer is no, ask yourself why. What do you not know that keeps you from managing your own investments? If you are not yet involved in the stock market, you have come to the right place for some basic instruction.

It seems as if a high percentage of the working class has an interest in the stock and bond markets, yet many savers do not have a great desire to learn how to manage their own portfolio. There is a notion I should know something about the market, but I really don’t have the motivation or interest to learn what it is I need to know. Believe me, it is not that complicated if you take an index approach to investing. Check out the “Portfolio for Dummies.” If you want to move beyond the very simplest portfolio, here are a few basic principles.

• Save until you have dollars to open up a broker account. Check with a broker such as TDAmeritrade to see if they have a minimum amount. Remember The Golden Rule of Investing - Save as much as you can as early as you can.
• Learn how to access your broker account via the Internet. Remember, you are going to do this yourself.
• Begin to lay out a portfolio plan before you make any stock or bond purchases. Learn the principles of Asset Allocation.
• Begin reading one of the five most important books on my reading list. Yes, I know this begins to sound exactly what you did not want to do. However, it helps to have some background and knowledge of the stock market so you do not begin your investing career by making unnecessary mistakes. Look up “books” on this blog.
• While you are waiting for that investment book to arrive at your house, go back to the beginning of this blog and set a goal of reading a few entries each day. The entries are short so you can read several a day. Another suggestion is to click on the “Beginning Investors” category and read those entries first.
• Learn the language of cap size, value, and growth. Those terms are used frequently in this blog. Eventually they will become second nature to you. These terms will help you as you begin to lay out a plan for your portfolio.
• Check your asset allocation or portfolio plan with some suggestions given on this blog or in a few books that you are reading. Does the plan fit your requirements? Will you be able to sleep at night investing in these vehicles? Remember, we want to receive a respectable return while reducing risk.
• Use either index funds or their first cousin, ETFs, to build your portfolio. There are many examples on the free side of this blog how to do this, and if you want further detail, check out the “pay-to-read” or Premium Content side of this blog.
• Pay attention to costs as that works right down to the bottom line and therefore to the portfolio return.
• Understand the importance of diversity. Investing in eight to twelve different asset classes will assure you have a well diversified portfolio. There are many examples of this on this blog.
• Learn the principles of rebalancing the portfolio. This is something that does not happen frequently, but one does need to know how it works.
• To learn more about the fundamentals of asset allocation, check out Saul Seinberg’s Power Point presentation available through this blog. By September 4th, you will have another PP presentation available on this subject. For more information, search Asset Allocation on this bog and read those entries.
• Ask lots of questions. Each investor has questions that pertain to their situation. There are very few stupid questions, so please ask.

Lowell Herr

Photograph: Hillsboro Air Show