ACZoom  ·  Archive-2016

Asset Allocation is a key factor in analyzing an investment portfolio.
Surprisingly, it does not seem very easy to get an asset allocation analysis done based on a particular set of specific asset classes. Every financial web site seems to have a portfolio analyzer - but they use a predetermined set of asset classes.

Self-directed investors will likely need more than just knowing about percentages allocated to "stock, bonds, cash", for example, following the lazy portfolios, one might settle on the following classes in 2007:
Large-cap US
Small-cap US
Europe
Emerging Markets
International
Inflation-Indexed Securities
Bonds
CDs/MoneyMarket

Getting any of the portfolio analyzers on the web to provide analysis based on above set is not possible. But with just a little amount of research, it is very easy to get the data and create a spreadsheet to help with the analysis. Assuming a portfolio of around 10-20 mutual funds (which seems to be a popular recommendation), it should not take more than a hour or two to collect this data which is reasonable time to spend once every year on portfolio analysis.
As an example, here is a Microsoft .xls format spreadsheet that determines the asset allocation for a portfolio based on the asset classes shown above. The spreadsheet also has formulas that can be used to enter actual amount invested in each fund, and it will print out total percentages for each asset class. The basic instructions for using the spreadsheet are:
Step 1: In the first section - "Percentage Holdings" - create a row for each fund, enter unique code, and with information gleaned from Annual Reports, enter the distribution of holdings in that fund. Create new rows by copying or replacing one of the existing rows.

Long term investing - with so many options available it is great to read all about lazy portfolios and how they can be the best bet for passive, long-term investors. The key to a steady and good investment strategy relies on diversification - selecting a bunch of categories with historical returns that are not correlated to one another - one may go up while another may go down and vice-versa.

Here's a site with many articles on Lazy Portfolios - Paul Farrell on Lazy Portfolio Performance, beating the S&P 500 for passive investors, advisers and pros ... Simple well-diversified portfolios of three to 11 low-cost, no-load index funds... Aronson Family Portfolio, No-Brainer Portfolio(Dr. William Bernstein), Coffeehouse Portfolio (Bill Schultheis), ...
Interview and portfolio - NPR: Yale's Money Guru David Swensen's Advice for the Individual Investor: Beware of the Mutual Fund Myth ... for-profit mutual funds have an inherent conflict of interest. They make money by charging fees that suck profits away from investors in the funds.

Now the truth is that the Nobel-Prize winning Modern Portfolio Theory is over 50 years old, but it is still going strong even though some people may argue whether risk and volatility should be tied together given that most people may be ok with large upside volatility and only concerned about downside volatility. I would lay credence to what David Swensen says above - essentially that there are many other factors that go into what a for-profit financial professional looks at, and Swensen's analysis shows that diversifying and looking for lowest transaction costs is the key and this strategy is something every investor is capable of executing on their own.

A canny business tycoon promoting an option that says the music industry may be better off without DRM? Finally! Someone of this stature saying this, this is big news - someday, consumers will gain back the rights they always had, and DRM will be relegated to the industry's dust-bins, where it belongs. May take decades, but one step at a time, this will eventually happen.

Here's the article at Apple's web site - Thoughts on Music by Steve Jobs.

As some commentators have suggested, that article may have been prompted by legal troubles, but it is still worth reading, for promoting what it calls the "third alternative" - the music industry may be hurting itself, and that Apple itself is open to supporting a world where music does not have to be restricted by being wrapped in DRM locks. A DRM-free world is not only important to consumers, but could be good for business too, which is the main group supporting DRM.

Apple's iTunes is certainly the world's largest music store in terms of volume - and it uses DRM. eMusic.com is the second-largest online music store, and it does not use digital rights management - here's how they describe their service on their web site [January 2007]:
eMusic is the world’s largest retailer of independent music and the world’s second-largest digital music retailer overall, offering more than 2 million tracks from more than 13,000 independent labels spanning every genre of music. A subscription-based service that allows consumers to own, not rent their music, eMusic is the largest service to sell tracks in the popular MP3 format – the only digital music format that is compatible with all digital music devices ...

The Grapevine at Credit Card Goodies is a good source of information for getting the low down on credit card offerings.

The best cards are of course those that pay cash back - all other stuff like airline tickets, hotel rooms, can be bought with cash, so why look for anything else? And of course, use credit cards as a substitute for money you already have, using credit cards to get credit is really not a good idea - too high a cost to get credit this way.

Right now, end of 2006/early 2007, the best cash back card for those spending less than around $20,000 per year, seems to the Chase Freedom Visa Credit Card - from 1% to 1.25% back on all purchases, increasing to 3% for eligible Gas, Grocery and Quick Service Restaurant purchases.

Now that there is a 401(k) for Roth, far more people may be eligible to invest in the Roth IRA. The decision to Roth or not is not always clear cut. Simple choices - like invest in Roth vs invest in a non-deductible IRA are clear - go with the Roth. Young, and in a low bracket? Go with Roth.

Lots of web sites offer calculators and other quick advice - but be careful, many assumptions have to be made to make this simple, and that may make the conclusions reached not worth much.

The best report I have seen on Roth is from Vanguard Center for Retirement Research, their Tax Diversification and the Roth 401(k) is a very detailed analysis of this issue. Other good links are available at the 401K Help Center Collected Wisdom on Roth 401k, two good links from there: How Valuable is the New Roth 401k Option? and Watson Wyatt Insider report - Pros and Cons.

An example of a good intention and a good idea, but the implementation and execution of which completely messes everything up.

Citibank uses a Fraud Detection system - this is a software based analysis of a customer's credit card charges. If they find a suspicious charge or pattern, it is flagged.

So far so good.

From that point on, the consumer gets the raw end of the deal. To this day, it amazes me that people will believe the results from a computer program, and blindly act on it, without having it go through the smell test, without applying some human common sense.

Citibank policy is that if the computer has flagged a charge as suspicious, then they want the customer to call them, and explain why the charge is ok. If the customer is out traveling, or does not want to endure the hassle of a customer service phone call, then Citibank will automatically block all further use of the credit card.

So, based on a what a software program told them, without even confirming if what it told them looks really suspicious, they will automatically block use of the credit card. There are so many other options to handle this better - do have a fraud detection scheme, but don't automatically block the card - why not inform the customer of the charge pro-actively, and ask them if it was valid instead of asking the customer to call in? And so many other possibilities exist, before taking the drastic step of blocking the customer's use of the credit card.

Just don't travel or be out of town when using your Citibank credit card!

The charge in question here was a payment to the Electronic Frontier Foundation. This is what amazed me even more - how could Citibank flag the EFF as suspicious - could they not do a simple search, find out what it is, and maybe even bump into the fact that it is a IRS registered, tax-deductible organization, and hence, not a fraudulent charge?