The Rant: Alpha Teach Yourself Investing in 24 Hours: An Analysis (part 48)

Sunday, December 31, 2017

Alpha Teach Yourself Investing in 24 Hours: An Analysis (part 48)

Working Toward a Goal:

Asset Allocation

Charles Lamson

Portfolio Components

Asset allocation is about spreading risk over different asset classes to even out the peaks and valleys. Most financial professionals feel that your portfolio should consist of a mix of bonds and stocks. Some would add cash to the mix but most would not.

The obvious questions here are

Which stocks in what portion?
Which bonds in what portion?

The answer, like most answers to investing questions, is: "It depends." It depends on your age and risk tolerance. A young, aggressive investor will look at these questions quite differently than a middle-aged conservative investor.

It might be helpful to look at the problem from an age/risk perspective. Again, we are assuming that the investment goal is funding retirement by age 65.

JUST A MINUTE

The suggested allocations do not include a cash component. Many financial professionals do include cash. This is a personal preference. Do what is most comfortable for you.

We will look at age groups starting with the youngest and working forward. Each age group will have three levels of risk tolerance: conservative, moderate, and aggressive with suggestions for each. There is no official asset allocation formula, so consider these suggestions as just that: a starting point for your own thinking.

Age 20-30

It may be hard to think seriously about retirement at this age, but you could not pick a better time to start. Not only will you almost certainly build a substantial nest egg, but you will get in the habit of investing that will serve you well the rest of your life.

Conservative Portfolio

A conservative approach at this age suggests a stock/bond mix for long-term growth and stability. An additional consideration is that there will not be a lot of money invested in this period, so mutual funds make more sense than individual issues.

Stocks	S&P 500 index fund	80 percent
Bonds	Long-term bond index fund	20 percent

Moderate Portfolio

A more aggressive approach might stay with a stock/bond mix, but change the portions somewhat.

Stocks	Large-cap value fund	25 percent
	Large-cap growth fund	50 percent
	Foreign stocks fund	15 percent
Bonds	Long-term bond index fund	10 percent

Aggressive Portfolio

Our young lion wants to roar; so we drop bonds from the mix completely.

Stocks	Small-cap growth fund	40 percent
	Small-cap value fund	30 percent
	Foreign stocks fund	30 percent

Age 30-40

For many of us this is the age in which we begin to settle down and start thinking about our future. Retirement is still a long way off but not so far that it is off our radar screen altogether.

Conservative Portfolio

Our conservative investor can stand put or if she believes the stock market is looking shakey, move more assets into long-term bonds.

Stocks	S&P 500 index fund	70 percent
Bonds	Long-term bond index fund	30 percent

Moderate Portfolio

Our moderate friend is happy with the mix, but just to be on the safe side, ups the percentage of bonds.

Stocks	Large-cap value fund	25 percent
	Large-cap growth fund	40 percent
	Foreign stocks fund	15 percent
Bonds	Long-term bond index fund	20 percent

Aggressive Portfolio

Our young lion still wants to roar but begins to understand the danger of staying heavily invested in one area (small-cap stocks).

Stocks	Small-cap growth fund	40 percent
	Large-cap growth fund	40 percent
	Foreign stocks fund	20 percent

Age 40-50

As we enter the years of our peak earning capacity, retirement begins to seem like a not-to-distant hill looming larger and larger.

Conservative Portfolio

Our conservative investor hears retirement calling more loudly than most. She grows more nervous about stocks and moves more assets into long-term bonds.

Stocks	S&P 500 index fund	60 percent
Bonds	Long-term bond index fund	40 percent

Moderate Portfolio

Our moderate friend is becoming nervous about the stock/bond ratio and moves to up the bond component at the expense of the large-cap growth fund.

Stocks	Large-cap value fund	25 percent
	Large-cap growth fund	30 percent
	Foreign stocks fund	15 percent
Bonds	Long-term bond index fund	30 percent

Aggressive Portfolio

Our young lion realizes he is not a young lion anymore, but wants to stay heavily invested in stocks as is prudent. His move into bonds discards the fund notion and buys bonds directly for a better yield even though the risk is higher.

Stocks	Small-cap growth fund	20 percent
	Large-cap growth fund	40 percent
	Foreign stocks fund	20 percent
Bonds	Long-term bond index fund	20 percent

Age 50-60

These are the years we set the stage for requirement, getting our ducks in a row and guarding against any fourth quarter surprises by the market.

Conservative Portfolio

Our conservative investor is focusing on calculating what her living expenses will be and how much she will have coming in between Social Security and her retirement. The focus is shifting to income and capital preservation. She will stay in equities but will move out of an index fund and into solid income stocks like utilities. At the same time, she will slowly shift out of a bond fund and into individual bonds (10 years or more) that begin maturing at retirement. At the end of this period, her portfolio looks like this:

Stocks	High-quality income stocks	50 percent
Bonds	Long-term bonds	50 percent

Moderate Portfolio

Our moderate friend also begins moving toward income and away from growth, but not completely. Foreign stocks look too unstable, so they get dropped. He also begins shifting away from a bond index fund and into high-quality individual bonds.

Stocks	Large-cap value fund	40 percent
	Large-cap growth fund	20 percent
Bonds	Long-term bonds	40 percent

Age 60-??

Even though we may not retire until 65 (and many people are continuing to work after 65), we are in a retirement mode at this point with our investments.

Conservative Portfolio

Our conservative investor continues her shift to current income and capital preservation. However, she is aware that being too conservative may cause her to outlive her money.

Stocks	High quality income stocks	30 percent
Bonds	Long-term bonds	40 percent
	Bond index fund	30 percent

Moderate Portfolio

Our moderate friend begins the shift to a heavier emphasis on income and away from growth.

Stocks	Large-cap value fund	20 percent
	High-quality income stocks	40 percent
Bonds	Long-term bonds	40 percent

Aggressive Portfolio

Our now not-so-agile young lion finds golf more interesting than investing but still keeps his toe in the water.

Stocks	Large-cap value fund	30 percent
Bonds	Long term bonds	70 percent

*SOURCE: ALPHA TEACH YOURSELF INVESTING IN 24 HOURS, 2000, KEN LITTLE, PGS. 292-297*

END

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The kingdom of God is among you

Luke 17:20-25 Asked by the Pharisees when the kingdom of God was to come, Jesus gave them this answer, ‘The coming of the kingdom of God does not admit of observation and there will be no one to say, “Look here! Look there!” For, you must know, the kingdom of God is among you.’ He said to the disciples, ‘A time will come when you will long to see one of the days of the Son of Man and will not see it. They will say to you, “Look there!” or, “Look here!” Make no move; do not set off in pursuit; for as the lightning flashing from one part of heaven lights up the other, so will be the Son of Man when his day comes. But first he must suffer grievously and be rejected by this generation.’

Live Adoration Feeds from U.S.A., U.K., and Poland

Adoration, also known as Eucharistic Adoration, is a Catholic prayer in front of the Blessed Sacrament. It is a sign of devotion and worship to Jesus Christ, who is believed to be present in the consecrated host. During adoration, Catholics pray to Jesus Christ before the Eucharist at their local parish. The Eucharist is typically kept in a tabernacle at the parish church, and may be presented in front of a closed tabernacle or in front of the exposed host in a monstrance. A monstrance is a vessel used in Roman Catholic, Anglican, High Church Lutheran, and Old Catholic churches. It is a stand made of precious metal that holds the Blessed Sacrament during adoration. The word "monstrance" comes from Latin and means "to show".

Love

1 Corinthians 13:4-7: Love is always patient and kind; it is never jealous; love is never boastful or conceited; it is never rude or selfish; it does not take offence, and is not resentful. Love takes no pleasure in other people’s sins but delights in the truth; it is always ready to excuse, to trust, to hope, and to endure whatever comes. 1 Corinthians 13:8-9,13: Love does not come to an end. But if there are gifts of prophecy, the time will come when they must fail; or the gift of languages, it will not continue for ever; and knowledge – for this, too, the time will come when it must fail. For our knowledge is imperfect and our prophesying is imperfect. In short, there are three things that last: faith, hope and love; and the greatest of these is love. Colossians 3:14-15: Over all these clothes, to keep them together and complete them, put on love. And may the peace of Christ reign in your hearts, because it is for this that you were called together as parts of one body. Always be thankful.

It is not peace I have come to bring, but a sword

Jesus instructed the Twelve as follows: ‘Do not suppose that I have come to bring peace to the earth: it is not peace I have come to bring, but a sword. For I have come to set a man against his father, a daughter against her mother, a daughter-in-law against her mother-in-law. A man’s enemies will be those of his own household. ‘Anyone who prefers father or mother to me is not worthy of me. Anyone who prefers son or daughter to me is not worthy of me. Anyone who does not take his cross and follow in my footsteps is not worthy of me. Anyone who finds his life will lose it; anyone who loses his life for my sake will find it. ‘Anyone who welcomes you welcomes me; and those who welcome me welcome the one who sent me. ‘Anyone who welcomes a prophet will have a prophet’s reward; and anyone who welcomes a holy man will have a holy man’s reward. ‘If anyone gives so much as a cup of cold water to one of these little ones because he is a disciple, then I tell you solemnly, he will most certainly not lose his reward.’ When Jesus had finished instructing his twelve disciples he moved on from there to teach and preach in their towns.

The beheading of John the Baptist

Matthew 14:1-12 Herod the tetrarch heard about the reputation of Jesus, and said to his court, ‘This is John the Baptist himself; he has risen from the dead, and that is why miraculous powers are at work in him.’ Now it was Herod who had arrested John, chained him up and put him in prison because of Herodias, his brother Philip’s wife. For John had told him, ‘It is against the Law for you to have her.’ He had wanted to kill him but was afraid of the people, who regarded John as a prophet. Then, during the celebrations for Herod’s birthday, the daughter of Herodias danced before the company, and so delighted Herod that he promised on oath to give her anything she asked. Prompted by her mother she said, ‘Give me John the Baptist’s head, here, on a dish.’ The king was distressed but, thinking of the oaths he had sworn and of his guests, he ordered it to be given her, and sent and had John beheaded in the prison. The head was brought in on a dish and given to the girl, who took it to her mother. John’s disciples came and took the body and buried it; then they went off to tell Jesus.

Psalms 9:16

The LORD is known by the judgment which he executeth: the wicked is snared in the work of his own hands. Higgaion. Selah - Question: What does Higgaion and Selah mean? Answer: Both Higgaion and Selah are used numerous times in the Old Testament. They occur together in Psalm 9:16. The meanings of these words are uncertain. We observe Higgaion in such passages as Psalm 9:16; 19:14; 42:3; Lamentations 3:63. In Arabic, the root gives a deep vibrating sound, like the murmering sound of a harp (Psa. 92:3). The International Standard Bible Encyclopedia states that it may be derived from the Greek versions of Psalm 9:16 and takes it to mean an instrumental interlude. It may also mean a soliloquy or meditation such as concerning the judgment of God (Psa. 9:16), the words and work of God (Psa. 19:14), and the loving kindness and faithfulness of God (Psa. 92:2-3). In the Septuagint, Selah is translated as daplasma (meaning a division). It occurs in Habakkuk 3:3, 9, 13 and 71 times in the Psalms. It is used in 39 of our 150 psalms. Of those 39 psalms, 31 they are ones handed over to "the chief Musician." So, pause and meditation may be the predominate idea. In addition, it may mean to lift up (Hebrew, salal) or, in some definitions, a repetition, end of a strophe, or a recurring symphony. In his sermon named "HIGGAION!" about Psalm 9:16, Archibald G. Brown, on August 17, 1873, at the East London Tabernacle said this: "When the psalmist wrote this verse, and reached the words 'The wicked shall be snared in the work of his own hands', he seemed to be overpowered at the terror of the thought, and so put a full stop and wrote in the word 'Higgaion!' As much as to say, 'O my soul, meditate on the tremendous truth my hand has penned, and let all who read the same meditate.' And then after 'Higgaion' he puts 'Selah'. He would have there to be a solemn pause. Oh, I would that there could be just one moment's solemn pause in our meeting tonight. Would that there could be a Selah, a Higgaion! Friends, shall there be? I put it to you. 'The Lord is known by the judgment which he executes; and the wicked shall be snared in the work of his own hands!" Now let us just for a moment meditate on that. Let there be a solemn Higgaion, and let every heart ask itself the question, 'How do I stand in reference to this tremendous truth?' *Answer by Dr. Joseph R. Nally, Jr. (https://thirdmill.org/answers/answer.asp/file/47892)*

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Sunday, December 31, 2017

Alpha Teach Yourself Investing in 24 Hours: An Analysis (part 48)

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