Showing posts with label investment pyramid. Show all posts
Showing posts with label investment pyramid. Show all posts

Tuesday 27 July 2010

My 1st Million At 33 – yes, you can do it too

Asset Allocation Pyramid


Time frames and reliance on TA
In the pyramid diagram I labeled the progression in the reliance on technical analysis as the time frame (intended holding period) shortens. My short term trading is momentum based and generally has holding periods of days. On the other hand, the passive accounts are for buy-and-hold with annual rebalancing. The trench in the middle lies in between the extremes. The “income on steroids” group, PM and resource stocks I’m quite happy about holding long term (i.e. years), while others I may look at weekly charts for good entry and exit points so that the holding period may be months. Naturally, as reliance on TA wanes, reliance on fundamental and big-picture analysis waxes.




http://www.1stmillionat33.com/2007/06/new-portfolio-composition/

Tuesday 3 November 2009

A sideways pyramid to increase your Retirement Income.

Increase Your Retirement Income

by Mary Beth Franklin
Monday, November 2, 2009

This new money-for-life strategy creates both guaranteed income and growth potential.

In the midst of the stock-market meltdown in October 2008, Arthur Szu-tu, a relatively new retiree at 60, was gripped with fear and anxiety. He had no pension, he was too young to collect Social Security benefits, and he was relying completely on his savings. "Intellectually, I knew I couldn't cash out my stocks because I might live another 35 years and I would need the higher investment returns that come from stocks," says Szu-tu, a former technology manager from Syracuse, N.Y. "But emotionally, it was really scary."

As retirees watched their account balances plummet, many were advised to reduce their withdrawals or go back to work to preserve their nest eggs. "The thought of becoming a Wal-Mart greeter or McDonald's counter boy did not allow me to sleep at night," quips Szu-tu. He decided that he would rest easier if he mentally separated his investments into two groups: cash and bonds that could sustain him through his initial years of retirement, and stock funds that he would leave untouched until they could recover and grow.

Without realizing it, Szu-tu had stumbled on an alternative income model that has been kicking around in some retirement-planning sectors for more than 20 years but attracted little attention until recently. As long as the stock market was booming -- and bonds performed well when stocks tanked -- the so-called 4% rule for systematically withdrawing retirement income from an investment portfolio worked well.

That rule of thumb became the gold standard for creating sustainable retirement income. According to the 4% rule, if you invest in a moderately risky portfolio of 60% stocks and 40% bonds, you can initially withdraw 4% of your assets, increase that amount in subsequent years to keep pace with inflation, and still have a 90% probability of not running out of money over a 30-year retirement.

Probabilities are fine -- until you become a statistic. The recent bear market was so severe and so unusual (because virtually every asset class, except Treasury bonds, suffered severe losses) that it has called into question even that conservative strategy. The biggest threat to retirement wealth is withdrawing too much money from a shrinking nest egg, because there may not be enough left to benefit from the inevitable market rebound. Retirees were urged to skip their annual inflation adjustments -- or, in cases of severe investment losses, to reset their 4% distribution schedule based on their new, lower balance.

"If it weren't for inflation, cash and bonds would be all you need," says Lubinski. But even with modest inflation of 3% a year, your buying power would be cut in half in about 25 years, so you need to invest for future growth, too. When you add stocks to your portfolio, however, you also add risk.

In retirement, "clients are more concerned about reliability of income than about return on investment," says Lubinski. "You can't chase both at the same time." But you can achieve both goals if you compartmentalize your money based on short-term, medium-term and long-term needs.


A sideways pyramid.

Jim Coleman, head of Coleman Financial Advisory Group(http://www.colemanadvisorygroup.com/), in Waterbury, Conn., has added his own twist to the income-for-life model. When describing the strategy to clients, he tells them to think of a classic risk pyramid, which puts the safest investments (such as bank accounts and money-market funds) at the bottom and layers progressively riskier investments (such as bonds and stock funds) building to a peak.

In the classic model, even if your investments are diversified, all your assets are at risk at the same time. Coleman flipped the pyramid on its side so that you tap the most conservative, risk-free investments at the beginning of your retirement timeline and let the riskier investments grow until the later years. Your most aggressive assets will have years -- and possibly even decades -- to grow, creating a source of stable retirement income in the future. "With this divide-and-conquer strategy, you can have the best of both worlds," says Coleman.



KipTip: A New Angle on the Risk Pyramid

This alternative model for retirement withdrawals delivers current income and future returns.




With a traditional risk-pyramid model, you use your safest investments -- such as bank accounts and certificates of deposit -- to build the foundation of your portfolio. Then you layer riskier investments on top, adding bonds, followed by various types of stock funds and alternative investments that might include commodities and real estate. Diversification spreads your risk, but it doesn't guarantee that you won't lose money.


By flipping the risk pyramid on its side, you can align your retirement timeline with your investment strategy. Fund your immediate income needs with risk-free investments, such as CDs or an immediate annuity, and gradually increase the risk (and potential return) of other investments. Every five years, use investment returns to replenish your guaranteed income.




http://finance.yahoo.com/focus-retirement/article/108055/increase-your-retirement-income;_ylt=ArlNO.c7ri6qIIasaoxRuVu7YWsA;_ylu=X3oDMTE1azc1c250BHBvcwMyBHNlYwNmaWRlbGl0eUZQBHNsawNpbmNvbWVmb3JsaWY-?mod=fidelity-readytoretire

Monday 4 May 2009

Investment Pyramid





Investment Philosophy

It's Not What You Win That Counts
It's What You Don't Lose



Introduction


We suggest reading the beginner's section and the glossary of terms for starters. There is a lot of information available in these two areas – take advantage of them.


We feature three (3) model portfolios. The following overview covers the basic ideology behind the three portfolios and our investment philosophy. The portfolios are:


Conservative
Moderate
Aggressive


Conservative
The conservative portfolio emphasizes safety and risk control. It is for the investor who wants the least amount of risk exposure while still maintaining a solid rate of return. The emphasis is on the return of one’s money, as compared to the return on one’s money.


Moderate
The moderate portfolio's focus is on both the return of one's investment and the return on investment. Safety is still of prime importance. So too is the preservation of wealth. The goal is larger profit margins as compared to the conservative portfolio.


Aggressive
The aggressive portfolio is for investors who have experience in trading and who know the ropes so to speak. They understand their overall financial situation in detail. Aggressive investors have made the conscious decision to take on more risk than the average investor does – in order to gain the opportunity to make larger profits.


A well-defined plan is in place to control and manage the risks. Reassessment of the plan is essential so that the portfolio adjusts to changes in the market accordingly. Hence the aggressive portfolio is much more active than the conservative and moderate portfolios.


Money Management & Asset Allocation
Money management and asset allocation are two key building blocks of any serious portfolio – be it conservative, moderate, or aggressive. Constant reassessment and adjustment of the portfolios with market changes is key as well.


Investment Pyramid
We use an inverted pyramid to illustrate the structure and foundation of our investment philosophy. At the base of the pyramid are the safest asset classes. They are also the soundest of all available investment vehicles. Various investment categories sit on top of the foundation forming a hierarchical scale from the safest assets at the bottom – to the riskiest assets at the top.



Psychology
The market thrives on two basic emotions: Fear and Greed


However, there are many subsets to these as well. For instance, one can have the fear that he is going to miss the next rally. Is really fear - or a form of greed?

One can keep holding a stock after significant increases in price, never selling or booking profits, always hoping for additional profits. Suddenly the stock starts falling precipitously. Half of the profits that were on paper vanish. Did greed keep us from selling or was it the fear of giving up possible gains?


The market will teach us much about ourselves if we listen to it. It is hard to listen to the market as opposed to what our mind thinks about the market. This is true in all things. Listening is an art form.



Do Not Take the Big Hit
The main reason investors take a big hit is generally due to emotional and psychological reasons. We all have our own unique personality that we bring to the table.


Whatever emotional and psychological weaknesses we have, the market will quickly search them out, and bring them into play – usually quite fast.


Most often then not the market does not have to beat us – we beat ourselves. To be successful we need to know our weaknesses. We should to try to correct our weaknesses as we become aware of them. We must know our strengths – and use them to our advantage.


This is done by first recognizing them and then having a plan to keep them under control – just as we keep the other types of risk under control: market risk, timing risk, currency risk, etc.


Discipline and money management will allow us to cut our losses quickly – and to let our winners run freely. There is nothing wrong with being wrong – only in staying wrong.


Summary


The above is a general outline of our investment philosophy. The following points are most important:


Assessment of our financial situation and investment goals is key.


Assess our psychological make-up – including strengths and weaknesses.


Define the primary market trends in the market.


Choose a portfolio to meet our own specific goals.


Have a well-defined plan including asset allocation and money management.


Use a combination of the various types of analyses available.


Utilize the inverted pyramid to define safety versus risk


Do not take the big hit


Remember the slogan:


It's Not What You Win That Counts

It's What You Don't Lose