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At a time when investors are worried about a stock market correction and rising interest rates, many are wondering how much cash they should hold. “There’s some grey area between pricing the market–which is what I think the best value investors try to do, what Warren Buffett talks about doing, when we don’t try to time the economic cycle or the market cycle but are looking at price relative to value,” says Josh Peters, editor of Morningstar DividendInvestor, “and what’s just flat out market timing.”
“I think it’s better to think about your asset allocation, including the piece that you have in cash, about what works best for your own financial needs and preferences, what your risk tolerance is, certain cash outflows, and large bills that you have coming due perhaps like a college tuition in a couple of years. You should have that money in cash; it shouldn’t even be in long-term bonds. It’s exposed to loss there. You know you’re going to need to make the withdrawals. The money that you’re able to leave there permanently, you can think more opportunistically, but you don’t want to upend your strategy just based on a sense that the market’s gone up a lot and can’t keep going higher from here.”
How One Advisor Used The Husband/Wife Dynamic As His Firm’s Selling Point (The Wall Street Journal)
Jim Webb an advisor at Dallas-based Webb Financial runs an advisor firm with his wife Connie. In an effort to distinguish himself from others he decided to use their husband/wife dynamic as the firm’s selling point. “When I first considered Connie and I doing meetings together, I thought we were doubling the labour cost. It’s more expensive to have two people in the meeting,” he writes in a new Wall Street Journal column. . But that doesn’t consider the depth of the interaction.
“I think we’re able to provide more value to clients by having two people work with them. Within our broker-dealer environment, our average investible asset is three times what it is for the normal adviser. Our approach helps us go deeper with fewer people and we have gotten more referrals as a result.”
Stock Market Returns And GDP Per Capita Are Inversely Correlated (Credit Suisse)
It is often assumed that countries with higher growth rates produce better investment returns. But Elroy Dimson, Paul Marsh, and Mike Staunton, researchers at London Business School, found this to be untrue. They revisited the subject in the latest Global Investment Returns Yearbook published by the Credit Suisse Research Institute and cited a few key reasons they disagree.
1. “Although past economic growth does not predict subsequent equity market movements, stock prices do predict future economic growth.”
2. “A strategy of buying the shares of countries that are advancing economically is a strategy of buying companies that are on average becoming less risky, and hence offer a lower expected return.”
3. “Short-selling can be costly and risky, thereby allowing ‘hot’ markets to remain overpriced, and to yield disappointing long-run returns.”
4. “If that advantage is appreciated and already priced in by investors, there can be no expectation of superior investment returns.”
Companies Are Holding Back On 401(k) Plans (Bloomberg)
“Employers are squeezing their workers’ retirement savings, holding back on both the amount and the timing of 401(k) matching funds and dragging out vesting schedules,” report Carol Hymowitz and Margaret Collins Bloomberg. For years it was understood that employers would match what workers saved but that appears to be changing. It was thought that 401(k)s were better than pensions and allowed for more flexibility. But the Center for Retirement Research at Boston College found that the median balance in 401(k) and individual retirement accounts for those between the ages of 55 — 64 was $US120,000 in 2010.
Investors pulled $US3.05 billion out of dedicated emerging market funds during the week ending February 12, according to EPFR Global data. This was the sixteenth straight week of outflows. The one positive to this is that the pace of outflows is slowing.
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