Sound Advice

Fund Facts Navigating the world of mutual funds can be an interesting adventure.  Indeed, for other than professionals (and probably for some of them), working one’s way through this forest of some 8,000 funds may be overwhelming.  Even so, here is some assistance in understanding. Mutual funds have been around for decades.  They become popular in the 1970s and 1980s.  Fifty years ago, most funds were load funds.  Load is another word for sales charge.  Back then, it was not uncommon for load funds to have initial charges of 8% or so when making investments.  So on Day One, your $100,000 investment was worth only $92,000. As time passed, investors became increasingly concerned about these sales charges.  Then several things happened.  The mutual fund companies created different classes of shares.  Typically, Class A included the stated load when the initial investment was mad...

Fixed Income: In a Fix Typically, the construction of an investment portfolio has begun with an approximate balance of 60% in equities and 40% in fixed income instruments.   Fixed income generally means bonds, but that includes bond funds and exchange-traded funds holding bonds.   The equity portion is intended to be the driver of capital appreciation over extended periods of time and the fixed income portion is supposed to provide stable, albeit more moderate ongoing rates of return. The theory behind this approach is that as the time periods measured have lengthened, the relative risk of holding equities has diminished while the returns they have generated have been higher than those of other asset classes.   What equities do in the short term, even a year or two, is often anybody’s guess.    To the extent that fundamental analysis can help toward determining future equity values, investors need to look ahead three, four, five years or more befor...

Insurance “An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table.” Ambrose Bierce One can only marvel at the broad scope of insurance schemes created in the pursuit of fat commissions for insurance agents.  From the simplest plans, such as whole life, to the ultracomplex, which no one understands but promises to provide rewards beyond one’s wildest dreams, it’s an area where fear and greed work together to soften the brain of the buyer and enrich the pocketbook of the seller.   There are certainly risks requiring the protection of properly selected insurance, but the range of products developed to generate hefty ongoing profits is ever-expanding.  The industry continues its efforts to stay ahead of people who are struggling to understand what these products are and why they need them. One example is life insurance, which has numerous permutati...

Jobs Are Up, But So Are New Infections Through the spring months, m ost of the economic data was extremely negative, with record declines in employment and consumer spending.  The speed of that decline had no modern precedent. We are now in a recession.   The shortest recession on record occurred in 1980 and lasted just six months.  Second place goes to a seven-month recession in 1918-19, which was tied to the Spanish flu pandemic.  The big question is: When will this recession end? Given surprisingly strong data in May, April may have been the bottom of this economic cycle.  If so, it will have been the shortest recession on record.  With massive support from the Federal Reserve, the federal government, and the reopening of previously closed businesses, employment surged unexpectedly.  At the same time, pent-up demand, stimulus checks, and generous unemployment benefits led to a reacceleration of commerci...

Most Stocks Are Not Doing As Well As The Averages It’s been a fascinating six months for the equity markets, especially considering how things changed when the market hit bottom on March 23 rd .  Until that date, stocks such as Alphabet (a.k.a., Google) and Facebook were going nowhere fast.  Then the pandemic forced us to give up lives of flexibility and personal contact and shift to virtual life in the digital world.  Amazon, Facebook, and Netflix rose on a tidal wave of use. It seems likely these beneficiaries will continue to prosper until the options we used to have are available again.  Their success, however, is not widely shared. This is well illustrated by the comparison between the performance of the Standard & Poor’s 500 Index, which is capitalization-weighted, and the S&P 500 Index when measured on an equal-weighted basis. Let me explain the difference.  The index as stated includes companies of all sizes....