In investing, ‘risk’ can have many meanings: the risk of inflation, the risk of interest rates changes, the risk of currency exchange rate fluctuations, just to name a few.

One important measure of the riskiness of a stock (or mutual fund) is: How much does its value change relative to other stocks?

Which would you rather own?

Below is a graph of the S&P 500 index and the total return on a bond fund (PTTDX: Pimco Total Return).  Each line was normalized to 1 at the beginning.  If you made either investment in June 2002 and held it for six years, you would have had about a 35% total return on your investment.  Both investments end up at the same point.

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Growing up, we never discussed the stock market. It just wasn’t part of my household, my neighborhood, or (to my recollection) the national zeitgeist.

My parents probably had some money tucked away in a mutual fund or two that were  recommended by my Uncle. The Sunday newspaper had a thick section filled with the weekly summary of stock and mutual fund trading values printed in impossibly small print. The subject was a foreign language, full of arcane symbols.

The only investments ever discussed were savings accounts and certificates of deposits. I would take my birthday money to the bank along with my savings passbook. The clerk would fill out the deposit slip and enter the deposit amount in the passbook, initialing the entry.

Growing up with inflation

The bank paid 5% on deposits. We never shopped around for a better rate, because it would have been too inconvenient to travel elsewhere to transact business.  During my high school years, inflation grew to 5%, then 7%, then 10%, finally reaching a peak of 13.5% in 1980.   As I recall, the bank continued to pay about 5% on my savings.   Even with my measly high school math I knew I was losing ground.  Inflation was the story of the day.  It dominated the nightly news.  President Ford encouraged the nation to “Whip Inflation Now,” with his big red WIN buttons.

I don’t mean to bore you with tales from this old geezer’s childhood.  I’m telling you this in case you are too young to have lived through inflationary times. Continue Reading »

Brazil, Russia, India, and China.  Together they have 40% of the world’s population and generate 27% of the world’s GDP.  The average annual GDP growth of a BRIC nation was greater than 7% (before the recession), as compared to approximately 2% for a G-7 nation.  Tremendous growth can create significant profits for successful companies.

How can you capture some of this opportunity in your portfolio? Continue Reading »

Tonight I have a little luxury of time, so I thought I’d peruse the web and write about what’s out there.

My first stop is the Carnival of Money Hackers, hosted this week at the ABC’s of Investing, which included my article on the Three-Minute Portfolio.

1.  The host has a post that will interest you the most, as he takes you through the ABC’s of REIT’s.  I’ve been interested in real estate investment trusts; because, as the posts points out, they are said to have a low correlation to the stock market.  I thought I’d take a quick look at this bit of “common wisdom,” by graphing the return of an REIT ETF that he suggests, VNQ (blue), against the S&P 500 index (yellow).  Here is the graph from Morningstar:

They look rather strongly correlated to me.  Now perhaps this is an unfair comparison; because, the overall markets were so strongly affected by housing and mortgage-related issues over the last several years.  But it’s not clear to me that they are truly uncorrelated — I think this will take some more studying to convince me.

2.  OneMint compiled a useful collection of China-focused ETF’s.  I’m not sure I want to hold such a region-specific fund, but it seems like a good list and, overall, a good blog.

3.  FourPillars wrote about the possible “Cash for Clunker Appliances” program in which you can turn in old appliances for new Energy Star rated ones.  I’ ll nitpick that he didn’t include a link to a government website with a definitive description.  Here it is.  The DOE site also has a list of all of the Department’s recent initiatives to both develop new sources of energy and to use what we have more efficiently.  It’s really quite an impressive list.

4.  Matt at Debt Free Adventure wrote about his foray into worm composting.  I especially like that he made his own composter inexpensively rather than shelling out cash for an off-the-rack version.  I’m a huge fan of composting.  I long ago gave up my gym membership in favor of a little sweat equity in my garden.  Plus, it’s more fun hanging out in my backyard than a sweaty gym.

I also recommend reading:

5.  Jim Blankenship’s post on Index Investing over at his most excellent blog, Getting Your Financial Ducks In A Row.  He tells a compelling “story” about how success statistics for mutual funds can be manipulated.

You can claim the cost of your child’s summer camp as a dependent care expense if:

• the camp is essentially providing child care so that you and your spouse can work (or look for work),
• it is a day camp (sleepover camps are considered a luxury), and
• the child is under 13.

You can claim expenses of up to $3,000 for one child or $6,000 for two or more children. Continue Reading »

I just received a notification from my brokerage about changes to several Janus Funds (JNS).   I dutifully clicked on the provided link to see this practically illegible document.

Intrigued by the few words I could actually decipher, I went to the Janus website and searched for a more legible copy of the Supplement, alas, to no avail.  Nevermind.  The quality of the printing wasn’t my real concern, it was the content of the text.

The Supplement lists the expense ratio limits adopted by some of the Janus funds.  In principle, limiting the expense ratio is a great idea, since it provides a target for the fund’s management.  But let’s read the fine (if murky) print. (Comments are mine.) Continue Reading »