Portfolio Statistics

Portfolio Statistics

To begin by reviewing the most basic concepts of macroeconomics, inflation is calculated as a percentage change from one year to the next. To calculate the percentage change between two values, one subtracts the new value from the old value, divides the result by the old value and then multiplies by a 100. Real values are corrected for inflation while nominal values are not.

Someone who is risk averse seeks to minimize risk, whereas someone who is risk neutral wants to maximize return, even if that means taking some risk. Theoretically, there may also be a risk-loving category, but the notion seems more appropriate to gambling than to financial management. The difference lays primarily in prioritization.

The rationale behind diversification: to attain the efficient portfolio frontier (the goal), one must maximize expected return [r], and minimize variance [Ø]. The r = n over square root of Ø; therefore, assuming all assets [n] are independent, by increasing the amount of assets (diversifying) one may reduce the variance to nearly 0. Closely related are the maximin (maximizing minimum gain) and minimax (minimizing maximum loss) statistical concepts.

A tangency portfolio is the result of a computation, the combination of stocks and bonds that should be held according to the equation to calculate the expected rate of return. A leveraged portfolio means capital was borrowed to create the portfolio. One of the most crucial models in finance is the capital asset pricing model (CAPM). Developed by Markowitz (1959), Sharpe (1964) and Lintner (1965), the CAPM assumes that all investors are rational and consequently choose to hold a tangency portfolio (which is sometimes far from the truth).  Tangency portfolio must thus equal the actual market portfolio.

But we had a pretty diversified portfolio of businesses around the world and things tended to offset each other. But one or two years ago, we had a lot of things happening at the same time (Jim Cantalupo). Photo: Megan Jorgensen (Elena)

The term ‘equity premium puzzle’ was coined by economists Prescott and Mehra (1985). An equity premium is the difference between the return on stocks and on bonds over a period of time; over intervals of long duration, stocks appear to outperform bonds. Logically, it follows that if someone wants to invest in the long tem (more than 30 years), then there seems to be little incentive to invest in the consistently underperforming short debt, but is anything ever so simple? Because most individuals are risk averse, they prefer to invest in governmental bonds, which are virtually riskless.

However, these theories are often misused. Experienced, successful investors may believe that they do not need diversification. Also, theories look great on paper, but in practice may be difficult to implement or even inefficient. According to the media, many governments are overinvested in oil, which would not be the case if the theory were applied.

References:

• Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Review of Economics and Statistics, 47(1): 13-37.
• Markowitz, H. (1952). Portfolio selection. Journal of Finance, 7(1): 77-99.
• Mehra, R. & Prescott, E.C. (1985). The equity premium: A puzzle. Journal of Monetary Economics, 15(2): 145-61.
• Sharpe, W.F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 19(3): 425-42.

A Two-for-one Investment

A Two-for-one Investment

Variable annuities are hot, but are they the right choice for you?

Money has been gushing into variable annuities, which are essentially tax-advantaged mutual funds in a life insurance wrapper. Some $50 billion was poured into variable annuities in 1994, up from just $8 billion in 1991, according to the Georgia-based research firm VARDS Report.

Variable annuities are retirement accounts that allow you to invest in a menu of mutual funds, stocks, bonds, and money markets. Unlike regular annuities, the amount you get when you start withdrawing depends on the performance of the funds you choose.

One big attraction of variable annuities is that earnings within the annuity are tax deferred until you start withdrawing the money. Another lure: If you die before age 59-and-a-half your heirs will get back at least what you put in. Even if the funds you pick do poorly, your heirs won’t suffer. The guarantee doesn’t apply if you live past 59-and-a-half, however.

Annuities come in several varieties. Younger people who are saving for retirement often choose deferred annuities, which allow you to pick a future date for income payments to start. Older folks prefer immediate annuities, often purchased with a lump-sum payments at once or soon after you buy them. Variable annuities give you the option of investing in different mutual funds, so that monthly payments fluctuate with the markets. Fixed annuities are invested in bonds and mortgages with fixes return rates, so you are guaranteed at least a specified minimum payment.

For all that allure, variable annuities have some big drawbacks. For one, most of them have surrender fees – fees that you pay if you decide to withdraw funds before the end of the term – that start as high as 9 percent. As with other retirement accounts, the IRS will hit you with a 10 percent tax penalty on earnings if you withdraw your money before you turn 59-and-a-half.

Statue of Liberty. Photo by Elena

Another downside: hefty ongoing expenses. The average expense ratio of variable annuities is 2.1 percent, but it can run as high as 3 percent, compared with 1,3 percent for the typical diversified stock mutual fund.

The high costs come from running the account, for compensating the broker of financial planner who sells you the annuity, and for providing insurance protection. Expenses are paid directly out of earnings, reducing both yield and total return.

Still, if you’ve exhausted other tax-deferred plans and are in a high-income tax bracket, variable annuities may be for you. Steven B. Weinstein, editor of the Arthur Anderson Personal Financial Planning Newsletter, suggests asking the following questions before investing in variable annuities.

Have you already made the maximum contributions available to other tax advantaged investment plans? Do you plan to hold your investment at least until you reach age 59-and-a-half? If you are in the 28 percent or 31 percent federal tax bracket, do you intend to hold your investment for 10 years or more? If you are in the 36 percent of higher tax bracket, do you expect to hold your investment for at least 15 years for bonds and at least 20 years for stocks? Do you expect to be in a lower tax bracket when you retire and annuity withdrawals begin?

If you can answer “yes” to any of these, variable annuities may fit the bill.

One further bit of advice from financial advisors: Pick solid, aggressive funds with low fees, and then stick with them for the long haul.

Performers in the bunch. Morningstar, Inc. rates variable-rate annuities based on performance and risk in one comprehensive evaluation. Morningstar gives five stars to annuities, or subaccounts, as they are called, with the most attractive risk/reward profile.

The least attractive get one star.

Manulife Lifestyle Emerging Growth Equity, Aetna Marathon Plus Alger Growth, Amer Skandia Advisors Choice/Alger Growth, Amer Skandia AdvisorsDesign/Alger Growth, Guardian Investor/Gardian Real Estate Account, Anchor National ICAP II Foretign Securities, PaineWebber Advantage Annuity Global Growth, Prudential Discovery Plus Real Property Account, Prudential VIP-86 Real Property Account.

All about annuities

Need information about annuities sources or immediate annuity payout rates and data? Try the following:

Reports: Comparative Annuity Reports. First-year rates for fixed annuities.

Life Insurance and Annuity Shopper: Immediate=annuity payout rates and other statistics on fixed and variable deferred-annuities.

Morningstar Variable annuity/Life Performance Report. Performance rankings and various other statistcs for variable annuity subaccounts.

Basic information: National Insurance Consumer Helpline. This hotline is sponsored by the insurance industry trade associations.

Trained personnel and licensed agents will answer questions about insurance sources and send consumer brochures. They also will give advice on other insurance issues.

Laugardalur Valley in Iceland

Laugardalur Valley in Iceland

The Laugardalur valley is a Reykjavík neighbourhood that lies east of the city centre. Filled with parks, sport centres, and other recreational opportunities, Laugardalur is the perfect place to spend a sunny day.

History

The name of the valley roughly translates to hot spring valley, and it takes its name from the hot springs where the women of Reykjavík used to wash laundry. Laugavegur, Reykjavík's main shopping street, shares a name with the valley, since it was first built as a way for the washerwomen to the hot springs. Later, the hot water was used to make a swimming pool and Laugardalur soon became a centre for sports and outdoor activities.

Reykjavík's Largest Thermal Pool

Today, Laugardalur still has the largest swimming pool in Reykjavík, the Laugardalslaug. It's got an indoor pool, an outdoor pool, hot tubs of varying temperatures, a wading pool, a sunbathing area, a stream bath and a waterslide – it's basically a watery paradise. Having a chat with the locals in the hot tub is essential but there's also plenty of other activities in Laugardalur.

Icelandic Hills. Photo by Olga

Parks and Gardens

Laugardalur also boasts a beautiful garden featuring an impressive selection of arctic flowers and plants. Beneath the branches of a leafy grove in the gardens, you'll find the lovely Café Flora. Right by the botanical garden is The Family Park & Zoo in Laucardalur. The Zoo includes most Icelandic animals, both wild and domesticated, from foxes, reindeer and seals to cattle, horses and sheep. In summer, the Family Park offers rides and play equipment for children of all ages as well.

The Reykjavík Art Museum – Asmundur's Studio

At the edge of the Laugardalur valley, not far fro Laugardalur Arena is a strangerly shaped, domed white building that's well worth a visite. This is Asmundarsafn, the former studio of Asmundur Sveinsson (1893 – 1982), which has now been converted into a museum. Asmundur was a pioneer of Icelandic sculpture and you can see his sculptures in many different locations all around the city, such as in front the main building of the University of Iceland and on the corner of Laekjargata and Bankastraeti in the city center.

The Laugardalur Stadium

Finally, Reykjavík's main sports stadium, Laugardalsöllur, is also located in Laugardalur valley. Close to the stadium is the Lagardalshöll arena, a multipurpose indoor venue built in 1965. In addition to large pop and rocj concerts, trade shows, exhibitions and the 1995 World Championship of Handball, the Laugardalshöll hosted the famous 1972 World Chess Championships, where Amercan Bobby Fischer defeated Russian Boris Spassky.

The Perfect Caribbean Island

The Perfect Caribbean Island

We've scoured the azure sea and discovered its gems...

Although there are 26 territories, countries, or commonwealths in the Caribbean, there are hundreds of individual islands, some of them spectacular. The bad news for sun worshippers and pleasure seekers is there are very few islands left that are “undiscovered”. The good news is times change – governments are overthrown, new resorts are built, airlines add new routes... Beaches once occupied by fully armed U.S. Marines are now filled with sunbathers carrying weapons no more lethal than sunblock. And the new beauty spots aren't hard to find. A veritable army of travel writers is constantly on the lookout for the poshest, cheapest, most environmentally correct, most decadent – or whatever else – spot.

With this in mind we set out to find the “hot” islands of the Caribbean by meticulously tracking everything that has been written about the vacationer's paradise. What emerges is a startling consensus about where a sybarite will find the most sun and fun. We are shielding away from bigger, more commercial islands, such as Jamaica, Barbados, St.Martin or Aruba, looking instead for places off the beaten track. Here's what we discovered:

Anguilla

Anguilla is considered by many to be the new St.Barts, the super-expensive Francophone hangout that's been the glitteratti' island of choice. Like St.Barts, Anguilla is small, just 16 miles long and 3,4 miles wide, and has probably the best beaches in the Caribbean. The island is long and completely flat, resembling a finger. Its tone is somewhat less intimidating than St.Barts. There still are reasonably priced places to stay and eat, and there is a significantly large local population, which means you are just as likely to share your table with a Rastafarian as with a movie star.

Best beaches: There are over 30 white sandy beaches. Highlights among them: 

Shoal, Rendezvous Bay, Mounday's, Meads. The best coral reef for snorkeling is at Sandy Isle, just offshore from Sandy Ground. A bout service can get you there.

Hot spots: Beautiful restaurants, such as Johnnos, with a great view of sailboat races, picnic tables, grilled lobsters, and good beer.

Best Trek: Journey to Windward Point, at the eastern tip of the island; walk through the former Katouche Plantation at Crocus Bay and around the 100-acre salt pond at Sandy Ground. 

Flight by American Airlines from San Juan, Puerto Rico.

Best places to stay : Mailiouhana : The island's most highly touted resort, is situated on a cliff overlooking Meads Bay. Formal and chic, it has staffers for every guest. Rendezvous Bay, with dozens of beach cottages sprawled over many wild acres, in the island's first seaside resort.

A perfect view on the sea. Photo by Elena.

Bequia

This tiny 7-square-mile island has been popular with yachters because of its laid-back ambiance and picturesque, hill sheltered harbor. The island's casual pace was threatened by the construction of an airport, but the place hasn't changed much; it's just easier to get to. The island is refreshingly unglitzy and a great bargain.

Best beaches: Lower Bay, a classic Caribbean beach with white sand, palm trees, and a five-minute swim to the island's most accessible snorkeling reef.

Hot spot: De Reef, the Lower Bay beach bar, is popular with locals who go for the island's home brew, Haroun beer.

Best place to stay: Frangipani is a century-old West-Indies-style family inn nestled into a hill overlooking the harbor. The best rooms have private baths and face the garden.

Dominica

The largest of the windward islands, Dominica shoots up from the sea in a series of formerly volcanic peaks and slopes. It has no white beaches, no serious resorts, and no night life. Though it has long been a haven for divers and hikers, ecotravelers have tried to keep quiet about the wonders of a vacation on Dominica. Three-quarters of the island consists of untillable slopes rising steeply from low-lying rain forests, making for some of the most scenic hiking in the Caribbean. Waterfalls and hot springs abound. Underwater are some of the healthiest and most dramatic reefs left in the islands.

Best treks:  Boiling Lake is a huge bubbling cauldron of extremely hot sulfur water in the southeast corner of the island. One of the natural wonders of the Caribbean, it can be reached by a challenging six- to eight-hour hike through the Valley of Desolation. Be sure to go with a guide. The 140-foot Trafalgar Falls in northeast of Roseau, just outside of Morne Trois Pitons National Park. Half the falls are icy cold while the other half spring from a volcanic source at a consistent 104 degrees. Middleham Falls, within Dominican National Park, is spectacular but difficult to reach.

Best place to stay: Papillote is a unique guest house nestled into a steep canyon that is super low key, informal and eco-sensitive. The hot water is fed from a real hot spring. Rooms are spare but comfortable, the food is traditional Caribbean.

Grenada

For many Americans, this island still conjures images of U.S. Troops landing on its beaches. That's kept its prices somewhat lower than on many other island for many years, but all the important amenities are there.

Best beaches: Grand Anse.

Hot Spot: The open-air market, on Saturday's in Grenada's capital, St. George's, is a colorful melange of tropical fruits and island crafts.

Best treks: Grand Etang, a 3,800-acre park about 20 minutes from St.George's has its center Grand Etang Lake. The lake is the crater of an extinct volcano, as is surrounded by mountains that are prime bird-watching territory. Seven Sisters Waterfalls has seven cascades, each with deep, cool pools, but should be toured with a guide.

Best place to stay: La Source is on of the few real spas in the Caribbean. It offers individually designed menus and a range of spa treatments including mud baths, seaweed wraps, massages, yoga, meditation, and stress maangement.

Montserrat

Before Hurricane Hugo destroyed the most famous recording studi (Air Studios) in the Caribbean, Montserrat was the habitat of Micj Jagger, Elton John, and Setve Wonder. Known as the emerald island of the Caribbean because of its rich, green landscape, the tiny island is 11 miles long by 7 miles wide. The topography is volcanic and mountainous, with one peak reaching 3,000 feet. Striking views abound.

Best beaches: There are few beaches, but there is one nice white sand crescent: Rendezvous Bay, an excellent place to rent a villa, as there are few hotels.

Hot spot: Rootsman, a beach bar on Carr's Bay that serves the local “bush” rum.

Best treks: Mount Chance, a 3,002-foot volcanic peak, is accessible by a strenuous natural trail of steps from the road south of Plymouth. The hike takes about an hour and a half and offers stunning views. Galway's Soufriere no longer spouts lava, but the still-active volcano bubbles springs and sulfur. A hike to the Soufriere from the village of St.Patrick's takes about two hours by road and trail. A guide is required. The Great Alps Falls drops into a 70-foot gorge. A 45-minute hike starts in St.Patrick's, and winds uphill about a mile. There is a small, swimmable pool at the bottom. Guides are recommended for all trips. Tours can be arranged by the Montserrat Tour Guides Association.

Best place to stay: The Vue Point Hotel has individual cottages sloping down the hill above Old Road Bay.

Flight: From Antigua, connect to the island.

A calm beacn on a Caribbean island. Picture by Elena.

Mustique

The popularity of this island, whose name means “mosquito”, stems from the fabulously wealth and famous people who owned houses on it, among them: Mick Jagger, David Bowie, and Princes Margaret.

Best Beach: Macaroni Beach.

Hot Spot: Basil's Bar, an upscale, but casual bar. Jump-up buffet with reggae band and jam. For celebrity watching, try the tiny Anglican church on Easter and Christmas.

Best place to stay: The Cotton House, a former 18th-century plantation house, is the island's only hotel.

Nevis

Just two miles away from St.Kitts and a 50-minute charter flight from St.Barts, Nevis is more laid back than either. The Four Seasons opened a fantastically expensive resort here back in 1991, with a Robert Trent Jones golf course, but the rest of the Island is still relatively poor, sleepy, and charming. For people looking for a more old-fashioned Caribbean experience sans condos, night life, and duty-free shops, Nevis is a good choice. The former plantation houses are the best places to stay.

Best beaches: Pinneyès, a 6-mile stretch of sand, and Newcastle Bay beach are great for snorkeling. All the beaches on the island are white sand.

Hot Spot: The 25-mile main road that circumnavigates the island. The circuit takes two hours to complete.

Best Trek: Nevis Peak, a 3,232-foot-high mountain, sits in the island's center. Hamilton Trail, a popular two-and-a-half hour hike to its peak, traverses part of a rain forest and leads to spectacular views of surrounding islands. Guides can be found through the Nevis Historical and Conservation Society.

Best Places to stay: Montpelier Plnatation Inn is a large stone house with eight ocean-view bungalows, a lap pool, and a shuttle to Pinney's Beach. Princess Di used to pitch up for some rest and relaxation. The Hermtage, built in 1780, it the oldest building on Neves. Among its amenities, a stable of eight thoroughbred horses ready for guests to ride.

St.Barts

The choicest of the Caribbean islands, because of its French flavor, beautiful beaches, swanly gourmet restaurants, and extremely high ratio of celebrities. The island also has the most hair-raising airplane landing and the highest prices in the Caribbean.

Best Beaches: Gouverneur Beach, Colombiere Beach, Grand Saline Beach, and Flamands Beach (in that order). Colombiere Beach on the northwest coast can only be reached by boat or trail. The trail starts at Flamands Beach, at the west end, and is about a 20-minute hike. Bring food and drink as the beach is totally uninhabited. A word to the prudish: bathing suits (top and bottom) are optional on the island.

Hot Spot: Chez Maya, a tres chic beachside restaurant in Gustavia with Vietnamese and Caribbean cuisine. A celebrity hangout.

Best places to stay: Guanhani is far from the airport and Gustavia, the main town, but is boasts a gorgeous beach, many pools, and is good for families. Hostellerie des Trois Forces is a small inn nestled in the easter slope of Morne du Vitet. 

Flight: To St.Martin, connect with flight to St.Barthelemy.

St. Lucia

This sleepy island looks more like Hawai'i than it does most of the Caribbean. Two cone-shaped mountains, Gros Piton and Petit Piton, are perched right next to each other on the southwestern coast, dominating the landscape.

Best beaches: Divers should check out Anse Ghastanet's Beach. For sunbathing, try instead Reduit Beach on the northern end of the island.

Hot Spot: Grosislet, a neighborhood on the northern end of the island, holds a street fair and jump-up (dance). Local vendors and restaurateurs sell their best dishes while tourists and locals mingle, eat and dance. When you're there, be sure to try the very tasty St.Lucian lager, Piton beer.

Best Trek: Gros Piton has a 2,619-foot climb to the summit, which should be taken with a guide. The St.Lucia National Trust can arrange for tours. Frigate Islands Nature Preserve, off St.Lucia's eastern coast, is home to the frigate – the magnificent bird that can be seen nesting and roosting from May to July. It is also the home to the boa constrictor, among other exotic creatures. There's another small preserve on the Maria Islands: Sulfur Springs, located in Soufriere at the southwestern part of the island, is a 7-acre site of volcanic craters filled with bubbling, sulfurous steam.

Best places to stay: Jalousie Plantation is a relatively new and controversial resort located between the Pitons. Environmentalists did not want the area between the two mountains developed. The luxurious individual cottages have their own plunge pool and all the modern amenities. Anse Chastenet, facing the Pitons, has a more casual atmosphere. All the rooms don't have modern amenities such as TVs, telephones or air-conditioning – but the do have incredible views.

Modern Manhattan

Modern Manhattan

Some pictures taken in Manhattan,  life in New York, just common people walking and enjoying the life, everyone with their worries and nice moments.

All the pictures have been taken by Elena.

Broadway and Union Square.

Residential buildings along the Central Park.

A curious building on Manhattan.

Manhattan Towers.

Two residential towers.

A typical street in the Uptown.

The 57th street.

Green city.

Natural History Museum.

A place on the East River. 

Macy's, one of the most famous commercial chains in the world.

Manhattan One PlazaCity Hall: Constructed from 1803 to 1812, New York`s City Hall is one of the oldest continuously used City Halls in the nation, and houses the offices of the Mayor and City Council, the executive and legislative branches of government. Considered one of the finest architectural achievements of its period, City Hall was designed by architects Joseph François Mangin (before 1794-1818), a French émigré, and John McComb, Jr (1763-1853), a native New Yorker. The building is in the Federal style, with clear French influences that can be seen in the large arched windows, delicate ornamental swags, and more decorative Corinthian- and Ionic-style columns and pilasters. City Hall is a designated Hew York City landmark, and its soaring rotunda, dramatically encircled by a keystone-cantilevered staircase, is a designated interior landmark. In 2010, the City launched the City Hall Rehabilitation to correct structural issues and preserve the historic building. In addition to structural repairs, the project included the installation of a new fire safety system, an energy-efficient heating and cooling system, a fuel cell, and vastly improved electrical service in order to bring the building up to 21st century standards.

Memorial Pond.

New York Towers.

National Museum of American Indians.