The Perfect Portfolio

The Perfect Portfolio

A twelve-step program to get your investments to meet goals

Deciding to invest for your future is the easy part. Picking the right mix of stocks, bonds and short-term money market accounts is more taxing. Fidelity investments, the huge mutual fund company based in Boston, has come up with a simple quiz to help you find that mix. Called FundMatch, the test asks 12 questions about your finances, your needs for the future, and how aggressive an investor you are. The total will suggest the mix of stocks, bonds and short-term instruments right for you. Note that the test is designed for those who plan to invest for more than two years. Fidelity suggests you consider only short-term bond or money market funds, regardless of your store.

1. What portion of your total “investable assets” – the dollar amount of the investments you currently have – will this investment represent? The percentage of your portfolio that this investment represents can make a difference in how conservative or aggressive you may want to be. Do not include your home or vacation house in calculating investable assets.

Answers and points

Less than 25% – 6

25% to 50% – 7

51% to 75% – 3

More than 75% – 2.

2. Which one of the following describes your expected future earnings over the next five years? Assume inflation will average 4 percent. If you are expecting significant earnings increases, you may want to invest more aggressively.

I expect my earnings will far outplace inflation (due to promotions or a new job) – 5

I expect my earnings increases to stay somewhat ahead of inflation – 3

I expect my earnings to keep pace with inflation – 2

I expect my earnings to decrease (due to retirement, part-time work, or some other reason) – 1

Perfect Portfolio. Photo by Elena

3. Approximately what portion of your monthly take-home income goes toward paying off installment debt, such as auto loans, credit cards, etc., but not including a home mortgage? If a large portion of your income goes toward paying debt, you may want to have cash available for emergencies.

Less than 10% – 8

10% to 25% – 6

25% to 50% – 3

More than 50% – 1

4. How many dependants do you have? Include children and parents you support. If you have ongoing family obligations, you may need to be more conservative.

None – 4

1 – 3

2 or 3 – 2

More than 3 – 1

5. Do you have an emergency fund, that is, savings from three to six months’ after-tax income? Such a fund helps protect against the unexpected, such as a job loss. Without this reserve t tap, you may want to invest more conservatively.

No – 2

Yes, but less than six months or after tax income – 6

Yes, I have an adequate emergency fund – 8

6. Do you have a separate savings plan to cover major expenses, such as college tuition, home down-payment, repairs, etc.?

Yes, I have a separate savings plan for these expenses – 8

I do not expect to have any such expenses – 6

I intend to withdraw a portion of this new investment for these expenses (answer question 12 accordingly) – 5

I have no separate savings plan for these expenses – 2

7. Have you ever invested in individual bonds or bond mutual fund? How comfortable you are with different risks can help you determine how aggressive or conservative you want to be.

No, I would be uncomfortable with the risk – 1

No, but I would be comfortable with the risk – 9

Yes, but I was uncomfortable with the risk – 2

Yes, and I felt comfortable with the risk – 10

8. Have you ever invested in individual stocks or stock mutual funds?

No, I would be uncomfortable with the risk – 1

No, but I would be comfortable with the risk – 15

Yes, but I was uncomfortable with the risk – 3

Yes, and I felt comfortable with the risk – 16

9. Which one of the following statements describes your feelings toward choosing and investment? You should balance the comfort level you choose with your desire to attain your investment goals.

I would only select investments that have a low degree of risk associated with them (i.e., it is unlikely I will lose my original investment) – 2

I prefer to select a mix of investments with emphasis on those with a low degree of risk and a small portion of others that have a higher degree of risk that may yield greater returns – 5

I prefer to select a balanced mix of investments – some that have a low degree of risk, other that have a higher degree of risk that may yield greater returns – 9

I prefer to select an aggressive mix of investments – some that have a low degree of risk, but with emphasis on others that have a higher degree of risk that may yield greater returns – 12

I would only select an investment that has a higher degree of risk and a potential of higher returns – 16

10. You could increase your chances of improving your returns by taking more risk, would you:

Be willing to take a lot more risk with all your money – 16

By willing to take a lot more risk with some of your money – 12

By willing to take a little more risk with all your money – 10

By willing to take a little more risk with some of your money – 5

Be unlikely to take much more risk – 2

11. How long can you tie up this money? Your time frame is critical to your investment strategy. Stocks outperform bonds and short-term investments over long periods. The longer your money can sit and take advantage of market cycles, the more aggressive you may want to be. In approximately how many years do you expect to need the money you are investing?

2-3 years – 5

4 – 6 years – 25

7 – 10 years – 40

10 – 15 years 45

More than 15 years – 50

12. Do you expect to withdraw more than one-third of the money within 10 years? (For a home purchase, college tuition, or other major need?)

No – 50 (If yes, when do you expect to withdraw from the account?

Within 3 years – 5

4 -6 years – 30

7 – 10 years 50

Total score for all 12 questions:

Score: 0 – 75, Capital preservation portfolio. Short term – 50%, bonds – 30%, stocks – 20%.

Score: 76 – 132, Moderate portfolio. Short-term – 20%. Bonds – 40%. Stocks – 40%.

Score: 133 – 179, Wealth-building portfolio. Short-term – 5%. Bonds – 30%. Stocks – 65%.

Score: 180 or more, Aggressive growth portfolio. Stocks – 100%

A Distant Affray

A Distant Affray

By Roger Ormerod (excerpt)

… He asked, then, where I was calling from. I explained that it was a weekend course at an adult residential college. He asked how far away and I told him just over a hundred miles, and he said just as well but he didn’t blame me, and was it a dirty weekend? I said it hadn’t worked out like that, so far, but there was still time. One has to pretend to a certain amount of nonchalance in these situatons, don’t you think? But really, I was too exhausted. We hung up as friends.

This was not the end of it, but fortunately no more phoning was involved, as I was running out of change. I don’t know whether you noticed, sir, but I was missing for a large part of Saturady evening. The local police sent a car for me, and they ran me down to the station. Another inspector. Wales has some veery pleasant policmen, I find. We chatted. He explained that my wife was at that moment in custody, charged with grievous bodily harm inflicted with a deadly weapon, to wit, one shotgun. I had to admit that I’d forgotten to mention I owned such a weapon. He tutted a little, shaking his head, then told me that Madge was expected to recover, but the word was, from the hospital, that Colin would have no future practical use for his cottage. He raised his eyebrows at me and asked me whether she was usually that violent.

I shook my head. My opinion, which I expressed, was that some things must have provoked her, though I couldn’t imagine what that might have been, but the circumstances hadn’t been normal, had they?

Distant Affray. Photo by Elena

He cleared his throat and said no, they weren’t normal for Wales – men shooing one woman out of their bed just in time to take another woman to their cottage. Not in Wales. I detected a certain amount of envy in his voice.

I asked for Jason. He was being cared for by the lady next door on the left, I was assured. That would be Tina, a most attractiv widow with a sense of humour.

My wife phoned this morning. She is out on bail and staying at a quiet hotel, for her nerves. Tina is taking some of her things along and will tell her I’ve recovered from the experience. My wife tells me she has seen a solicitor about divorce proceedings, and doesn’t expect me to contest it. She sounded doubtful and tentative, but I’m sure Tina will encourage her to accept that divorce is the best solution. I’m to have have custody of Jason.

(Ellery Queen, Mystery Magazine, September 1993)

distant_affray

Stock Funds: Risk Assessment

Stock Funds: Risk Assessment

Small funds are more likely to soar – and more likely to flop

When it comes to safety, big stock funds, are often better. Smaller stock funds may carry bigger rewards, but they also carry bigger risks. “You’re more likely to find a smaller fund that soars, but you’re also more likely to get a fund that flops,” say many experts.

Generally, the specialists divide stock funds into four groups based on their assets, average assets among diversified stock funds being $500 million or so. The results: The very smallest funds – those ranking in the bottom 25 percent in assets – didn’t necessarily generate poorer results each year. In fact, on average the smallest funds come out on top sometimes. But a look at the worst-performing funds in each year for the four different size groups shows a different picture. In 9 of the 10 years, the biggest losers come from the smallest 25 percent of all funds, a group that today would include funds with less than $12 million in assets.

Small funds have a lot of pluses, including an ability to move quickly to gain investing advantages. But, smaller funds also generally carry huge annual fund expenses that cut into investors’ returns. Big funds, though lumbering, have other advantages, including deep research capabilities and more consistent performance.

Risk Assessment. Photo by Elena

Mixing Principles and Profit

You can choose to put your money in socially responsible funds. Investors who want to put their money where their ethics are can choose from about fifty such funds. Socially responsible investing, or SRI, involves screening out companies heavily involved in activities like gambling or weapons production, for example, and picking companies with good records on the environment, treatment or minorities, and other social issues.

Do socially responsible investors sacrifice monetary rewards? Hardly. Many of the largest have turned in fairly respectable returns over the past years. Experts award an A to funds with strict criteria for choosing companies with above-average social profiles. B goes to funds that invest in firms with some share-holder activism and that may emphasize avoiding bad companies rather than finding good ones. C is given to funds with minimal or no shareholder activism.

Staying Ahead of the Curve

Staying Ahead of the Curve

Want to know where bonds are headed? Consult the yield curve

Should you buy a three-month T-bill, a 30-year bond, or something in between? A look at the yield curve, which can be found daily in the Wall Street Journal or Investor’s Business Daily, may provide the answer.

A yield curve is simply a line that plots the interest rate paid by similar bonds with different maturities. The X-axis plots the length of time until the bonds mature. The Y-axis plots the yield of each bond. The average spread between the shortest-term and longest-term Treasuries is usually about two percentage points.

Reading the yield curve can be especially useful for long-term investing. If you have a shorter time frame – say, you’ll need to cash in your bond in three years for a child’s tuition – you should probably buy a bond that matures within that time period. Keep in mind, also, that interest rates and bond prices move in opposite directions: Higher rates mean lower bond prices. Rising interest rates can play havoc on the bond market. This was the case in 1994, when even the highest-quality bond portfolio lost value as interest rates climbed. When rates start heading down, on the other hand, it’s usually a good time to buy long-term bonds as a way to lock in current high yields.

A common misconception is that if a bond’s yield is going up, the investment is worth more. It’s just the opposite; when a bond’s yield rises, its price has fallen because the increase in yield comes at the expense of the bond’s market value. Conversely, if a bond’s yield falls, its market value rises. Another risk: rising inflation, which can cut the worth of bond’s coupon payments and its eventual redemption value.

The yield curve usually slopes upward. That’s because longer-term investments carry more of the aforementioned risks and must pay higher interest rates to compensate. When short and long-term interest rates are roughly the same, the curve is flat. A thin spread means the market sees little difference between the short-term and long-term risks of inflation. So buying longer-term bonds gives you only a slight premium.

Grand Central Railway Station in New York. Photo by Elena

When short-term yields exceed long-term yields, the curve turns downward or inverts. An inverted curve usually means that a recession is coming. The last time the curve inverted was 1989, signaling the slowdown that led to the 1990-91 recession. An inverted curve has predicted all eight recessions since 1950.

Some analysts say that inverted curves also signal a buying opportunity for long-term bonds. In other words, when the economy softens and interest rates come down, you want to be in long-term bonds because eventually the curve will normalize and the value of long-term bonds will rise.

Reading the Yield Curve

Yield curves show how interest rates and time to maturity relate in otherwise similar bonds. A normal, or positive, yield curve moves upward, showing that interest rates rise as maturities increase. When the curve invests, or bends downward, short-term rates are higher than long term rates, a sign of a recession to come.

Activités from Reykjavík

Activités from Reykjavík

Reykjavík and the surrounding area offer plenty of activities as well as standard day tours. Many of these activities can be added onto the tours, making for a fuller day with more than just enjoying the breath-taking nature, while other require a longer time or more dedication. Then there are even a few things that you can do on a whim, and don’t even have to take too much time! » Whatever it is, you can trust that there’ll be plenty of things to do!

Snorkelling and Diving in Silfra

Snorkelling – it’s not just just for the tropics anymore! Good news for everyone, from experienced divers to novice adventure-seekers; the fissure Silfra is not only a world-class diving location but ideal for snorkelling tours as well. The crystal-clear water offers over 100 metres of visibility. Don’t miss out on floating along the fissure and seeing first-hand the amazing world underneath ours. Silfra is also a world-renowned diving site, for those who want to experience it full-force and have the necessary permits (a drysuit permit is needed to dive in Silfra, but everyone can snorkel). Several tour operators offer day tours in this location all year.

Horseback Riding

Not only is the Icelandic horse a horse of a different colour, it’s a horse of an entirely different genetic makeup. Having been bred in almost perfect isolation for over 1000 years, the Icelandic horse is unique in many respects. They are notably well-tempered and relatively small (you shouldn’t fall off but even if you do, you won’t fall far), though they are probably most famous for their unusual fifth gait : the tölt. Tölt is a way of walking unique to the Icelandic horse, which keeps the rider stable while manoeuvring easily over Iceland’s uneven landscape.

ATVs in All Terrains!

ATVs, four wheelers, quad bikes… whatever you call them, they’re always a fund ride. Just a stone’s throw outside Reykjavík, you can take your road-rage to the lava fields where tense powerful machines eat up the terrain. Quad bikes open another world normally hidden from the average traveller; driving along a black sand beach or on a seldom travelled mountain road is an unforgettable experience.

Geysers approaching. Photo by Olga

Caving

Underneath the mountains and laval fields is an incredible subterranean realm that just begs to be explored. Iceland has 500 known lava caves, but that’s a mere 5% of the estimated total of 10.000. Navigating these caves is a great way to experience first-hand how the land formed from the molten lava, cooling and freezing time forever. It’s a great adventure and everyone should try it.

Whales, Puffins and Sea Angling

The ocean surrounding Iceland is a fantastic place to go whale watching. The most frequently seen cetaceans are minke and humback whales and seeing these giants of the ocean in the wild is an unforgettable experience. You can also take a dedicated puffin watching tour, which takes you out to the puffin colonies on the islands outside Reykjavík in the season, from mid-May to mid-August. Finally, if you’d rather taste the sea’s creatures than look at them, sea angling boat tours from the Old Harbour let you catch your own fish and have it cooked for you right there on the boat!

Iceland’s Volcanoes

Iceland is one of the most volcanically active places on earth with more than 30 active volcanoes. The most famous one is probably Mt. Eyjafjallajökull, which temporarily halted Europe’s air trafic in 2010. Other notable volcanoes include Hekla, widely considered to be the entrance to Hell in the middle ages, and Bardarbunga, which erupted in 2014. Several Super Jeep excursions, scenic flight tours and helicopter tours will take travellers out to these wonders of nature to enjoy their raw power and grotesque beauty. If seeing the volcanoes isn’t enough for you, there is always Prihnukagigur, the only place on earth where you can go inside an empty volcano.

Geothermal Powerplants

The columns of steam rising from the geothermal plants at Nesjavellir and Hellisheidi are a magnificent sight. You can take a tour of the Geothermal Energy Exhibition of Hellisheidi, a state-of-the-art geothermal power plant. The plant shows how geothermal energy is harnessed in a sustainable manner in Iceland, s showcase for the rest of the world. The area is also an excellent hiking and outdoor destination with trails which vary in length and difficulty, and trail maps in place on-site.

Iceland’s Glaciers

Glaciers cover about 11% of Iceland’s surface. Iceland is home to the largest ice cap in Europe, Vatnajökull, in addition to other formidable ones such as Longjökull, Myrdalsjökull and Snaefellsjökull. You can barely go anywhere in Iceland without spotting anywhere in Iceland without spotting one of these ivory behemoths in the distance, but if you want to get up close and personal, take a guided glacier hiker tour, go ice climbing or snowmobiling or even go on a unique tour Into the Glacier, into a man-made tunnel at the heart of the glacier. Don’t try to go on a glacier without a certified guide.

Food & Culture Tours

Iceland’s cuisine is unique and fascinating. Smoked, cured, dried, salted – meat, fish or bread, there are many unusual and delicious combinations to choose from. Take a guided food tour which samples the different flavours of the local cuisine in chosen locations. Smoked lamb is delicious and dried fish chips will surprise you, but the fermented shark and accompanying shot of Brennevin schnapps are an acquired taste. You can also visit one of Iceland’s many microbreweries and have a tasting session.

City Tours

Reykjavík is a fantastic little city, different from other capitals of Europe. Guided tours focus on major sights, culture and history, the city’s less-knows secrets or even good places to party, depending on each tour. There are tours on foot, bike or Segway, to name just a few. Keep your eyes peeled for the tour that appeals to you.

Jeep Tours

Iceland’s rugged and untamed nature can be hard to navigate in a regular vehicle. This is why you will see so many modified Super Jeeps around, capable of traversing unbridged rivers, drive up on mountains and generally get around on rocky mountain roads. It’s easy to take such a tour up onto volcanoes and glaciers, into the untouched wilderness of the highlands, or to caves, waterfalls and other inaccessible natural phenomena.

Scenic Flight Tours

There’s nothing like taking scenic flights by plane or helicopter over the grand vistas of Icelandic nature. You get to experience natural wonders that aren’t easily accessible by land, get the bird’s-eye view of mountains, glaciers and waterfalls, all in just a fraction of the time it would take you to make the trip by car. Whether you take a scenic flight or a helicopter tour, it’s going to give you a unique sense of the scale and power of this wild and untamed land.

Snowmobilling

For those who aren’t content to just look at this island’s magnificent nature, one of the most exciting ways you can experience it first-hand is snowmobiling on a glacier. These adventure excursions will take you on an adrenaline-filled ride while allowing you to experience the glacier landscapes in a unique and wonderful way