More on this book
Community
Kindle Notes & Highlights
Read between
March 7 - March 9, 2019
Many stocks also pay dividends, which are quarterly distributions of profits b...
This highlight has been truncated due to consecutive passage length restrictions.
By investing in a stock, you’re making the shift from being a consum...
This highlight has been truncated due to consecutive passage length restrictions.
Historically, the stock market has returned an average of 9% to 10% a year over more than a century.
stocks can be wildly volatile along the way.
If you believe that the economy and businesses will be doing better 10 years from now, it makes sense to allocate a good portion of your investments to the stock market.
The last thing you want is to be a forced seller during a prolonged bear market. How do you avoid that fate? For a start, don’t live beyond your means or saddle yourself with too much debt—both reliable ways to put yourself in a vulnerable position.
As much as possible, try to keep a financial cushion, so you’ll never have to raise cash by selling stocks when the market is crashing. One way to build and maintain that cushion is to invest in bonds.
B...
This highlight has been truncated due to consecutive passage length restrictions.
When you buy a bond, you’re making a loan to a government, a company,...
This highlight has been truncated due to consecutive passage length restrictions.
When you lend money to the federal government, it’s called a Treasury bond.
When you lend money to a city, state, or county, it’s a municipal bond.
When you lend money to a company such as Microsoft, it’s...
This highlight has been truncated due to consecutive passage length restrictions.
when you lend money to a less dependable company, it’s called a high-yiel...
This highlight has been truncated due to consecutive passage length restrictions.
Loaning money to the US government won’t earn you much because there’s little risk that it’ll renege on its debts.
Loaning money to the government of Venezuela (where inflation may hit 700% this year) is way riskier, so the interest rates need to be much higher. Again, it’s all a trade-off between risk and reward.
The US government is asking you to cross a traffic-free rural road on a sunny day; the Venezuelan government is asking you to cross a busy highway on...
This highlight has been truncated due to consecutive passage length restrictions.
Rating agencies like Moody’s use terms such as “Aaa” and “Baa3” to grade these credit risks.
The other critical factor is the duration of the loan.
The US government will currently pay you about 1.8% a year for a 10-year loan. If you lend the government that money for 30 y...
This highlight has been truncated due to consecutive passage length restrictions.
you receive a higher rate for lending the money over a longer p...
This highlight has been truncated due to consecutive passage length restrictions.
they’re much safer than stocks. That’s because the borrower is legally ...
This highlight has been truncated due to consecutive passage length restrictions.
If you hold a bond to maturity, you’ll receive all of your original loan back, plus the interest payments—unles...
This highlight has been truncated due to consecutive passage length restrictions.
Less conservative investors might put a smaller portion of their assets in high-quality bonds to meet any financial needs that could arise over the next two to seven years.
More aggressive investors might keep a portion of their money in bonds to provide them with “dry powder” that they can use when the stock market goes on sale.
The challenge is that you earn nothing these days if you keep your money in cash. In fact, after inflation, you’re losing money by holding cash. At least bonds provide some income. As I see it, bonds are now the cleanest dirty clothing in the laundry pile.
Alternative Investments
includes exotic assets such as your Pablo Picasso collection, your cellar full of rare wines, the vintage cars in your air-conditioned garage, your priceless jewels, and your 100,000-acre ranch.
First, a word of warning: many alternatives are illiquid (in other words, hard to sell), tax inefficient, and laden with high expenses.
That said, they have two attractive attributes: they can (sometimes) generate superior returns; and they may be uncorrelated to the stock and bond markets, which means they can help to diversify your portfolio and reduce overall risk.
Real Estate Investment Trusts. I’m sure you know people who’ve done well by investing directly in residential property. But most of us can’t afford to diversify by owning a slew of houses or apartments. That’s one reason why I like to invest in publicly traded real estate investment trusts (REITs). They provide a no-hassle, low-cost way to diversify broadly, both geographically and across different types of property. For example, you can own a small slice of a REIT that invests in assets such as apartment buildings, office towers, senior housing facilities, medical offices, or shopping malls.
...more
Private Equity Funds. Private equity firms use pooled money to buy all or part of an operating company. They can then add value by, say, restructuring the business, cutting costs, and minimizing taxes. Ultimately, they attempt to resell the company for a much higher price.
The upside: a private equity fund that’s run with true expertise can make outsized profits while also adding diversification to your portfo...
This highlight has been truncated due to consecutive passage length restrictions.
The downside: these funds are illiquid, risky, and ...
This highlight has been truncated due to consecutive passage length restrictions.
Their minimum investment is usually $10 million, but our clients can invest with a minimum of $1 million. As you can see, this isn’t for everyone, but the best funds may well earn their high fees.
Master Limited Partnerships. I’m a big fan of MLPs, which are publicly traded partnerships that typically invest in energy infrastructure, including oil and gas pipelines.
we sometimes recommend MLPs because they pay out a lot of income in...
This highlight has been truncated due to consecutive passage length restrictions.
They don’t make sense for many investors (especially if you’re young or have your money in an IRA), but they can be great for an investor who is ...
This highlight has been truncated due to consecutive passage length restrictions.
Gold. Some people have an almost religious belief that gold is the perfect hedge...
This highlight has been truncated due to consecutive passage length restrictions.
My view? Gold produces no income and is not a critical resource.
gold prices soar occasionally, and everyone piles in! Every time—without exception—the price has ultimately collapsed. Historically, stocks, bonds, energy commodities, and real estate have outperformed gold. So count me out.
Hedge Funds.
hedge funds are handmade for suckers or for speculators looking to roll the dice on a big bet. They’ll make someone rich, but it ain’t likely to be you or me.
there’s no single method that’s right for everyone.
the type of assets you own should be matched to what you personally need to accomplish.
the design of your portfolio must be based on your specific needs.
Your advisor should start by getting a clear picture of where you are today (your starting point), how much you’re willing and able to save, how much money you’ll need, and when you’ll need it (your ending point). Once these needs have been clearly identified, your advisor should provide a customized solution to help you achieve them.
Can you figure all of this out yourself, without hiring a professional? Sure. But the stakes are high, and you don’t want to mess up. So it probably makes sense to get help, unless you’...
This highlight has been truncated due to consecutive passage length restrictions.
Once your advisor has settled on the right allocation to meet those needs, you should discuss whether you can live with the volatility you’re likely to experience.
If you can’t, then you can adjust your goal downward, and your advisor can create a more conservative allocation that allows you to achieve this scaled-back goal.
Another priority is to create a customized game plan that minimizes your tax liabilities.