Personal Finance – Page 11

Equality, and its After-Effects

Posted on 30 January 2014 by David Merkel

There are many in the US troubled over a number of problems:

Why are wages not rising faster, particularly on the low end?
Why isn’t the middle class doing better?

I may get a lot of flak over this post, similar to my post Rethinking Comparable Worth, but I think it is better that people understand what is happening, even if they don’t like it.

The world as a whole is getting better, bit-by-bit.? But that includes some places that prosper dramatically, while others sag.

Free trade is a good thing, and I think that free trade agreements should be sought globally.? It helps grow the global economy.? Those benefits are not evenly distributed.? Those whose wages are low relative to others who do the same thing are going to benefit disproportionately.? Those whose wages are high relative to others who do the same thing are going to lose disproportionately.

Here’s the simple way to put it.? If you do the same thing as a guy in China, or any other place, why should you earn something different than him?? What is happening to the lower classes in the US is pressure from the global economy.? There are a lot of people who find the work previously done by those in the US desirable, and at lower prices.? The forces making the world as a whole better off are making the low-skill portions of the US labor force conform to the pay that they get in the rest of the world.

I realize that this is not pleasant, and I spend time helping friends of mine who are affected by this.? But the global move to capitalism has had positive and negative effects on the US — positive for capital, negative for labor.

Some will be offended at this, but you might ask, why should we prevent companies in the US from contracting with foreign workers to do work more cheaply than in the US?? Is there a moral basis to do this?? I don’t think so, as people should be free to have legitimate contracts with those they wish to deal with. (Excluding things in wartime, that is different.)

People outside the US need to be able to improve their well-being.? Same for those in the US.? But what that means is that those wanting to improve their well-being must put a lot of effort forth:

Be zealous to improve your skills
Market yourself to many companies
Start your own company

I know it is tough to do this.? I was unemployed for a short period in 2003, and I put 40+ hours per week into seeking employment.? Seeking a job is a job, you are a one-man firm seeking to sell one unique product one time.? It is tough to do this, but it is the only way to do it.

What you have to understand is that the world is far more competitive than is was before the Cold War ended.? Fifty years from now, the world will be far more equal, and poverty will be far lower than it is today.? (That is, assuming there are no significant wars.)

What I say to my readers is be intelligent,? and seek productive niches in the economy that have some lasting potential.? That’s not true of most of the economy.

Younger people have to get the idea that they need to focus on how their careers will support them economically.

More generally, almost everyone needs to think on a long-term basis.? If you are going to college, aim for things that have the the possibility of giving you a good life over the long haul.? Don’t seek your bliss.? It is rare that your bliss will reward you in the long run.? Don’t seek what makes you happy.? Seek what makes others happy.? That is the true understanding of the golden rule — sacrifice yourself for the good of others, and you will be happy.

That is the secret to economic success — seek what makes others happy, not just yourself.? If you follow this, you will do well enough.? Capitalism exists to make the most people happy.? Other systems exist to control for those who are privileged.

My summary is this: seek the good of others, and look at where demand may growing, and you will do well.

Hoping that you will do well,

David

Book Review: The Safe Investor

Posted on 29 January 2014 by David Merkel

This is a special book.? It’s special because it explains investment concept in simple language, and tries to give average people an ability to understand how the markets work.

The author shares from his life experiences, where not everything turned out right.? With bonds in the 1970s, what was ordinarily a safe investment turned into “Certificates of Confiscation,” as inflation and interest rates rose.

The author is careful to point out the difference between fake diversification and true diversification.? False diversification has a large number of positions that are related, like owning many tech stocks from 1998-2003, or many financial and housing stocks 2005-2009.

True diversification means there is not some hidden factor that can affect your whole portfolio.? The author argues that we need a broad array of investments in the portfolio to diversify results, reducing volatility, so that the investment program can continue? until the target is reached.

Th author also argues? that investors need to dig into the guts of what they are investing in.? Who is the custodian?? Are my assets safe from commingling with the assets of others?? (Think of MF Global or Madoff.)? Is there any factor that could cause a substantial fraction of my assets to be significantly impaired?? As an example, what if you live to an old age?? Will you outlive your assets?? For most Baby Boomers, that is a significant risk that is under-appreciated.

The author, who managed two significant asset management firms in his career, encourages readers to do detailed checks on any active managers they hire (like me).? Analyze their methods, their incentives, their character, and more.? Passive investing does away with many of those questions, but still you have to set up an asset allocation.

As for active managers, they often buy and sell to make it look like they are doing something for clients, when frequently less activity would be in the best interests of clients.? Active management often works better at lower turnover rates.

Investment performance analysis has its own pathologies.? There is the need to buy an outperforming fund.? Why buy a fund that has done poorly?? An investor could ask two questions: 1) is the manager just benefiting from the current cycle, or are his picks good aside from that? 2) Has the manager gotten so large in that strategy that there is no place to place money to achieve an above average return.

The author also notes a strategy that many rich employ: hold safe assets and risky assets, but not the stuff in-between.? Few have made their wealth on the stuff in-between.? Preferred stock has made no one rich, nor investment-grade corporate bonds.? Junk bonds when carefully chosen may be an exception.

Now, that said, I think the author is too optimistic on emerging markets.? As in the current mini-crisis, many of them have immature financial systems, and are mis-financed.? Long assets are being financed by short loans.? This can goose growth in the short-run, but not in the long run.? I think that emerging markets have a place in portfolios, but smaller than the author implies.

Three Pockets

The author posits three pockets for assets — a large one for savings (don’t lose this), a medium one for investing (moderate risk), and a small one for trading (high risk).? He is trying to channel male actions in a good way.? You want to gamble?? Gamble with a small amount of money.? Keep the main body of your assets in ordinary hands that you do not touch.? Set it, and mostly, forget it.

This is an interesting way to try to get people to take limited risks, and have most of the portfolio be safe or have limited risks.

Passive vs Active

The author does not take a stark position on this, but points people toward passive funds if active fees are too high, and track records do not validate good investment choices.? That is how I feel about my own investing.? If I can’t outperform, I don’t want you investing with me.? The book’s position is only invest with active investors that have an edge.? That is more common with smaller cap stocks, international investing and junk bonds.

When to Adjust Portfolios to Reduce Risk from Aging

This book has risk positions lasting longer than most books, and generally, I think that is right, unless markets have gone to such high levels that intelligent investors should lighten up.? I think we are in one of those moments now.? Walk, don’t run, to reduce risk assets, and don’t go all the way, just lighten up.? I rarely make big moves, and the book would not advocate tactical big moves either.

I thought the book’s chapters on choosing advisors were well-written.? It gives you adequate ways to check out financial advisors like me, and those much larger than me.

Summary

The summaries at the end of each chapter are very useful.? I can endorse almost everything in the book.? Just be more careful about emerging markets than the book is, they have a lot of risk embedded at present.

Quibbles

None, aside from what what previously mentioned.

Who would benefit from this book: Most amateur investors could benefit from this great book.? If you want to, you can buy it here: The Safe Investor: How to Make Your Money Grow in a Volatile Global Economy.

Full disclosure: The PR people offered me a book, and I accepted it.? I am glad that I did.

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.? Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.? Whether you buy at Amazon directly or enter via my site, your prices don?t change.

What Life Insurance to Buy?

Posted on 25 January 201425 January 2014 by David Merkel

Another letter from one of my readers:

Hello 🙂

I am reaching out to you because you are among the “Got To Guys” in your industry

I am doing an “expert” and “common man” round up on my blog and I think a lot of people including me will benefit from your expert advice

?I will publish a detailed post in about 10 days and will obviously mention your blog along with a link back to your website. I will also be adding a custom infographic related to the topic of discussion and reach out to journalists when I am ready with my post.

I just need few minutes of your time to answer TWO questions mentioned below:

?If you can tell me:

“If you had to buy life insurance at current age, which policy would you buy? and which company will be your choice?”

I appreciate your time and it will be a favor if you reply back.

There are only two reasons to buy life insurance. You can:

Protect your loved ones after your death.
You can scam the taxman.

If you are young, the first reason predominates.? In order to do that, long-dated term insurance will do the trick.? Insure yourself for 20-30 years, and over that time, build your assets so that at the end of the life insurance policy, your heirs will not need the insurance.? And neither will you, should you survive.? That is what has happened to me.? I have no life insurance — instead, I have assets.? Should I die, my family will survive without my wife having to go to work, intelligent lady that she is.

(She doesn’t have a financial bone in her body, she is a princess, as her father was well-off.? She has lived with me long enough to absorb my prejudices, and grasp that there are no easy pickings in markets, so avoid those with get rich quick ideas.)

If you are old and wealthy, the second impulse is important.? How do you send money to heirs, away from the taxman?? Life insurance in the US is outside of the estate.? A large insurance policy can take assets that would be taxable to an estate, and move them outside of the estate.

As an aside: estate taxes are stupid.? The intelligent wealthy don’t pay them, or pay little of them.? The wealthy have a phalanx of helpers who they hire to reduce their estate (and other) taxes.? It would be far better to tax everyone as traders, and capture income taxes when they are really earned.

As to your second question: what insurance company to buy from?? If your policy is small, it doesn’t matter.? If your company fails, the state guaranty association will pick up the remainder.? If your policy is large, buy from the highest quality companies, you don’t want to deal with the guaranty associations after a default.

Tough for Buffett to Lose this One

Posted on 22 January 2014 by David Merkel

I have no idea what premium Buffett is receiving for insuring against one or more people having a perfect NCAA Tournament bracket, but it is unlikely that he will lose on this underwriting bet.? Those seeking insurance on unlikely events think the events are more likely than they actually are.? That said, for Quicken Loans, they don’t want to bet the company, and they do want publicity, so contracting with Buffett is worth their while.

Imagine for a moment that the average person submitting a bracket had a 78.6% chance of getting each game right, and the maximum 10 million people sent in their brackets.? What is the likely number of correct brackets?? One.

But does the average person get more than three out of four games right?? I don’t think so.? Are there some people that are better than others so that they get games right 90% of the time?? Well, if they are 1,163 out of the ten million, on average, one of them will have a perfect bracket.

Here’s a further problem.? Every tournament has significant upsets.? Someone who has a good understanding of how good the teams are will know how to pick the most likely team to win.? It is tough to pick the upsets, and tougher to pick all of the upsets.? There is no good model for upsets, or they wouldn’t be upsets.

=-=-=-=-=-=–=-=-

As an aside, the prize is $500 million as a lump or $25 million for 40 years.? The breakeven yield rate on that is 4.21%.? Buffett knows he can beat 4.21%.

This contest is like the lottery.? If I had one piece of advice for lottery winners it would be to take the payments over time.? The discount rates on most lotteries are far higher than 4.21%, and really, taking them over time gives you a chance to learn how to manage more money then you know what to do with.? Taking the payments over time gives you the freedom to learn from mistakes.? We all make mistakes, but when we get all the money at once, we make more.

Sorted Weekly Tweets

Posted on 21 January 2014 by David Merkel

Rest of the World

Crunch Escalates as Money Funds Rival Shadow Banks http://t.co/JVU1w5ipZc Money funds in China suck liquidity away from wealth mgmt prods $$ Jan 20, 2014
Spain?s Worst Year for Work Leaves Rajoy Counting Cost http://t.co/KlaAGab4kY Private debts r not economically neutral. Large -> unstable $$ Jan 20, 2014
Richest Scandinavian Nation Extends Its Junk Boom http://t.co/ZVwwxEAdIa Norwegian financial institutions have hunger for yield in kronor $$ Jan 20, 2014
Bird Flu Kills Health Worker, Stokes Transmission Concern http://t.co/FVcxVhaH4L Would not b concerned, seems difficult to transmit virus $$ Jan 20, 2014
Rise of ‘Common Man’ in India Threatens Stability of Government Coalition http://t.co/vke6lnqM3s Things get squishy if no majority win $$ Jan 20, 2014
German Economic Growth Fails to Gain Impetus http://t.co/g9EQLN5HNg Depends on on the strength of those that import German goods $$ $SPY Jan 20, 2014
French First Lady Leaves Hospital http://t.co/hnnrYJwE2q At least *one* person cared about the behavior of Francois Hollande $$ #sad Jan 20, 2014
Solar Beats Gas Unlocking Middle East?s Heavy Oil, Report Says http://t.co/dmyDla2t7R Fascinating, using cheap solar energy 2 produce oil $$ Jan 20, 2014
Hot Demand for Emerging-Market Bonds http://t.co/LLZPDt4iyT This is puzzling , I don’t get how emerging markets r well financed $$ Jan 19, 2014
China encroaching on U.S. military dominance in Pacific, says top admiral http://t.co/h152VrhcEg So we can’t be global cop, good thing $$ Jan 19, 2014
Mobius Placing Biggest Wagers on Nigeria for Frontier Rally http://t.co/dsxt8Fft6e It is difficult to make $$ when there is a quiet war Jan 19, 2014
BENGHAZI WAS PREVENTABLE: Hillary Clinton cited for major security lapses http://t.co/5oCpBVlbdK Hillary will have a lot to answer for $$ Jan 19, 2014
Saudi King Sees Egypt Too Big to Fail Under Friendly General http://t.co/oIHo5fae5s Saudi Arabia gets pragmatic, supports Egyptian Army $$ Jan 19, 2014
The West Is Losing Ukraine http://t.co/GWCNb322Ss Ukraine is losing the West, as its leader strips freedoms, & fights protesters $$ $SPY Jan 19, 2014
Hollande?s Tryst and the End of Marriage http://t.co/EUGztMAKnq Secretly, even the French care about the stability of their leaders $$ $FXE Jan 19, 2014
Baltic Homes That Singed Scandinavia Banks Heating Up: Mortgages http://t.co/3KHcPllcKZ Beware large increases in indebtedness $$ $TLT $SPY Jan 19, 2014
China’s Indie Rockers Get Boost From Online Music Platforms http://t.co/MSbdnGFzRI Note the prominence of our friend Michael Pettis $$ $FXI Jan 19, 2014
Venezuela Post-Ch?vez: Hustlers’ Paradise http://t.co/ROstARpBkc Thugs run govt. Some people get cheap goods, while others get shortages $$ Jan 19, 2014

US Politics & Policy

Stop Obamacare?s Outrageous Bailouts http://t.co/uHYJvyRcM7 Once losses exceed 8% of premiums, taxpayers pay for 75% of excess losses $$ Jan 20, 2014
Questionable: Robert Gates?s Dishonorable Act http://t.co/bIEGf7o57k There r too many bad secrets in DC that we ought to know about $$ $SPY Jan 20, 2014
Which Fed Guidance Should We Believe? http://t.co/yqjOZX5AX6 As FOMC uses more & more words 2explain what they r doing we understand less $$ Jan 20, 2014
When Low Unemployment Is Bad News http://t.co/QLiWV8ocV5 Labor force participation rate continues 2 fall as punk economy creates few jobs $$ Jan 20, 2014
NSA Data Have No Impact on Terrorism: Report http://t.co/ug8GtnLjqz NSA is not worth the privacy risk, nor what we pay to employ them $$ Jan 20, 2014
Ari Fleischer: How to Fight Income Inequality: Get Married http://t.co/zz6lbDWiku Poverty rate falls 4 those who can make a marriage work $$ Jan 20, 2014
Obama’s Constitutional Education http://t.co/bH4jfr1rro & http://t.co/hdzNe1Blo4 Should consider unilateral actions modifying PPACA also $$ Jan 20, 2014
How the crash of safe assets fueled the financial crisis http://t.co/4Vlfxp7PUj When “safe” assets r found to have credit risk -> bust $$ Jan 20, 2014
Congress split over NSA’s domestic spying program, could just let laws expire http://t.co/mCD2pIbSl1 Divisive: left & right vs center $$ Jan 20, 2014
Young enrollees of Obamacare fall well short of goal http://t.co/VokUg0XFP6 When premiums rise as a result, people will b unhappy $$ $SPY Jan 20, 2014
Spy court judge slams proposed privacy advocate http://t.co/vkz4SyY5li We need someone arguing against spying on average people $$ $SPY $TLT Jan 19, 2014
What?s Net Neutrality? What Happened to Net Neutrality Yesterday? What Happens Next? A Q&A for the Rest of Us. http://t.co/xQACJvW8UC Read Jan 19, 2014
Volcker Rule Fix Will Aid Large and Small Banks http://t.co/nGv1TXtLT5 This is a lousy rule that allows banks to bury Trup CDO losses $$ Jan 19, 2014
Hillary Clinton’s political hit list of top betrayers includes Kerry, Kennedy http://t.co/33RFv63nKz This reminds me of the Nixon enemies $$ Jan 19, 2014
Judge Disallows Plan by Detroit to Pay Off Banks http://t.co/XQ6f1E2EZM Detroit should aim for the bast long-run outcome $$ $MUB $SPY $TLT Jan 19, 2014
Is Your Abortion My Free Speech?? http://t.co/kUA2XLRPB9 This is where constitutions fall apart, b/c they are limited documents $$ Jan 19, 2014
Reid Gives Landrieu VIP Treatment to Tip Election Odds http://t.co/UhQFIcPVt9 Democrats desperate to retain power, aid marginal members $$ Jan 19, 2014
Where Are the U.S.?s Millionaires? http://t.co/c8fXDEPD5S Alas, but Maryland sucks the blood of America, & creates millionaires $$ $SPY $TLT Jan 19, 2014
I Spent Two Hours Talking With the NSA’s Bigwigs. Here’s What Has Them Mad http://t.co/UrXexYR07k They hate Snowden’s guts $$ $thatsimple Jan 19, 2014
How the NSA Almost Killed the Internet | Threat Level http://t.co/1SLDuNq93O Sowing distrust in major internet utilities on privacy $$ $GOOG Jan 19, 2014
To enforce net neutrality, the FCC has to decide that Verizon is a common carrier http://t.co/WRb6VestAF Simple idea, simple solution $$ $VZ Jan 19, 2014
Student Loans, the Next Big Threat to the US Economy? http://t.co/5hXsK5SIFn Rule of Thumb: avoid lending in area w/greatest debt growth $$ Jan 19, 2014
ISS Open to Activists Paying Bonuses to Directors http://t.co/R1nNEkokg4 Carl Icahn wins a small victory; broader implications unclear $$ Jan 19, 2014
?Wolf of Wall Street? Offspring Never Quite Die http://t.co/oXkGDZQ1Ml It’s a revolving door & FINRA doesn’t provide real access 2 data $$ Jan 19, 2014

Market Impact

Investor Animal Spirits Spread to Companies Worldwide http://t.co/e8pKcudzhR No such thing as animal spirits, only pursuing opportunity $$ Jan 20, 2014
JPMorgan Says BVG Owes $200 Million Over ?Unfortunate? CDS http://t.co/coJQm6dpD5 What’s worse is trifling yield prompting BVG’s greed $$ Jan 20, 2014
Hedge Funds Raise Gold Wagers as Goldman Sees Drop http://t.co/7dc9dGCUCA Hedge funds 2short-term could b forced sellers on weakness $$ $GLD Jan 20, 2014
Even money market funds in a crisis would have a hard time delivering a >2% loss, which would b borne by investors, & not systemic $$ Jan 20, 2014
How You Can Survive a New Era in the Bond Market http://t.co/BvSkibWANR Too many people banging the drum 4 higher interest rates $$ $IEF Jan 20, 2014
From the prior tweet, Central Bankers have drawn wrong conclusion: You can fix a bust by issuing lots of credit. $$ Jan 20, 2014
The correct answer is that you can avoid a bust by not running loose monetary policy as in the ’20s & ’00s. We still have pain to come $$ Jan 20, 2014
Where Have All the Star Fund Managers Gone? http://t.co/qwbpDyDlkU Focus on low fees, long track record, low assets & not index-like $$ $SPY Jan 20, 2014
Reinsurers face ratings cuts, S&P warns http://t.co/70dK590OCG Too much surplus chasing reinsurance biz; I’ve been lightening the boat $$ Jan 20, 2014
Interest rates don’t matter? Federal Reserve paper says so http://t.co/guAPSQ05II Sad but true, monetary policy is weaker than most think $$ Jan 19, 2014
Professor Puts Ideas in Practice as Reverse-Mortgage CEO http://t.co/T3Kt0cNQtc As w/most complex financial agreements, this will fail $$ Jan 19, 2014
Metals, Currency Rigging Is Worse Than Libor, Bafin Says http://t.co/KjDNrRVR7m Impossible 2 create benchmarks free of human gaming $$ $SPY Jan 19, 2014
Nobody Likes Bonds!: by @ritholtz http://t.co/FuYachZ58I But *I* like bonds, particularly short corporates, loans, & $TLT FD: + $TLT $$ Jan 18, 2014

Other

Comet-Chasing Spacecraft Sends First Signal in 31 Months http://t.co/mZB62QnIYm Satellite to hitch ride on Churyumov-Gerasimenko comet $$ Jan 20, 2014
The ‘Sharing Economy’ and Its Enemies http://t.co/Qnc4YyZrOh How Airbnb steps on the toes of hoteliers, regulators & the tax man $$ $SPY Jan 20, 2014
Device Thefts Fueling Rise In Larcenies http://t.co/ohZZt8q2Qh NYC larcenies fall if you exclude theft of Apple-branded devices $$ $AAPL Jan 20, 2014
The Right Way to Go After Big Clients http://t.co/J6hoSbcHVX Can waste a lot of time & find margins squeezed in the end $$ Jan 20, 2014
What Secrets Your Phone Is Sharing About You http://t.co/u7wv29tyMG Many hack your phone datato get insights into how you shop $$ $SPY $TLT Jan 19, 2014
Moms in ?Survival Mode? as US Trails World on Benefits http://t.co/uSPuVZztqV We can argue over any benefit, but what when US is broke $$ Jan 19, 2014
Tennis Quant?s System Doubles Money Without Knowing Players http://t.co/sAS5Xug7DN Small markets r often inefficient, allow 4 small wins $$ Jan 19, 2014
Miners Chopping $10B Search Bodes Next Price Boom http://t.co/6X7H0KAivX Miners cut exploration budgets, should lead to higher prices $$ Jan 19, 2014
How the Target Hackers Did It http://t.co/Z8Jc5WuBQQ Scraped RAM in POS machines grabbing all manner of data on card users $$ $TGT $SPY $TLT Jan 19, 2014
Another Bad Year for Religious Freedom http://t.co/3C3C5lrjCo Religion by its nature tends to invite constraint as it is a threat 2 govts $$ Jan 19, 2014
If Google Is a Guy, DuckDuckGo Is a Ghost http://t.co/rk9o0I3Uwx Want privacy for your searches? Consider DuckDuckGo $$ Jan 19, 2014
http://t.co/uPsFzsm1Tn How an intelligent lady managed to wrongfoot & destroy a website engaged in “revenge porn.” $$ Jan 19, 2014

Wrong

Likely Wrong: A New Asset-Allocation Strategy for Investing in Retirement http://t.co/eDqaDxhFuH Stocks r risky over intermediate periods $$ Jan 20, 2014
Wrong: Bonds Captivate $16T of Pensions http://t.co/NEpJSjCD7p Bonds have 2 go somewhere & defined benefit pensions have long liabilities $$ Jan 20, 2014
Wrong: Bailout Risk, Far Beyond the Banks http://t.co/iv5eT6lhea! Asset mgmt companies can go bust, & they pose no systemic risk $$ Jan 20, 2014
Wrong: Stanley Fischer saved Israel from the Great Recession. Now Janet Yellen wants him to help save the US http://t.co/CPMUggr3CA $$ $TLT Jan 20, 2014
Wrong: Ten quotes on the question of financial bubbles http://t.co/MNwr543Vsf No one focuses on the effect of borrowing money in bubbles $$ Jan 19, 2014
Wrong: Wealthy CEO Is Deeply Concerned About Budget Deficits http://t.co/gTGUwSF3hS Biased article doesn’t factor in entitlements $$ $TLT Jan 19, 2014

Replies, Retweets, and Comments

@DavidBCollum Look here: http://t.co/VaqQESCdCu Value Line has a chart that goes back to the 20s though… Jan 17, 2014
RT @cate_long: Please add http://t.co/QHQiCxYopc RT @researchpuzzler: a guide to finding data on the cheap from @AlephBlog http://t.co/mb? Jan 15, 2014
RT @Pawelmorski: Great spot @toby_n : DB’s Slok quantifies how difficult the Fed finds explaining itself. http://t.co/1quahXrnJD Jan 14, 2014

Avoid Selling Stocks When You Are Old, Maybe?

Posted on 16 January 2014 by David Merkel

The Wall Street Journal recent had an article, What You Know About Retirement Investing Is Wrong, where it recommended that elderly people invest more in stocks as they get older.? I think the advice is wrong, unless you understand it this way:

Stocks are longer assets than bonds.? Use your bonds to pay for your spending in the early years of your retirement, and don’t sell your stocks.? Once you run out of bonds, start selling your stocks, if the dividend income isn’t enough to live on.

But even this idea is weak.? If a person followed this in 1997 with a 10-year horizon, their stocks would be worth less in 2008-9, even if they rocket back out to 2014.

Asset allocation is more difficult than it is in the textbooks, or in the syllabuses for the CFA Institute or for CFPs.? It is a blend of two things — when does the investor need the money, and what asset classes offer decent risk adjusted returns looking forward?

If long-dated, volatile asset classes offer great returns looking forward, but the client has a short time horizon, he can’t invest much in risk assets.

If long-dated, volatile asset classes offer great returns looking forward, but the client has a long time horizon, he can invest a lot in risk assets.

If long-dated, volatile asset classes offer poor returns looking forward, but the client has a short time horizon, he should stay in safe assets.

If long-dated, volatile asset classes offer poor returns looking forward, but the client has a long time horizon, he should stay in safe assets.

Stocks do tend to do well over the long run, but few of us live in environments where that growth is uniform.? The stock market zigs, zags, booms, and busts.? What if it busts when your are old?

Personally, I think it is wiser to maintain a more balanced investment posture in retirement, because the future is not predictable.

Protect Your Older Family & Friends

Posted on 26 December 2013 by David Merkel

This article was spurred by this article in the Wall Street Journal:?Financial Scammers Increasingly Target Elderly Americans. ?The elderly are indeed a target because of three reasons:

The poor elderly need to make money, and they become prone to scams that offer easy earnings, while milking them for “startup costs” and things like that.
The middle class elderly need to stretch the meager incomes that they have amid low interest rates (courtesy of the Fed), and are tempted by those offering plans where they can earn more on their assets.
The rich elderly have money — they are prime targets even if they are smart.

Seniors are targets, and not just by those who are regarded as fraudsters. ?I had an older friend who was approached by the sales professionals of a major bank to manage her $3 million portfolio, which was already well-managed. ?They made all manner of promises of what they would do for her, in exchange for a fee on assets — 3%/year.

At that level of expense, there are a lot of things that could benefit the Senior in question, but the nice-looking, unctuous people from the bank sell an expensive mirage. ?I’ve never seen a bank that was genuinely good at asset management, and certainly not to the degree of charging a 3% fee.

Every elderly person needs a younger skeptical friend who is sharp enough to be able sense when a deal is sketchy, and the elderly person needs to have the discipline to run things by their younger friend.

As I so often say, “Don’t buy what someone wants to sell you. ?Buy what you have researched for yourself.” ?The elderly should develop a hatred of marketers. ?Hang up on anyone who is offering something that is “too good to be true” because it almost always is too good to be true.

To those who Lead Churches

I am an elder in my Reformed Presbyterian congregation. ?I have served my denomination on the boards of its college, denominational trustees, finance committee, and pension board. ?In my congregation, we watch out for our elderly members. ?We make their requests a priority. ?If they need financial advice, I give it to them for free. ?God rewards those who aid widows.

I encourage Church leaders who have enough financial sense to be able to know when something financial “feels funny” to gather their elderly congregants, and tell them to call you if they are tempted by slick-talking salesmen to make them part with money.

To those who Love Elderly Family or Friends

Take the time to tell them to be careful, and that you are available to help them whenever someone calls them out of the blue, where that party will benefit from money from the senior, no matter what it is. ?This isn’t as tough as telling them to give up the car keys (been through that once). ?But they do need to be sensitized to two things:

There are people out there who want to cheat them, and
You love them, and will help them in any situation like that.

We’re supposed to take care of and honor elderly people anyway. ?Societies that don’t do that tend to fail. ?So look out for your elderly friends to the degree consonant with your relationship to them.

Sorted Weekly Tweets

Posted on 10 November 2013 by David Merkel

Companies & Industries

Twitter Sold Some Stock http://t.co/oIwxhl5BAh Valuing speculative companies is tough. Ask how much of sectoral profits they could grab $$ Nov 08, 2013
Then discount that at 20%/year, and decide whether you have enough margin for considerable error. I don’t think Twitter gets there. $$ Nov 08, 2013
Most US Blockbuster Stores to Close http://t.co/Q77XgZEYGI The internet changes everything; anything that can be bytes is blown to bits $$ Nov 07, 2013
Utilities in Pain Selling Renewable Assets at Record Rate http://t.co/0v5YgeAoVj Utilities don’t want 2 allocate capital to low returners $$ Nov 06, 2013
FHFA Takes Aim at ‘Forced’ Insurance http://t.co/FZslhVSyLp Won’t happen, b/c banks won’t lend if proprty is uninsured against casualties $$ Nov 05, 2013
Coconut Crisis Looms as Postwar Palm Trees Age http://t.co/C5Ub4BnEgu Coconut Trees have aged w/not enough replanting, cuts into yields $$ Nov 05, 2013
Makes me wonder whether the life companies didn’t also raise mortality charges in order to make up 4 compressed/negative interest margins $$ Nov 05, 2013
Universal Life Policies Hurt by Low-Rate Era http://t.co/qEcwGR3gTQ Guaranteed rates high relative to current interest rate environment $$ Nov 05, 2013
Western Digital Adds Helium to Enterprise Hard Drives http://t.co/tCj4H6ksC4 More storage, less power use,aids big data | FD: + $WDC $$ Nov 04, 2013
Here’s How Much Berkshire Hathaway Made On Financial Weapons Of Mass Destruction In Q3 http://t.co/F7actdnrmv Buffett wins | FD: + $BRK.B $$ Nov 04, 2013
The new American capitalism: Rise of the distorporation http://t.co/KKp7BK91xA Thinly capitalized corporations that distribute profits $$ Nov 03, 2013

Politics & Policy

Obamacare Website Frustrations Persist as Deadline Looms http://t.co/NA5zV7cze1 Harder to fix bad code than to rewrite the system $$ #loser Nov 08, 2013
Artificial Trans Fats in Food Deemed Unsafe by US FDA http://t.co/sXf5r5DjjO Y R we limiting freedom in something so basic as food? $$ Nov 08, 2013
Obama’s Catastrophic Victory http://t.co/Z9gryN2oA7 Wait till people with bronze policies have to pay their costs prior to the deductible $$ Nov 06, 2013
It would involved tort reform, & encouragement of charities to aid the sick, & would shrink Medicare & Medicaid, moving 2a free market $$ Nov 06, 2013
Real health reform would remove all government preferences, including the employer deduction, & move to a client pays directly model $$ Nov 06, 2013
Colorado Education-Tax Measure Fails http://t.co/GV5rpq9NSQ Interesting datapoint; even 4 local schools, difficult 2 raise income taxes $$ Nov 06, 2013
SEC Fines Greater Wenatchee Regional Events District4Misleading Investors http://t.co/oDHpxG5o6I Failed2disclose certain finl projections $$ Nov 06, 2013
CFPB Debt Collection Rules May Move in Unprecedented Direction http://t.co/G5LBwfc3em May even affect ability to collect on private debts $$ Nov 06, 2013
BlackRock, Fidelity Face Initial Risk Study by Regulators http://t.co/SwyaxP14HB That they would consider this proves they r clueless $$ Nov 06, 2013
Obama repeatedly promised people could keep their health insurance under Obamacare http://t.co/dS84R05kzH Law affected ability 2 do that $$ Nov 06, 2013
Jonathan Tepper on Obamacare http://t.co/L163WSrcaL A relatively neutral assessment of PPACA, which does not reduce oligopolies & costs $$ Nov 06, 2013
Wells Fargo Said to Face US Mortgage-Bond Probe http://t.co/nrbZQOiGHy FIRREA statute used. $BAC $CSGN $JPM $C $WFC all face these probes $$ Nov 06, 2013
A tax break for wealthy landowners under scrutiny, from @BBGVisualData http://t.co/lTxFAEPwwk Many parties allied to keep low value break $$ Nov 06, 2013
IRS Cracks Down on Breaks 4 Rich Americans http://t.co/dN6dtnTCQG Cracks down on conservation easements; graphic: http://t.co/8jKqjCi7na $$ Nov 06, 2013
McDonnell v. Royal Dutch Shell Plc 13-cv-07089 http://t.co/HMbTcvLdEV <– If anyone wants 2c the complaint on Dated Brent Crude Rigging $$ Nov 06, 2013
Congress May Push Milk Prices to $8 a Gallon http://t.co/kPPeJ42YlP The solution is 2 end milk price supports; have a free market in milk $$ Nov 05, 2013
Obamacare Expedited Bidding Limited Who Could Build Site http://t.co/EEa2UKZQ78 US Medicare&Medicaid Services preapproved 16, only 4 bids $$ Nov 04, 2013
Obama’s Broken Promise of Better Government Through Technology http://t.co/eaYVdiAYAj Technology is only as good as its implementation $$ Nov 04, 2013
A Stage-4 Gallblader Cancer Survivor Says: I Am One of ObamaCare’s Losers http://t.co/9nZLusmknt PPACA sob story #2 loses coverage & docs $$ Nov 04, 2013
Mr. Obama, I Am Unhappy That Obamacare Threatens To Kill Me. http://t.co/T3YnjqYzRJ PPACA sob story #1, loses his healthcare coverage $$ Nov 04, 2013

Market Impact

The Biggest Little Secret In Money Management http://t.co/zeIzMWJmIz Most new fancy strategies can mostly be replicated in simple ways $$ Nov 08, 2013
The Dividend Challenge http://t.co/icI80BpcoR E.g., In 1993-1994 dividend-oriented funds did horribly as rates soared. Divs aren’t magic $$ Nov 07, 2013
Of Debt, Growth, Interest Rates and History http://t.co/ZEG4za0XLg High debt & real interest rates tend to dampen economic growth $$ Nov 06, 2013
Many bonds only have a small number of holders, so it gets easier to guess who the big traders might b, thus affecting the market price $$ Nov 06, 2013
When bonds don?t trade http://t.co/71JD7XbJ9S Difficult to facilitate buyside trading w/each other; they want to keep their moves quiet $$ Nov 06, 2013
Gross Loses World?s Largest Mutual Fund Title to Vanguard http://t.co/HfpH7pURgE Wonder if Pimco is 2big 4 Gross’ quant strategies 2 work $$ Nov 05, 2013
Over the last 10 years investing in venture capital has not outperformed public equity (Pg 5) http://t.co/GnBTZPRhz0 Capital Index.pdf $$ Nov 04, 2013
Investors Return to IPOs in Force http://t.co/Hn9RFceouq Fresh Fruits r opposite of IPOs, good when plentiful, IPOs bad when plentiful $$ Nov 04, 2013
New Homes Get Built With Renters in Mind http://t.co/j4NYgVS54n If investors r truly long-term 4 running rentals, this could b stable $$ Nov 04, 2013
Reduce the noise levels in your investment process http://t.co/XUE0HYpWGt @ritholtz guides us in telling us what chatter 2 avoid hearing $$ Nov 03, 2013

Rest of the World

China?s Soviet-Style Suburbia Heralds Environmental Pain http://t.co/7Sk5too1g1 Central planning fails again $$ Nov 07, 2013
Kyoto Veterans Say Global Warming Goal Slipping Away http://t.co/DCqPxzIJcE No incentive to cut carbon emissions; eg, Germany’s coal use $$ Nov 04, 2013
Rankings That Rankle http://t.co/xB5bftp7yb Rather than reform further, China would rather shoot the messenger bearing bad tidings $$ Nov 04, 2013
Merkel Facing Power Dilemma as Coal Plants Open http://t.co/fMLyBrg7Zz Note that Germany does not care much about CO2 emissions $$ Nov 04, 2013

Central Banking

Greenspan?s Bequest to Yellen Is Board Harmony Shown in Records http://t.co/gIdq6MQjnX more interesting is Volcker offering 2resign in 86 $$ Nov 07, 2013
MSNMoney’s Jubak:Fed Has No Way Out of Its Mountain of Debt http://t.co/TVhTheDWSj No surprise. Central bank balance sheets rarely shrink $$ Nov 06, 2013
Kozicki Shows Central Bankers Only as Good as Forecasts http://t.co/GwhwxkRLYe Proves we shouldn’t rely on neoclassical economic models $$ Nov 06, 2013

Personal Finance

The red-blue divide in personal finance http://t.co/OgS2PL0jgh Shares my view on Dave Ramsey; useful 4 $$ management, avoid on investing Nov 06, 2013
Can I repo a car if I co-signed the auto loan? http://t.co/2xJp83ppnt Rather, lend them the $$ w/a formal loan document; NEVER co-sign!! Nov 05, 2013
Mom co-signed, now stuck with student loan payments http://t.co/uVenTWv2Oc Never co-sign, not for a child, parent, friend, anyone, ever $$ Nov 05, 2013
The 4% Safe Withdrawal Rule Declines to 3% http://t.co/pSvGBLgXhC My rule: Take 10Y Treasury yield, +1% if neutral, +2% if bullish $$ Nov 05, 2013
Banks offering mortgages with only 5% down payments http://t.co/w62w0qwnOX Financing long-term assets w/low equity helped create crisis $$ Nov 05, 2013

Other

Excel monkeys unite! For today, we are cancelling the circular reference! http://t.co/6D7H9NekSi On the challenging Modeloff competition $$ Nov 06, 2013
The siren call of Microsoft Excel http://t.co/g5isxFXJJS Excel has its uses, but not for security, audit & production. Use 2 prototype $$ Nov 06, 2013
Symbolic Family: De Blasio Success Shows Sea Change for Interracial Couples http://t.co/uzJWeUY0zq We’re one race: We’re human $$ Nov 06, 2013
More Commuters Self-Driven, Census Finds http://t.co/XRcRJ7fSo3 Surprising that no one has found an internet-based solution 4 carpooling $$ Nov 05, 2013
Game of thrones with world chess champion Viswanathan Anand http://t.co/HnEv9GbmRh Long piece on the reigning chess champ & new challenge $$ Nov 05, 2013
Anand On How Computers Have Changed Chess http://t.co/UPjZs61f70 Most openings have become transparent; only odd openings offer surprise $$ Nov 05, 2013
Simple Tech Fix Could Allow Millions to Hear – Bloomberg http://t.co/1HrLV8Vj2u Transmits sound directly to a listener?s hearing aid $$ Nov 05, 2013
Capt.James A. Kirk Takes Command of Navy Vessel http://t.co/DYj4Noyp8z His nickname is “T.” His vessel has advanced cloaking abilities $$ Nov 04, 2013

Wrong

Wrong Fed Study: Lengthen Low-Rate Guidance to Fix Unemployment Faster http://t.co/Sf3X2lsDOz No data on unemployment in liquidity trap $$ Nov 07, 2013
Wrong: Why ‘Rate Shock’ Is An Essential Part Of Health Reform http://t.co/jxxmJQcpTo People should not be forced 2buy more than they want $$ Nov 06, 2013
Wrong: Think inside the (right) box; 5 must-read business books http://t.co/VmxZHuFqsf I read “Big Data.” Good, not great. Rest look iffy $$ Nov 05, 2013
“Disagree. I read “Big Data.” Good, not great. Others look iffy, particularly ‘Antifragile.'” ? David_Merkel http://t.co/wcVPO5mmxK $$ Nov 05, 2013
Wrong: Economists overvalue stock markets http://t.co/vaWef32JS7 Stock prices provide valuable economic signals: http://t.co/XyaEJqXwGn $$ Nov 04, 2013
Wrong: Americans? Debt Hangover Seen Ending in Boost to Growth http://t.co/pJXgAYeEwt The consumer remains highly leveraged vs history $$ Nov 04, 2013
Wrong: If It Looks Like a Bank, Regulate It Like a Bank http://t.co/8BA1XlrLAJ Money market funds don’t look like banks; very safe assets $$ Nov 04, 2013
Wrong: Asymmetric Return With A Catalyst http://t.co/FTHYYP2Rwx Writer doesn’t get difficultly of getting free $$ from life insurers $HRG Nov 04, 2013
http://t.co/jH200iYZyT Comps of $MET & $PRU – horribly optimistic. $NWLI would be better. Another reason I don’t read seeking alpha $$ $HRG Nov 04, 2013

Comments, Replies & Retweets

RT @pdacosta: “Forward guidance is a stupid academic fantasy grabbed by those who wish to escape making real policy.” – @AdamPosen h/t @NHe? Nov 07, 2013
RT @pdacosta: A tragedy and a travesty: Unemployment in Spain http://t.co/u4UlylupKH Nov 06, 2013
http://t.co/fwt1rLXORs You could try applying the same to Title and Mortgage insurer kickbacks.” ? David_Merkel http://t.co/El8F8V0690 $$ Nov 05, 2013
@ritholtz First Bloomberg View Column: Welcome http://t.co/rqAqgL8slw Bloomberg picks up a great columnist grown from financial blogging $$ Nov 04, 2013
“Well done, Barry. Your writing skill has taken you above and beyond.” ? David_Merkel http://t.co/c42lp6sH6i @ritholtz new @bloomberg $$ Nov 04, 2013

Don’t Co-sign, Ever

Posted on 6 November 2013 by David Merkel

This morning, I am here to tell you never to co-sign for a loan.? There are no exceptions.? None. Nada. Zero. Zilch. Null. Nil. Zilde.

Co-signing for a loan looks like a free way to get a loved one credit, but it is not free.? Consider two articles I ran across yesterday:

Being a co-signer is one of the weakest economic positions imaginable.? You get no benefit from the loan that is made, but you are liable for full repayment of the loan should the primary debtor refuse to pay.? You also have no recourse against the primary debtor.

If you think the one you love is deserving of credit, loan it to them yourself, with a formal loan agreement that allows you to require repayment, or seize collateral.? At least you have some protections here.

What’s that, you say?? You would never take them to court?? Well, then understand, whether you lend or co-sign, you are exposing yourself to loss.? Perhaps it would be better to say to the one you love: “I’m sorry, honey, but lending money destroys relationships.? Loan agreements are adversarial by nature.? I want to always be your friend, so I can’t lend you money.”? The same applies to co-signing.

What’s that, you say?? You can’t afford to loan the money, and so must co-sign?? Garbage.? Go borrow the money yourself, and then lend it to them.? You will be better protected than if you co-signed, even if it makes the loan costs explicit to you.

And, if you can’t easily get a loan, why are you letting someone else, however beloved, endanger your well-being?? Don’t be sentimental/dumb.? If you are that hard pressed, tell your beloved the tough truth — “I’m sorry, honey, but we don’t have the resources for it, wish it were otherwise.”

Student Loans

I write this for one more reason.? Student Loans are not dischargeable in bankruptcy, unless one can prove hardship, and that is difficult to prove.? If parents have the resources, it is better to lend to your children directly than take out student loans, with their onerous interest rates and payment obligations.? You might also then encourage your young adult to be frugal/wise in choices including the school attended, “because we are in this together.”

This method has the virtues of avoiding the hooks of the student loan programs, and reducing total costs where possible.? The Federal (not private) student loan programs have one “virtue” — income-based repayment, which varies program-to-program.? Attractive if a student thinks he isn’t going to make a lot of money, not so attractive if he thinks he will make a lot of money.? But, at least it gives a better chance of staying out of bankruptcy court.

Conclusion

There are difficulties that come when love and money mix in a bad way.? If you can’t get it done with reasonable protections for you as the lender, don’t make the loan.

And, don’t co-sign, ever.? As we say in investing,”Hope is not a strategy.”? In the same way, don’t co-sign, hoping that everything will turn out okay.? The downside is considerable if it does not because there is nothing you can do to get the one you co-signed for to repay or make amends another way.? And it will affect your finances, credit rating, and most of all, your respect and love for the one you tried to help.

Don’t co-sign, ever.

On Liabilities in Asset Allocation

Posted on 17 October 2013 by David Merkel

From an e-mail from one of my readers:

I?m not sure if you have the time to respond to this, but figured I?d send to you and just see!…

(Just FYI, I?m not an investment professional of any sort, so I don?t have any ?skin in the game? as they say, just a geek who follows the markets and DIY financial-planning issues and long-time reader of the Aleph blog)

I recently read an FP article by a guy I?ve read a lot (Alan Roth).? He suggested that, when your analyzing an investment portfolio and making asset-allocation decisions, you need to treat mortgage debt as an ?inverse-bond? or an ?anti-bond??such that any mortgage debt held would dollar-for-dollar negate or reduce your actual bond investment holdings.? And the result is that this made the investor?s actual portfolio risker than they realized, since their ?true? bond allocation was smaller than they had considered.

I thought it was a novel concept, but I found some problems with that approach, within the context of asset-allocation.? My main point was that the primary purpose of analyzing a portfolio?s asset allocation is to manage risk through diversification of assets (generalizing here in interests of being concise).?? The pinnacle of diversification is non-correlation: generally in economic environments where equities soar, bonds will underperform, and vice versa.? However, classifying a debt as an ?anti-bond? doesn?t actually provide any portfolio diversification, or introduce any non-correlation.? It won?t actually negate the amount that your bonds would rise, and it won?t actually offset the amount your bonds would fall, in those respective market environments.? And even if you consider that the real value of the debt is decreased if inflation rises (as the NPV calculation would be using a greater discount rate), that doesn?t have any real-world effect on the portfolio and it?s risk and return behavior.? Since borrowers aren?t allowed to ?mark-to-market? their mortgages, that debt holding value does not fluctuate?it is fixed, and amortized from its historical cost, regardless of any market conditions or any theoretical NPV/DCF changes. ?Therefore, the inverse- or anti- bond holding in the portfolio has zero impact on the portfolio?s actual risk/return behavior, and so it seems to me it doesn?t add any functional value to frame debt as an ?anti? portfolio holding of some sort.

Also, if you were going to do that, to be fair and complete, you must apply that same principle to every single debt the client has (otherwise, it would be rather arbitrary just selecting the mortgage debt).? This adds unnecessary complexity in the asset allocation analysis.

Instead, the appropriate (and only) way to analyze debt is, separate from investable portfolio assets, on the cash-flow side of things.? Simply asking what is the ?optimal? use of the available capital; i.e. what net ?return? do you earn by using capital to eliminate debt, versus what net return could you earn if you kept the debt and employed the capital elsewhere (this will be different for each investor and their unique situations).? This is the way to analyze and evaluate debt, not to mingle it in with your invested assets and classify it as an ?anti-bond? holding within your portfolio.

I was just curious your take on this, and if I am misunderstanding or missing something.? Do you ever consider client?s debt as ?inverse-? or ?anti-? bonds in the context of asset allocation?

Thanks!

When you manage money financial firms, if you do it right, you consider the promises that your firm needs to fulfill.? When will cash be needed to pay obligations?? That helps drive asset allocation, because assets should broadly match liabilities.

Now, I am not a financial planner.? That said, the same principles apply to personal asset allocation.? If someone has a large mortgage or other debts, and he can’t invest his fixed income assets at levels that exceed the yields on those debts with reasonable risk, he should not invest in bonds — he should pay down his debt.? In the case of 401(k)s or IRAs, where there might be matches or tax advantages, the calculation becomes more complicated.? You have to weigh the match and tax deferral vs the negative arb on bond yields vs the mortgage and personal debts.

There is another factor here — how stable is your job?? If stable, it is bond-like, and you can take more equity risk with investments.? If your job has payoffs that vary a great deal with the market — commissions, bonuses, etc., it is stock-like, and you should take less risk in your investing — take excess earnings and pay down the mortgage.? I did that when I went from being a bond manager inside an insurance company, to being an equity analyst inside a hedge fund.? I paid off my mortgage in full, so that I would be free to take risks for my new employer.

As for the article, the concept is not novel.? It is well-known and practiced by institutional asset managers who manage money to the horizons needed by their clients.? As an example, the cash flows of a pension plan are relatively determinate, and the discount rate calculates the value of the liability.? The portfolio should throw off cash when needed in order to minimize risk.

In some cases, where bonds don’t offer enough yield, and equity prices are depressed, it might make sense to tactically mismatch, betting that equities will offer better returns versus the liabilities than bonds would on a risk-adjusted basis.

This argument has made its rounds for the last 20 years in insurance and pension management?? Do we match asset and liability cash flows, or do we trust in the equity premium, and invest in risk assets?? The correct answer is hybrid.? In general, match assets and liabilities, but if there is a significant tactical advantage to not match, then do that.? Think of buying junk bonds in late 1998.? Time to throw matching out the window.? And then in mid-1999, buy equities.

Now, not all clients will allow for that much risk-taking.? Many institutional investors will not let the asset manager take advantage of temporary dislocations.

In general, I think Mr. Roth is correct, but with an adjustment.

In extraordinary times, where bonds yield more than the earnings yields of stocks (think 1987 & 2000), buy bonds heavily, even if you have mortgage and other debts.
In extraordinary times, where stocks earnings yields are much higher than bonds, mismatch and own more stocks relative to bonds.? Just beware deflation, with falling future earnings.
In normal times, an indebted investor should not add to his leverage, but should invest in bonds, or better, pay down his debt.? Being debt-free is an excellent thing, and allows the investor to take more risks when the market is offering bargains.

Debt is either something to be funded by bond assets, or funds a margin account where you outperform the yield, or die.? All of this depends on where the market is in its risk cycle.? Only take risk where it is rewarded.