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Portfolio Strategies Articles

How Much Small Cap Should Be in Your Portfolio?

July 2014 by John McDermott
Small-cap stocks have historically realized higher returns, but there are reasons why an investor may not want to overweight small-cap stocks. Read more »

Peculiar Facts From 500 Years of Finance

May 2014 by Timothy Knight
Lesser-known but notable events that not only have led us to the present day, but also had an impact beyond the financial markets. Read more »

The Three Pockets Approach to Investing

May 2014 by Timothy McCarthy
Segmenting your portfolio into savings, investing and trading pockets can simplify the allocation process and better help you achieve your goals. Read more »

The Danger of Getting Out of Stocks During Bear Markets

May 2014 by Charles Rotblut
Panicking and pulling out of stocks during turbulent market conditions can have a significant and lasting negative impact on your wealth. Read more »

Reduce Stock Exposure in Retirement, or Gradually Increase It?

April 2014 by Michael Kitces
Starting retirement with a 30% allocation to equities and then gradually increasing it to 70% leads to a 95.1% probability of not outliving your savings. Read more »

John Maynard Keynes as an Investor: Timeless Lessons and Principles

March 2014 by John Wasik
A look at Keynes’ evolution from a spectator to a successful value investor and the godfather of behavioral finance. Read more »

My Investment Letter: Words of Advice for My Grandchildren

October 2013 by Charles D. Ellis
A letter from legendary investor Charles Ellis to his grandchildren, with 12 guidelines for how to become successful long-term investors. Read more »

Using the Bucket Approach With Your Retirement Portfolio

October 2013 by Christine Benz
By segmenting their portfolios based on when they will need the money, retirees can fulfill both short-term cash and long-term growth requirements. Read more »

Diversification’s Role as a Risk-Reduction Tool

September 2013 by Charles Rotblut
The correlation among the assets you own, instead of the number, is what determines your portfolio’s diversification. Read more »

Protect Your Capital: Never Chase High Yield

July 2013 by Donald Cassidy
Buying high-yielding investments is a bet the market is wrong about the underlying risks. Find out what traits to look for in an income-producing investment. Read more »

Safe Withdrawal Rates and Certainty-Equivalent Spending

July 2013 by Druce Vertes
The size of initial withdrawal rates depends on a retiree’s willingness to accept both portfolio volatility and variability in his annual spending rates. Read more »

Taking Retirement Withdrawals From a Fund Portfolio

May 2013 by Charles Rotblut
A portfolio that could have been duplicated by investors is used to demonstrate how to take withdrawals and the potential pitfalls that are encountered. Read more »

Addendum: Adjusting Retirement Withdrawals for Inflation

May 2013 by Charles Rotblut
An addendum to the May 2013 AAII Journal article “Taking Retirement Withdrawals From a Fund Portfolio” that takes inflation into account when calculating withdrawal amounts. Read more »

Portfolio Rebalancing: Observations From 25 Years of Data

April 2013 by Charles Rotblut
Using a rebalancing strategy over the past 25 years would have boosted returns, lowered volatility and kept the balance in one asset class from being drained. Read more »

Why We Don’t Rebalance

April 2013 by Jason Hsu
A combination of risk-averse and risk-seeking behaviors as well as fears about backlash stop investors from rebalancing. Read more »

A Pseudo-Life Annuity: Is There a Downside?

April 2013 by Robert Muksian
U.S. government STRIPS provide guaranteed income and, since they are purchased at steep discounts, will appreciate by the time of death. Read more »

An In-Depth Look at the Tax Consequences of Asset Location

March 2013 by Kevin Trout
Prudently choosing whether to hold an investment in a taxable or in a tax-deferred account can increase your aftertax rate of return. Read more »

Rules of Thumb and Key Phrases: Gleaning the Nuggets of Truth

December 2012 by Vahan Janjigian
These 22 tidbits have an element of truth and carry the wisdom of experience. Included in these rules are suggestions about selling. Read more »

The Permanent Portfolio: Using Allocation to Build and Protect Wealth

December 2012 by J.M. Lawson
Based on Harry Browne’s methodology, this strategy holds four distinct asset classes to take advantage of varying economic states. Read more »

An Investor’s Guide to Smart Beta Strategies

December 2012 by Feifei Li
Smart beta strategies differ from traditional market-capitalization-weighted indexes by taking advantage of value and small-company outperformance. Read more »

How Investors Miss Big Profits

October 2012 by Louis Harvey
Individual investors underperform the mutual funds they invest in, but they can take advantage of psychological behaviors to improve their returns. Read more »

Stocks vs. Bonds: Why and When?

September 2012 by Jason Brady
When choosing between bonds and stocks, investors should consider the enormous variation among individual assets within each asset class. Read more »

The Good Investor Rule: Focus on How Not to Lose Money

July 2012 by Steven Sears
Many investors place on emphasis on making money, but successful investors focus more on how not to lose money. Read more »

The Rationale for Investing in Emerging Markets

July 2012 by David Hale
Emerging market countries account for about 36% of global GDP, are experiencing faster growth and offer diversification benefits. Read more »

The Alternative Portfolio: Diversifying Away From a Traditional Allocation

June 2012 by Charles Rotblut
This portfolio has different return characteristics than a portfolio of large-cap stocks and long-term Treasuries, but was capable of beating inflation. Read more »

How to Achieve the Right Asset Allocation

June 2012 by Sheldon Jacobs
Investors should emphasize making the correct asset allocation and diversification decisions, taking into account personal financial and family factors. Read more »

Using Asset Allocation for Protection and Growth

June 2012 by Charles Rotblut
Asset allocation involves both protecting assets and preserving purchasing power. Both can be accomplished through a balance of growth and defense. Read more »

A Pseudo-Life Annuity: Guaranteed Annual Income for 35 Years

June 2012 by Robert Muksian
Investors can virtually guarantee a lifetime stream of income for their retirement years by creating a ladder of zero-coupon Treasury bonds. Read more »

Should You Dollar Cost Average or Lump-Sum Invest?

April 2012 by Sam Stovall
Since December 1999, dollar cost averaging has worked better for the S&P 500 index, but lump-sum investing has worked better for other indexes. Read more »

Using Currencies to Diversify Your Portfolio

April 2012 by Axel Merk
Investing in currencies can reduce the overall risk profile of your portfolio, as currencies have different and less volatile returns than stocks and bonds. Read more »

Updating Modern Portfolio Theory for Investor Behavior

April 2012 by Greg B. Davies
The optimum portfolio is not only based on the expected risk and return of the investments, but considers an investor’s tolerance for risk. Read more »

Portfolio Rebalancing: Diversification, Risk Control and Withdrawals

March 2012 by Charles Rotblut
Rebalancing maintains the benefits of diversification, provides a hedge against behavioral mistakes and works with annual withdrawals. Read more »

The Role of REITs for Long-Term Investors

January 2012 by Brad Case
Real estate investment trusts (REITs) offer diversification benefits relative to stocks, with correlations decreasing over time. Read more »

Tax Breaks for Contributions of Appreciated Property

January 2012 by Julian Block
Donating appreciated assets to charities not only provides a tax deduction, but it also enables investors to sidestep capital gains taxes. Read more »

A Balanced Approach: Less Risk, But Lower Potential Return

December 2011 by Stuart Ritter
Combining stocks and bonds reduces volatility by 40% over an all-stock portfolio, but reduces annualized returns by 13.7%. Read more »

Balanced Fund Managers Discuss Portfolio Income

September 2011 by Ned Notzon
Two T. Rowe Price portfolio managers explain what to consider when trying to strike a balance between bonds and dividend-paying stocks. Read more »

Adding Alternative Investments to a Stock/Bond Portfolio

July 2011 by Phil DeMuth
The risks of a traditional 60% stocks/40% bonds portfolio can be lowered by adding funds that invest in real estate, commodities and hedge-fund strategies. Read more »

Best Practices for Portfolio Rebalancing

May 2011 by Francis M. Kinniry
A strategy that combines regular monitoring with rebalancing at certain thresholds provides a harmony between allocation goals and cost minimization. Read more »

Managing the Mental Aspect of Investing

May 2011 by Meir Statman
Investors should consider whether they are being influenced by a good or bad herd behavior and who is on the other side of a trade. Read more »

The Advantages of Diversification and Rebalancing

April 2011 by Charles Rotblut
Annually rebalancing to maintain proper diversification increases returns and lowers volatility. Read more »

Investing for Retirement Requires a Disciplined Approach

April 2011 by Jerome Clark
Maintaining a substantial equity exposure before and during retirement helps you achieve long-term financial goals. Read more »

Stock Price Movements Are Unpredictable

March 2011 by Charles Rotblut
The author of "A Random Walk Down Wall Street" explains why investors should put at least the core of their portfolios in index funds. Read more »

International Diversification: Why It Still Makes Sense

December 2010 by Bernard R. Horn
History shows that international stocks provide diversification benefits over the long term, even though correlations become close during times of crisis. Read more »

A Time for Time Deposits

December 2010 by Stanley D. Smith
Many certificates of deposit (CDs) are offering higher yields than Treasuries with similar maturities, and they meet investors’ need for safety. Read more »

Capital Pains: Rules for Capital Losses

September 2010 by Julian Block
The tax code limits the deduction that can be taken for net capital losses, but it also allows losses to be offset by gains from assets other than investment securities. Read more »

Preferred Stocks: An Overlooked Alternative

August 2010 by John Deysher
Preferred stocks can augment income strategies with priority access to dividends, but expose investors to interest rate and credit risk. Read more »

Allocation in Retirement: A Flat Glide Path Always Make Sense

July 2010 by Josh Cohen
For any downward sloping glide path of equity allocation once you hit retirement, a flat one can be created that is better in terms of its risk and reward trade-off. Read more »

How Much Should You Have in Equities Until Retirement?

July 2010 by Jerome Clark
A more conservative investment strategy might not do as well as a more aggressive strategy. Read more »

Sustaining Wealth in an Uncertain Environment

June 2010 by Axel Merk
Successful wealth management involves controlling expenses, finding good values and assessing how much risk can be taken. Read more »

Figuring Taxes on Social Security Benefits

May 2010 by Julian Block
Investment decisions can impact how much of your Social Security benefits will be taxed. Read more »

Does Social Investing Generate Higher Returns?

April 2010 by Denys Glushkov
Companies with high social responsibility ratings outperformed companies with low ratings, but to get the highest returns, you should not shun shares of any company. Read more »

Do's and Don'ts of IRA Investing

March 2010 by Robert Carlson
Complicated and restrictive rules can lead to unintended problems. Learn which assets and transactions are allowed and which are not in an IRA. Read more »

Diversification: A Failure of Fact or Expectation?

March 2010 by Sam Stovall
Did diversification fail investors during the most recent bear market or did investors simply take on too much risk? Sam Stovall looks at the historical trends to find answers. Read more »

The Portfolio Review: Why It Is Important and How to Do It

January 2010 by Julie Jason
Since regular reviews are the foundation of successful investing, resolve to evaluate your portfolio. Julie Jason explains how. Read more »

New Rules for Converting to a Roth IRA

January 2010 by William Reichenstein
The income restrictions have been lifted, but does converting to a Roth IRA make sense for you? Plus, find out why a recharacterization can give you even more flexibility for managing your tax exposure. Read more »

Retirement Plans: Evaluating the New Roth IRA Conversion Opportunity

November 2009 by Christine S. Fahlund
Starting in 2010, investors have the option of converting all or part of their traditional IRA into a Roth IRA regardless of how much they earn. Whether you are years away or approaching retirement, you may find it worthwhile to consider a conversion--either for yourself or to potentially leave tax-free assets to heirs. Read more »

How to Create Your Own Pension: A Closer Look at Immediate Annuities

November 2009 by Julie Jason
How would you like to have lifelong income even after you retire? That's what it's like to receive a pension. What if you don't have one? One option is to buy a product that will create one for you--an "immediate annuity," which is the oldest product of its kind in the marketplace. Read more »

Surviving a Loss: Smart Steps for Coping With Widowhood

August 2009 by Karen C. Altfest
If you have recently lost your spouse, you are confronting many changes. Because financial planning at this stage involves both a person's emotional state and financial state, many widows are pushed to make unwise decisions, or to make changes before they are ready. Smart steps for widows to take when the time is right. Read more »

Bear Market Grads: What You Should Learn From the Financial Crisis

July 2009 by Larry Swedroe
Stock indexes remain substantially below their peaks, banks are in lousy shape, and governments around the world are running huge deficits. The market has been a brutal teacher, but there are important lessons to be learned from the crisis--and positive steps investors can take going forward. Read more »

Bear Market Start May Offer a Strong Finish for Young Investors

July 2009 by Christine S. Fahlund
Would you rather start investing for retirement during a bull market or a bear market? While some young investors may be warily viewing stocks right now, in the past such downturns have presented investors with rare opportunities to benefit from healthy future returns. A new study by T. Rowe Price. Read more »

Due Diligence: 10 Steps to Avoiding Ponzi Schemes and Financial Fraud

April 2009 by Karen C. Altfest
The uncovering of Bernie Madoff's Ponzi scheme, and the fraud committed by several other financial hucksters, highlights the importance of asking the right questions before selecting an advisor or participating in an investment. Ten questions to ask, and red flag warning signs of the potential for trouble. Read more »

Retirement Income: Repairing the Damage to Assure the Flow

February 2009 by Christine S. Fahlund
If you are living off your retirement savings and have suffered a severe portfolio loss, what is your best course of action to ensure your savings can be sustained? A new T. Rowe Price retirement income study compared various withdrawal strategies. Read more »

Your Portfolio: Maintaining Perspective

November 2008 by John Markese
Financial turmoil can prompt an emotional response that causes investors to flee stock holdings. But this can cause long-term harm to your portfolio. Instead, you need to put things in perspective and stick to the fundamental rules of investing. Read more »

Financial Professional Terms: What They Mean and Why You Should Care

November 2008 by William Reichenstein
Broker, financial planner, investment advisor and wealth manager are just a few of the common terms used to describe various financial professionals. Many individuals do not have a clear understanding of what distinguishes one from another. A look at the terms and differences in duties owed to clients. Read more »

The Core Approach to Building an Effective ETF Portfolio

October 2008 by Maria Crawford Scott
As investment products increase in number and complexity, many individuals are searching for an approach that keeps it simple and low-cost. Exchange-traded funds (ETFs) offer a useful starting point, and using the core index portfolio approach, you can build effective portfolios ranging from the basic to the complex--all at a low cost. Read more »

A Do-It-Yourself Approach to Target Date Retirement Investing

September 2008 by Ben Branch
Target date mutual funds have become increasingly popular as one-stop shopping, automatic-pilot retirement vehicles. However, using index funds, it doesn't take a lot of difficult work to adopt the do-it-yourself approach to target date investing if you want to save on fees and possible expenses. The effort can potentially provide you with a greater retirement nest egg and retirement income. Read more »

Optimizing Your Retirement Income: What Works Best and Why

August 2008 by Christine S. Fahlund
Only a small minority of Baby Boomers are accumulating enough savings to provide for their income needs. But those approaching retirement can improve their financial security in retirement, depending on their flexibility and their approach to four big decisions that are under their control. Read more »

Will Your Savings Last? What the Withdrawal Rate Studies Show

July 2008 by William Reichenstein
Determining a "safe" withdrawal rate for retirement savings is a tricky balancing act for retirees. If it is too large, they may run through assets too quickly, but if it is too little, their lifestyle will be below where it could be. Many studies have attempted to determine the "maximum" safe rate. Lessons from what the studies have found. Read more »

Human Capital and the Theory of Life-Cycle Investing

May 2008 by Paula Hogan
Life-cycle theory, first developed in the 1970s, points out that each person has both human and financial capital, with the former being most important. While it seems like a small change to focus more on human capital, it has major planning implications. Read more »

Clueless: What Graduates Need to Know About Making Financial Decisions

January 2008 by William Reichenstein
Bad decision-making in an individual's early years can have a detrimental effect on their well-being throughout their working lives. A primer aimed at the younger generation on how to avoid early-year financial mistakes. Read more »

Investment Products: If It Has to Be Sold, Don't Buy It!

November 2007 by William Reichenstein
Financial firms can add, at best, only a small value by buying and combining securities into a portfolio. Many investors haven't thought about this, but it explains why investments and products with commissions should be avoided. Read more »

Building an ETF Portfolio: From the Simple to the Complex

October 2007 by Maria Crawford Scott
You can keep it simple while making it complex. By using a simple, index-based approach, you can build a low-cost, low-maintenance fully diversified portfolio of exchange-traded funds that can range from the basic to the intricate. A look at the low-hassle ETF portfolio. Read more »

Explaining the Value Tilt and Its Implications for Investors

July 2007 by William Reichenstein
Over the long run, returns on value stocks have exceeded returns on growth stocks. The raging debate in the financial community is: Why? And can investors actually profit from this value tilt? A look at the competing explanations and their implications for investors. Read more »

Invest or Delay? Strategies for Taking Social Security Benefits

February 2007 by Christine S. Fahlund
Individuals who are eligible for Social Security face a complicated question: Are you better off delaying the start of your benefits so you can receive higher benefits, or are you better off receiving earlier but lower benefits? An analysis of various strategies for taking benefits. Read more »

Choosing the Right Mix: Lessons From Life Cycle Funds

January 2007 by William Reichenstein
Life cycle funds represent a fund family’s professional thinking about prudent asset allocations through a typical individual’s life cycle. What you can learn from four life cycle fund families. Read more »

The Actively Passive Trend: Indexes Get a Makeover

October 2006 by Maria Crawford Scott
This year's crop of ETFs highlights a growing trend in index fund investing--an attempt to redefine the index concept. A look at the makeover trend. Read more »

Should You Consider a Roth IRA Conversion in 2010?

August 2006 by Christine S. Fahlund
The new tax act passed earlier this year opens the Roth IRA conversion door to more investors starting in 2010. Even investors with relatively high annual incomes who are approaching retirement or recently retired may find it worthwhile to convert at least a part of their IRAs to a Roth IRA. A look at when it is most advantageous. Read more »

The Real-World Lessons From Investment Theory

January 2006 by William Reichenstein
Modern Portfolio Theory is the accepted approach to portfolio management today, with its implications embedded in the portfolios of most major mutual fund families and the advice given by well-known investment advisers. But many investors are unfamiliar with the underlying principles. What you need to learn from investment theory, and how to apply it to your real-world investment portfolio. Read more »

New From Your Employer: The Roth 401(k) Plan

January 2006 by Peter James Lingane
Starting this month, your employer may start accepting aftertax elective deferrals to your 401(k) or 403(b) plans. How do you choose between making a pretax contribution to a traditional plan or an aftertax contribution to a Roth-style plan? A look at how to approach this decision. Read more »

Tax-Efficient Investing: Picking the Right Pocket for Your Assets

November 2005 by William Reichenstein
If you want to keep Uncle Sam’s fingers off your assets, you need to put them into the right tax pocket. A look at the third principle of tax-efficient portfolio management: How to decide which assets should go into your tax-deferred and taxable accounts. Read more »

The EZ Approach to ETF Portfolio Building

October 2005 by Maria Crawford Scott
Despite the dizzying array of complicated investment products to choose among, there is a simple way to build a low-cost, low-maintenance, fully diversified portfolio. And all you need are a few key exchange-traded funds. A look at the low-hassle ETF portfolio. Read more »

Withdrawal Rules: Squeezing More From Your Retirement Portfolio

August 2005 by Jonathan Guyton
How much can you withdraw annually from your retirement portfolio? By incorporating systematic decision rules, you may be better able to maintain your desired living standard. Read more »

The Great Tax Fight: Managing Stocks in Taxable Accounts

July 2005 by William Reichenstein
The Fight of the Century is the continuous fight investors have with Uncle Sam over their return dollars. Who's the leading challenger? The Tax-Efficient Investor. A look at how to create a tax-efficient portfolio when managing individual stocks. Read more »

For Long-Term Investors, the Focus Should Be on Risk

June 2005 by Paula Hogan
When determining the optimal allocation for your own portfolio, it's best to focus first on how much you are able and willing to lose. Read more »

Tax-Efficient Investing and What It Means to Your Portfolio

February 2005 by William Reichenstein
Portfolio Strategies: Although tax laws constantly change, the key to tax-efficient investing is contained in a small number of provisions that are unlikely to be altered. A new way of thinking about asset allocation that considers aftertax values. Read more »

Retirement Withdrawals: What Rate Is Safe When Time Is Short and Uncertain?

January 2005 by Carl M. Hubbard
Portfolio Strategies: Most studies that examine sustainable retirement withdrawal rates cover payout periods of 15 to 35 years. But what happens when circumstances shorten the period? A look at how much you can safely withdraw over shorter payout periods. Read more »

Insured Investment Products: The Reality Behind the Hype

November 2004 by William Reichenstein
Portfolio Strategies: Insured products promise the upside of a speculative asset, while attempting to limit the downside risk. But can these products deliver--and are they useful additions to an investor's portfolio? Read more »

What Are You Really Getting When You Invest in a Hedge Fund?

July 2004 by William Reichenstein
Portfolio Strategies: Hedge funds are touted for providing strong historical returns and being weakly correlated with the stock market. If it seems too good to be true, it probably is. What you should know about adding hedge funds to your portfolio. Read more »

Maintaining the Flow: Will Foreign Stocks Help Your Retirement Portfolio?

May 2004 by Carl M. Hubbard
Portfolio Strategies: Recent studies call into question the risk-reduction benefits of international diversification. Retirees want to know if foreign stocks can improve their portfolio performance enough to allow them to withdraw more each year. Read more »

Retiree Stock Allocation Recommendations: Do You Fit the "Mold"?

February 2004 by William Reichenstein
How much of your portfolio should be invested in stocks if you are living off of your retirement savings? A look at where the professional advisors agree and disagree concerning the "typical" investor. Read more »

Makeover for a Bear-Mauled Portfolio: How to Create a Winning Game Plan

January 2004 by Vern C. Hayden
By the time the Edwards' decided they needed a makeover, the bear market had eaten up 53% of their original investment. A portfolio makeover defused their ticking time-bomb and provides important lessons for other investors. Read more »

Allocation During Retirement: Adding Annuities to the Mix

November 2003 by William Reichenstein
At its most basic level, the decision to annuitize involves the trade-off between longevity risk and the bequest motive: The major advantage of annuitization is the reduction in longevity risk. Read more »

The New Tax Act: Should You Revamp Your Portfolio?

August 2003 by Maria Crawford Scott
Changes in the tax law have raised a number of issues for investors, in particular the relative benefits provided by tax-deferred accounts compared to taxable investments under the new rates. Read more »

Retirement Planning: Annuities and When They May Make Sense

July 2003 by William Reichenstein
Low-cost annuities can make sense when compared to taxable investments for bond investors and active stock investors with long investment horizons. They do not make sense for long-term buy-and-hold investors. Read more »

Bear Market Strategies: Watch the Spending, Hold the Stocks

May 2003 by T. Rowe Price Associates
The asset allocation decision in retirement can be critical depending on your withdrawal rate and time horizon. Recent analysis shows that retirees should keep at least 30% to 40% in equities. Read more »

Ten Lessons You Should Learn From Recent Market History

February 2003 by William Reichenstein
A review of returns from 1987 through 2002, encompassing both strong bull and fierce bear markets, shows that a fixed-weight portfolio that includes both bonds and stocks and is rebalanced annually is One Good Strategy. Read more »

When Should You Start Your Social Security Benefits?

November 2002 by William Reichenstein
Is it worth the delay in receiving Social Security benefits to get a higher monthly payment? Strategies for maximizing the present value of expected benefits. Read more »

The Shrinking Equity Premium and What It Means to Investors

October 2002 by Paula Hogan
There is an emerging consensus among academics that the equity premium looking forward is significantly less than the traditional estimate. Current estimates imply a 5% to 7% annual future return for an all-stock portfolio. Read more »

Valuing Your Pension Benefits and the Asset Allocation Implications

July 2002 by William W. Jennings
Asset allocation should be based on the family's extended portfolio that includes the present values of income from Social Security and pension plans. Including these values may have dramatic investment implications. Read more »

Liquidating Retirement Assets in a Tax-Efficient Manner

May 2002 by William A. Raabe
When you enter retirement, you retire from work, not from decision-making. For example, which assets should you withdraw first--taxable or tax-deferred? Decision rules for a typical retiree to keep tax liabilities to a minimum. Read more »

Planning for Retirement: What to Expect From Social Security

February 2002 by William Reichenstein
To properly manage Social Security benefits, you need to understand their key features. And as you approach retirement, you need to have an idea of how your decisions could affect the size of future benefits. Read more »

Keeping Track of Your Portfolio: What to Monitor and When

February 1998 by Maria Crawford Scott
Portfolio Strategies Workshop: Where to find the information you need to monitor your investment portfolio and its components. Read more »