Home » Tag: Asset Allocation

Hedging Against Various Economic Issues

28 May 2009 Dividend Tree Commentary, Risk 2 Comments

As an investor this is my first downturn. What a recession it is turning out to be? In relative terms, I do not know how bad this recession is. Whoever I talk to, it seems everybody feels that this is the worst one and would perhaps be the most difficult one. Another aspect that I have observed is the folks in 20s and early 30s seem to be using this as an example to not believe in stock market, or scouting for safety, or losing their entrepreneurial spirit. Once again media seems to uphold its traditional values of sensationalism and harping on few themes. CNBC will make you feel that everything is fall apart the next day.

Some the media themes now-a-days are China’s domination, India’s rising potential, Dollar’s demise, US losing its steam, various type of flations, and few more gloom and dooms. Somehow the focus seems to be eased away (not gone completely) for banking system. continue reading rest of the article….

More on this topic (What's this?)
Zero Hedge: The Bureau of Lies and Statistics (The Swamp Report, 5/8/09)
With the economic outlook still gloomy, investors cautiously hedge their bets (Hedge Fund Blogs From HedgeCo.Net, 4/29/09)
Sans Hedge (running long for the memories) (Centrifugal Deforest, 4/8/09)
Read more on Hedging at Wikinvest

Asset Allocation and Diversification

25 April 2009 Dividend Tree Risk No Comments

Any prudent portfolio management process must include the principles of asset allocation and diversification. These are two tools available to us for our portfolio risk management. This has been said many times, presented many times, and we individual investors make mistakes. On a personal front I have been guilty of it. Asset allocation and diversification are two different aspects which have different objectives.

In true sense, asset allocation is different types of assets which are either non-correlated or at least have low correlation. The notion here is that if these assets have low correlation, the volatility in returns will smooth out. Table 1 shows the average correlation factors in 18×18 matrix for different asset class such as real estate, international stocks, emerging markets, high-yield bonds, U.S. bonds, long-short, and investing styles. Table 2 provides the standard deviation of these correlations.

Between these two tables, we can observe that there is low correlation between stocks, bonds, real estate, and natural resources. In addition, the emerging markets and international markets have relatively higher correlation of up to 0.6. Investment strategy that includes asset allocation in true sense will have these lowly correlated assets included in the portfolio. It is hugely unlikely that at a beginning, we may not have all assets. However, based on individuals risk profile, it surely can be build over time. Asset allocation is designed to smooth out volatility and average out growth of the portfolio. continue reading rest of the article….

More on this topic (What's this?)
Scheduled To Appear (Random Roger's Big Picture, 4/24/12)
Asset Allocation is Difficult with Correlating Risky Assets (Value Investing, 5/4/12)
Protégé Partners LLC on Asset Allocation (Value Investing, 4/27/12)
Read more on Asset Allocation at Wikinvest

My Investment Buckets – An Overview

27 December 2008 Dividend Tree Investment Process, Strategy No Comments

My investing style is very much objective driven and I tend to follow the systemic approach. Whenever I think about my investments, I tend to look at from the full portfolio investments perspective. I believe in continuous evolution, and hence I make changes as I learn more about any aspects of investing.

I follow combination of active and passive investment process. All of my retirement investments use active investments, in the sense that they use mutual funds and bonds as investment vehicles. Although I am not a fan of mutual funds, I do not have any control on the choice of the funds in the 401(K) plan. It runs on auto-pilot and hence, I do not plan to discuss this aspect of my investment on this blog spot. Outside of my retirement investments, I have three investment portfolios which are described below:

Portfolio 1: Index-Based Exchange Traded Funds (30%)

The objective of this first portfolio is to replicate the market performance. I am currently invested in three

Index ETFs viz. SPY, EEM, and EPI. My target percentage allocation for Index ETFs is 30% of my portfolio investments. I also use S&P500 as the benchmark for all of my investments.

Portfolio 2: Opportunity Portfolio (20%)

This second portfolio is sub-divided into two groups.

  • Value-focused stocks (10%): The objective here is to invest in companies which I believe are undergoing short-term difficulties but are worthy of long term investment. Limiting myself to 10% helps me reduce the risk of over exposure in risky stocks.
  • Asset Allocation ETFs (10%): The investment is this sub groups gives me room for investing in areas which I am not familiar with and hence capture the full domain. Here, it is not necessary to look for dividend based opportunities. It helps in diversifying across one particular category without attempting the look for a unique opportunity.

Portfolio 3: Dividend-Focused Portfolio (50%)

The third portfolio is allocated to income producing dividend-based investments. The objective of this portfolio is to generate increasing passive cash flow and long-term capital appreciation. The total target allocation is 50% of my portfolio investments. It is sub-divided into two groups.

  • Dividend-focused stocks (35%): The objective in this sub-group is to invest in individual stocks/companies that provide consistently growing dividends.
  • Dividend ETFs/CEFs (15%): The objective for this sub-group is to capture the diversification benefits of dividend-based stocks.

Majority of the discussion on this blog spot will be on my dividend-focused portfolio. Depending upon the relevance of a given topic or investment vehicle, occasionally, I may also discuss about my other two portfolio investments.

More on this topic (What's this?)
Putting Your Money in the Best of Breed Investment Pool (Investing School, 2/20/12)
Does a Risk-Free Return Actually Exist? (Investing School, 4/23/12)
The Best Investment You Can Make In Four Minutes (Investment U, 2/6/12)
Read more on Investment at Wikinvest
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