Don’t F— With Karma?

The battle as to whether or not to write about this topic was waged long and fierce in (what’s left of) my brain. I have written that I don’t really believe in buying cars as a financial investment, but as an investment in the enjoyment of life. I (we) do have financial investments, such as stocks and bonds. My wonderful wife and I are debt-free and those financial investments have played the largest role in reaching that state.

Here’s where the debate raged. I don’t think I believe in karma. HOWEVER, my memory, as good as it may be it is still the selective memory of the human, remembers multiple times when my bragging seems to have led to my misfortune. I will, therefore, tread somewhat lightly here.

First, here is the asset allocation for our investment portfolio, retirement and non-retirement accounts together. All of the figures shown here come from the analytics of our brokerage company and were not calculated by me. Given that I am retired and that my wonderful wife is, hopefully, close to retirement the portfolio is fairly conservative.


Large Cap Stocks  45.6%
Small Cap Stocks   2.6%
International Stocks   7.6%
Fixed Income  34.0%
Cash  10.1%


All portfolio returns are not created equally. An asset allocation like ours cannot match the overall return of the S&P 500, nor is it meant to. The key to measuring the success of investments is to compare the return to the expected, risk-adjusted return. We have been with the same brokerage company for 12 years and we are VERY happy with them. For the sake of security, I will not reveal their name. This company gives investors access to all sorts of analytics about their investment portfolios although, for some reason, this data only goes back 11 years.

Overall, our portfolio has outperformed its expected, risk-adjusted return by…I am very reluctant to reveal this..almost 200 basis points per year for the last 11 years. Most of that “out-performance” has come from one asset class.

The large cap stocks in our portfolio have performed as expected. Oh…most of our investments are not in individual stocks. We have some of those, but mainly we have no-load mutual funds, ETFs and index funds although not much of the latter. When it comes to fixed income, though, we have very little exposure to bond funds. We hold actual bonds instead.

The small cap stocks have underperformed their benchmark, but since they only comprise 2.6% of our portfolio that has little effect on our overall return. Our international stocks have outperformed their benchmark somewhat.

Cash is, pretty much, cash so by process of elimination one can ascertain that the one asset class where we have had the most success is in fixed income. I am going to write the following, but you may very well not believe it. It is true, however.

Our brokerage company uses the Bloomberg Barclays Large Aggregate Bond Index as its fixed income benchmark. Taking the average annual rate of return for that index and compounding that growth for 11 years yields an overall return of 54.9%. Taking the average annual rate of return of our fixed income investments and compounding that growth for 11 years yields an overall return of 147.8%. Those are the real numbers, as hard as that may be for you to believe.

I can’t really describe the process by which I buy and sell bonds because it’s as much about feel as about analysis. However, I can tell you that the old axiom “Bulls make money, bears make money, but hogs get slaughtered” also applies to fixed income investing. Let me give you one example: a little over a year ago I purchased a bond for one of my wife’s accounts. Let’s say it was $25,000 in face value. I recently noticed that the value of that bond had increased by almost 30 percent since purchase. That type of movement is, of course, rare in bonds but not unheard of. I decided to trim the position to $20,000 and lock in that gain for the other $5,000. I can assure you the coupon rate of the bond didn’t remotely approach 30% a year. However, for one-fifth of the original investment we have a gain of about 30%.

OK, I have probably lost a lot of you along the way. It is a fact that without money life is more difficult for most. I don’t believe that money is everything, but it is important. Being debt-free is a great place to be and we could not have gotten there without investing our money. I also think that money should be enjoyed, that people should use their money to improve the quality of their lives, within reason. People should not live above or even at their means. In the past, my wonderful wife and I have eschewed purchasing nice things we couldn’t really afford so that later we would be able to afford nice things. Too many people in the US think they are somehow entitled to nice things they can’t really afford.

I would like to read about your investing history.





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