The performance of the Financial Place Online balanced portfolio

The Financial Place Online balanced 401k portfolio example was developed based on a grouping of common Vanguard funds available to various 401k plans.  The asset allocation is as follows:

As compiled from Vanguard’s website, the performance record for each of these assets is impressive.

VanguardThe first thing to note here is the omission of the Developed Markets fund.  That fund has been recently established.  In its place, the MSCI EAFE index has been used, which is a more than reasonable assumption.  Each of the four funds have experienced strong performance in the past.  It is important to remember that past performance is just that; past performance.  What is important is what each of these funds represent.  As a combination, this portfolio covers ownership of the U.S. S&P 500 index, a stong mix of Real Estate Investment Trusts, the U.S. aggregate bond market (high credit rated bonds) and developed markets in Europe and Asia.  There will be profitability in the future.  You can be sure of that.  Businesses are all about increasing shareholder value, though some are better at it that others.  This portfolio is geared towards capturing as much of the total market profits as you can in as cost effective of a method as possible.

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FPO investment concepts

Good Evening FPO Readers,

The information below outlines the FPO investment concept.

1. Our investments should be in asset classes that yield a product, not in items that can only appreciate and do nothing. Examples of this principle include timber land, oil wells, banks, rental property, rental equipment, agriculture, manufacturing, and even music and theatre.  For example, while gold itself does not adhere to our investment concept, owning the production of gold does.  The recommended method for this is direct purchase of stocks, bonds, and convertible securities of well managed mining companies.

2. Our investments, regardless of asset class should minimize middle-man activities. This primarily speaks to commissions.  This means trading an asset as cost effectively possible.  The goal is for us to prosper based on our assets, not for a broker/salesman to prosper on our assets.  We do the research and know what is right for us.  With the dominance of on-line trading, low-cost software can now handle most all of the middle-man tasks.  An example of this would be if we wanted to build a exchange traded fund for the entire gold sector, rather than buy a proportional group of shares of each of the companies, we would aim to build a simple, yet highly representative portfolio.  As long as adequate representation is met, this portfolio may consist of a mix of fewer stocks, gold futures contracts, derivatives, and owning corporate debt for a specific investment capital lending bank to the majority of the mining industry.  If this course of action reduces ownership costs, while meeting the same investment objectives, then it meets the second FPO investment concept.

Invest in what works for you

The gold bugs are out! It’s pretty tempting since the precious metal has outperformed just about any other asset class in the last decade. For the early money in, this was great. Keep in mind, past performance does not guarantee future results. If enough people really believed gold would be at $3000+ next year, the price would already be driven up to that point adjusted for the time value of money at the risk free rate, presently (essentially 0%), meaning gold would be currently at $3000. As this is not the case, any forecasts being sold as certainties are not. Owning gold and other precious metals may be right for some people, but not before some of these other assets.

What works — anything that can earn you money, either passively or with a little activity

Stocks: Commodities can’t develop the next medical cure or music player. The stocks don’t necessarily have to pay dividends.  Not paying dividends just means that all of the funds are reinvested.

Real Estate: Rental income is a great way to bring in extra money, but beware, there are many pitfalls about the landlord business. Don’t overleverage. The rental business requires active participation to some extent.

Bonds: I like investment (not junk) grade bonds as a good way to beat CD yield rates. The bank is still useful for its FDIC insurance.

Lowering the cost of living: Replacing that fridge, washing machine, or gas furnace from the 1970’s can yield enough savings in utilities to pay for the appliance in several years. Utility and tax incentives help.

Pay down expensive debt: It’s a guaranteed savings. Invest the interest saved or have a little R&R.

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