Stephen Drone

ETFs Keep Getting More Popular

2007-10-05T22:19:00.000-05:00

I've certainly been using ETFs but I didn't know they'd gotten so popular. There were a lot of mutual fund withdrawals in the last few months as the market dropped - but it looks like ETFs have just steadily gotten bigger. Ishares dominates the list, but that's not what seems important to me. I like to see liquidity; more investment certainly means more popularity (and perhaps an overpriced product) but it also means you won't have to worry about being able to trade the product.

Here are the top 10 ETFs in size:

1. SPDRs Trust S&P 500 (SPY) $91.6 billion

2. iShares MSCI EAFE (EFA) $47.6 billion

3. iShares MSCI Emerging Markets (EEM) $20.9 billion

4. Nasdaq 100 Trust (QQQQ) $19.9 billion

5. iShares S&P 500 (IVV) $17.8 billion

6. StreetTRACKS Gold Trust (GLD) $13.5 billion

7. iShares Russell 2000 (IWM) $13.5 billion

8. iShares Russell 1000 Growth (IWF) $12.7 billion

9. iShares MSCI Japan $11.2 billion (EWJ)

10. iShares Russell 1000 Value (IWD) $9.9 billion

Vanguard's VTI total market index would be #11 on the list. Note how big GLD has gotten in the last few years. I have no idea why the Japan sector ETF would be so big (#9). I assume it's because the Japanese economy had 1 good year last year and everyone thought that the country's economy would finally take off.

Market's down! Should you market time it?

2007-08-22T10:47:00.001-05:00

The temptation is surely there. I'm tempted myself. I had a couple of investments pending; I've put them on hold for a bit thinking "Hey, I can make an extra percentage here or there by investing nearer the market bottom."

Don't market time your investments. If you're going to invest, get the money into the market. You'll hear people say "Your return is much higher if you miss the X worst days." That stat is exactly as meaningful as the opposing idea that "Your return is much lower if you miss the X best days" in the market.

I ran across an interesting graphic while taking the risk capacity survey on Index Fund Advisors. It drove the point home because I've considered subscribing to a few of these, including a free trial subscription to ValueLine. I still read ValueLine stock reports at the local library, and I still occasionally listen to the Moneytalk radio show.

And yet I've always wondered how their investment ideas compare to the market. Check this out:

Illinois changes its Bright Start 529 Program

2007-08-16T14:21:00.000-05:00

Illinois has planned to change the Bright Start administrator for a while, and I was told the change would happen August 20th. I called a couple of weeks ago, and the change had already happened. Lo and behold, the changes are VERY nice! Morningstar has a review as well.

Bright Star now basically has 2 options:

Age Based Portfolios

Within the age based portfolios, there are active allocation (managed mutual funds) and index allocation (index fund) portfolios. You choose which you want; whether active or index, the portfolio has the same percentage of equities based on the age of the beneficiary. Note that, within active vs. index portfolios, fixed income and money market allocations can vary slightly.

You throw your money into an account and they split it up for you based on the beneficiary's age. 0-6 years has 90% equity, 10% fixed income. 7-9 years has 70% equity, 30% fixed income. 10-11 years (I think we're cutting it a bit fine here) has 60% equity, 40% fixed income. 12-14 years is split 50/50. 15-17 goes to 60% fixed income and 10% money market, with the remaining 30% in equity. Age 18 has 70% fixed income, 20% money market, and only 10% equity.

Static Portfolios

The static portfolios are available, again, in either active allocation portfolios or index portfolios. You choose one of these portfolios and the allocations within the portfolio remain the same no matter the age of the beneficiary.

You can choose a 100% equity portfolio, a 50% equity portfolio, or a 0% equity portfolio. Frankly, I'd rather see a 60% equity/40% fixed income portfolio (standard portfolio allocation) but I guess 50/50 is close enough.

The Kicker

But here's the kicker. The reason Morningstar likes the new Illinois plan so much. The expense fees are low! The age based active allocation portfolios have expense ratios around 0.6%. The static active allocation portfolios have expense ratios that vary from 0.38% to 0.63%.

The index allocation portfolios, whether age based or static, have expense ratios that vary from 0.2% to 0.23%. That's outstanding; equivalent to the lowest cost Vanguard funds or ETFs you can find.

Low expense ratios = more money for the beneficiary and a potentially better investment.

You can check out the investment options here and and expense ratios here.

John Bogle on Rebalancing and a Suggested Portfolio

2007-07-24T20:30:00.000-05:00

John Bogle, the founder of Vanguard, has a blog on which he occasionally answers reader's questions. A reader recently asked about rebalancing his portfolio. Here's Bogle's answer (my emphasis in bold):

"We’ve just done a study for the NYTimes on rebalancing, so the subject is fresh in my mind. Fact: a 48%S&P 500, 16% small cap, 16% international, and 20% bond index, over the past 20 years, earned a 9.49% annual return without rebalancing and a 9.71% return if rebalanced annually. That’s worth describing as “noise,” and suggests that formulaic rebalancing with precision is not necessary."

"We also did an earlier study of all 25-year periods beginning in 1826 (!), using a 50/50 US stock/bond portfolio, and found that annual rebalancing won in 52% of the 179 periods. Also, it seems to me, noise. Interestingly, failing to rebalance never cost more than about 50 basis points, but when that failure added return, the gains were often in the 200-300 basis point range; i.e., doing nothing has lost small but it has won big."

"My personal conclusion. Rebalancing is a personal choice, not a choice that statistics can validate. There’s certainly nothing the matter with doing it (although I don’t do it myself), but also no reason to slavishly worry about small changes in the equity ratio. Maybe, for example, if your 50% equity position grew to, say, 55% or 60%."

What to take away from this
Bogle doesn't rebalance!
He believes statistics don't validate the need for rebalancing.
Balancing the stock/bond ratio seems more important than balancing within the stock or bond portions.
Not rebalancing can hurt you by as much as 1.5% in a particular year - but it can HELP you by as much as 2% or 3%.

Bogle suggested a portfolio, and I'll add that to the portfolio page. Note that he suggested Vanguard's new All World ex-US index. Right now I'm tracking the appropriate ETFs, but I may change that to the appropriate Vanguard funds.

So You Want the EAFE Index?

2007-07-20T14:21:00.000-05:00

I had today's post all planned out. Then I hit Roger Nusbaum's post this morning, followed the link to an article on Seeking Alpha about a WisdomTree ETF, did a bit of research, and thought WOW.

The article mentioned the DWM ETF, which is a Wisdomtree-ized version of the EAFE index. Many people use the EFA ETF to invest in this index, which covers developed markets in Europe, the Far East, and "Australasia." DWM has a 4% dividend! Note: Wisdomtree's website lists the index yield as 3.59%; I don't have an obvious reason for the discrepancy.

That stat caught my eye, so I did some research. First, look at the lovely chart from Wisdomtree comparing the indexes:

SHOCKING. Someone created a new index to sell, and it beats the existing index, eh? But let's face facts, 50% better performance over the last 10 years and a current yield of 4% is nothing to sneeze at.

What are the differences?
Expense ratio: DWM = 0.48%, EFA = 0.35%
Total assets: DWM = $232m, EFA = $47b
Yield: DWM = 3.59%, EFA = 1.9%
P/E: DWM = 15, EFA = 18
Top 5 countries in order: DWM = U.K., France, Australia, Japan, Italy. EFA = U.K., Japan, France, Germany, Switzerland.

What's good:
The theoretical performance
If you think dividends are a good indicator of a healthy company, you may like Wisdomtree's indexes.

What's bad:
Wisdomtree's ETFs have no real history. Yes, they've got back data for the indexes, but as you've heard, past results do not indicate future performance.
The total assets in Wisdomtree's ETFs are pretty small. I doubt you'd have any trouble buying/selling the shares of the ETF, but it's still something to take note of.

It's certainly an interesting investment. If you're invested in EFA, dropping a few percent into DWM could boost your performance.

Business Week Mutual Fund Scoreboard

2007-07-18T20:41:00.000-05:00

Business Week's mutual fund rankings are out. The handy thing? They're searchable!

Merriman's Vanguard Portfolios

2007-07-13T15:12:00.000-05:00

I'm impatient. If I'm comparing portfolios, I want to know right off what the performance differences are, then delve into why. So on that note, here's a comparison of 3 different investments:

1. The S&P 500
2. Merriman's suggested Vanguard buy and hold Balanced Portfolio (60% equities, 40% bonds)
3. Merriman's suggested equities portfolio (100% stocks, no bonds)

Remember, the Vanguard balanced (60% equity, 40% bond) portfolio is:

6% Vanguard 500 Index (VFINX)
6% Vanguard Value Index (VIVAX)
6% Vanguard Small Cap Index (NAESX)
6% Vanguard Small Cap Value Index (VISVX)
6% Vanguard REIT Index (VGSIX)
12% Vanguard Developed Markets Index (VDMIX)
12% Vanguard International Value (VTRIX)
6% Vanguard Emerging Markets Index (VEIEX)
20% Vanguard Intermediate Term U.S. Treasuries (VFITX)
12% Vanguard Short Term Treasuries (VFISX)
8% Vanguard Inflation Protected Securities (VIPSX)

The all-equity portfolio simply leaves out the bonds.

What's good:
You lose a LOT less money in down years with Merriman's balanced portfolio.
In up years, you usually make more money. Not necessarily a lot more.
Vanguard's low costs
Vanguard mutual funds give you low expense ratios and a history to compare to.

What's bad:
There are 11 different pieces to the suggested balanced portfolio.
Vanguard has no micro-cap index fund. Note this fund has both small cap and small cap value, instead of Merriman's suggested small cap value and micro-cap.
Vanguard also doesn't have an international small cap fund.

Merriman's Ultimate Buy and Hold Portfolio

2007-06-28T11:03:00.001-05:00

In the previous post, I pointed to an article by Paul Merriman on setting up an "ultimate buy and hold portfolio."

I'd like to lay out the portfolio, then build on that by comparing to some of his suggested portfolios.

The Portfolio:
(60% equities/40% bonds)
6% S&P 500
6% U.S. large cap value stocks
6% U.S. small cap value stocks
6% U.S. micro-capitalization stocks
6% U.S. REIT
6% international large cap stocks
6% international large cap value stocks
6% international small cap stocks
6% international small cap value stocks
6% emerging market stocks
40% divided between short and intermediate term bonds

What's good:
Annualized performance over 37 years (1970 - 2006): 13.1%. This handily beats, for instance, a 60/40 split between an S&P 500 fund and a bond index fund, which returned 10.4% over the 37 years and has more risk.

LOTS of diversification

Significant international exposure

What's bad:
There are a lot of pieces here. You may not know how to get all the pieces to this portfolio.

This isn't a trivial portfolio, and will require work for an investor to create and re-balance periodically.

50% of the equities in this portfolio are in international stocks. Are you ready for that?

Over the next few posts, I'll examine a few of his suggested portfolios, using Vanguard funds and ETFs, and compare/contrast them to this model portfolio.

The Big Picture - Portfolio Diversification

2007-06-14T22:28:00.000-05:00

How does one go about diversifying one's portfolio?

Is it as simple as buying a small percentage of total international index stock fund? That's a great start; an evaluation of that index might reveal that you're getting very few small cap stocks or little to no exposure to volatile emerging market stocks.

I've found an article by Paul Merriman that does a great job of showing you why you should diversify and exactly how to go about it. He starts with an S&P 500 index and adds different pieces of the market one at a time. As he goes along, he shows you the affect on performance (it usually goes up) and volatility (it usually decreases). This is a perfect way to show how diversification increases your portfolio performance over time while decreasing risk- the chance that your investments will do terribly over some period of time.

What's bad about this article:
1. It's very in-depth and can be a bit dry.

What's good about this article:
1. It explains why you diversify.
2. It starts with a single investment - the S&P 500 - and walks you step by step through a complete portfolio diversification.
3. It goes back to 1970, so it includes a long bear market. Many past-performance type analyses go back to 1980 or so; therefore they include 2 long bull markets but no long bear markets.

Merriman gives specific examples of portfolios, which I'll look at in the next post.

More Currency Investment Possibilities...

2007-05-10T15:51:00.000-05:00

....with a twist!

I have to admit. Currency investments are interesting to me. Hey, maybe you think international investments are where it's at. Maybe you think the U.S. dollar will be/is in a long term decline. Maybe you think the European Union will get it's act together. Maybe you think China is the future, or that China will dump a significant portion of the dollars they hold.

CurrencyShares from Rydex are pretty straightforward ETFs. If you buy the ETF, you're buying the currenty. A purchase of the ETF creates an obligation for Rydex to hold euros/yen/British pounds.

The new investment vehicles from iPath (Barclay's) are ETNs. Did you catch that "N"? I hope so, 'cause it means these are different. They're not ETFs. It's tricky. You aren't buying currency. You're buying a debt obligation from Barclay's. That's right - youre essentially buying something like a bond. You're buying a promise from Barclay's to pay you when you sell the ETN. Barclays could default......

The currentcy ETFs/ETNs all have a 0.4% expense ratio.

The interest rates are competitive with each other:

ERO (iPath Euro vs. USD): 3.55%
FXY (CurrencyShares Euro Trust): 3.54%
GBB (iPath British pound vs. USD): 5.05%
FXB (CurrencyShares British pound sterling trust): 4.90%
JYN (Japanese yen vs. USD): 0.25%
FXY (CurrencyShares Japanese yen trust): 0.24%

Interest income is taxed as interest. CurrencyShares pays it monthly. Barclays prices it into the price of the ETN - which could reduce taxes on your investment.

Capital appreciation for currency investments is subject to ordinary income taxes. Except oh wait! Barclays believes that, based on previous ETN experience, their ETNs are pre-paid contracts. What does this mean? You only pay taxes on appreciation when you sell the ETN. And, when you do, you pay only capital gains taxes, which are much lower.

There are steps you have to take. What does that mean? I'm not sure. It's somewhere in this 186 page prospectus. Ok, ok, I found the section. It actually provides a couple of forms. You fill one out and keep it in your records. You fill the other out and file it with your tax forms.

This just goes to show you. Do your homework. You never know what weirdness you'll find.

International Diversification

2007-05-08T12:40:00.000-05:00

I've been reading a lot about diversification lately and its effect on performance and risk. More articles to come, but the bottom line is that diversification is good for your portfolio.

What this means, however, is that you need to diversify your international investment and not just your domestic investment. To this point, my international investment has consisted of 2 large indexes: Vanguard's Total International Stock Index and EFA, an ETF that tracks the MCSI Europe, Australia, and Far East (developed markets) index.

So how do you diversify your international investment? I'm not in the mood for managed mutual funds, and I certainly don't want to pick individual stocks (the individual stocks I still hold, like Johnson and Johnson and Coca Cola, do make significant portions of their revenue and profit abroad). Vanguard only has broad based international funds: VGTSX and the Vanguard International Value fund (useful for diversification into value stocks).

Options are finally starting to arrive. Here are a few:

EFV (EFA value index, subset of EFA): 0.4% expense ratio. $1b in assets. P/E ratio of about 15.65. Top 3 sectors: 41.98% financials, 10.43% consumer discretionary, 10.23% energy. Top 3 countries: 23.39% Japan, 21.99% U.K., 9.1% France.

EFG (EFA growth index, subset of EFA): 0.4% expense ratio. $483b in assets. P/E ration of about 22.55. Top 3 sectors: 17.03% financials, 14.65% industrials, 13% consumer discretionary. Top 3 countries: 24.12% U.K., 21.19% Japan, 9.9% France .

DLS: Expense ratio of 0.58%. $464m in assets. Top 3 sectors: 27.95% industrials, 17.25% consumer cyclical (discretionary), 17.09% consumer non-cyclical (staples). Top 3 countries: 22.97% U.K., 19.31% Austrialia, 15.45% Japan.

GWX: Expense ration of 0.6%. P/E ratio of about 18. Stocks with < $2b market cap in any country but the U.S. Top 3 sectors: 25.45% industrials, 19.01% consumer discretionary, 18.18% financials. Top 3 countries: 25.59% Japan, 13.42% U.K., 10.76% Canada.

Here's an article on WHY you want international investments. I believe the dollar isn't going to be top dog in the world currency markets forever; that means U.S. economic and stock market growth will start to lag that of international markets that are growing faster.

Here's a Marketwatch article on the new small cap international ETFs.

Dollar Cost Averaging vs. Lump Sum Investing

2007-04-24T13:29:00.000-05:00

I dollar cost average into lots of stuff. My sharebuilder account (and therefore stock purchases), mutual funds, etc. It's really just a fancy term for setting aside savings each month.

DCA advocates will tell you to dollar cost average everything. If you come into a lump sum, you should spread these purchases out over several months. Honestly, though, you can make up sotck purchase prices to support either side - DCA or lump sum purchases.

Research usually shows that it doesn't matter in the long term; here's the latest research I've seen on the subject.

The bottom line:

1. If you're currently doing dollar cost averaging, that's great. Don't stop.
2. If you have a lump sum to invest, don't worry about dollar cost averaging. Make the purchase with the entire lump sum. DCA and lump sum purchases will give approximately equivalent results.

Overvalued and Undervalued ETFs

2007-04-19T15:00:00.000-05:00

I like to buy on the cheap. Problem is, when you're looking at an index fund/ETF, or a sector fund/ETF, there's not always something obvious like a P/E ratio to help you figure out if it's expensive or cheap.

It can be easy: I'd like to add an REIT piece to my portfolio this year, but I doubt anyone thinks REITs are cheap right now.

One of the things I look at for valuations is Morningstar's Fair Value numbers. I think many of these valuation tools are a little "out there", but at least they can give you an idea. Morningstar recently had articles on the valuation of market indexes and some sectors, as compares to their Fair Value, here and here. A login may be required; it just takes an email address and I recommend it.

The market indexes are trading pretty near Morningstar's fair value. The Dow Jones Industrial Average is about 6.9% below it's "fair value" while the S&P 500 is about 3.5% overvalues and the Nasdaq is about 2% overvalued.

As for sectors, Morningstar rates several REITs, including ICF, RWR, IYR, and VNQ, as being overvalued by 23% to 27%. They rate the energy sector as overvalued as well, including IEZ as 47% overvalued!

Morningstar rates several technology ETFs as undervalued, including IGM at 84% of fair value, and IGN at 76% of fair value. Homebuilder ETFs are the most undervalued, including XHB at 73% of fair value and ITB and 67% of fair value .

Investing in Micro-caps

2007-04-18T13:09:00.000-05:00

I'm working on a series of posts about various "lazy" portfolios. In the process, I've come across a couple of portfolios that invest in micro-cap stocks. These companies usually have market capitalizations between $50m and $300m or $500m, depending on whom you ask. They're not the absolute smallest stocks - there is a nano-cap category. These small companies are very risky, and these funds can be a roller coaster ride.

What I didn't know is that there's a micro-cap index, and a couple of micro-cap ETFs. Unfortunately, they haven't been around long. I'll compare them to the S&P 500 for performance, and to another micro-cap mutual fund.

iShares Microcap Index (IWC): 0.6% expense ratio. This tracks the Russel Micro-cap index minus the companies who are failing.

Powershares Zack's Micro-cap (PZI): 0.6% expense ratio. This tracks stocks between $60m and $600m. So far ( a little over a year) it's got a 78% turnover ratio! That's going to create some taxable income at the end of the year.

Bridgeway Ultra Small Company Market (BRSIX): 0.65% expense ratio. Performance has topped 99% of its peers, though I'm still working on what those peers are. The fund manager is apparently known for keeping taxable changes to a minimum. The fund has $1.18b in assets. Morningstar even comes out and recommends this fund in the analysis of the 2 ETFs! Note that they only give the fund a 3 star rating, and that lots of analysts think that the multi-year run for small cap performance is coming to an end.

Ticker	Name	2000	2001	2002	2003	2004	2005	2006
SPY	S&P 500 ETF	-9.73	-11.81	-21.54	28.18	10.7	4.83	15.85
IWC	iShares Russel Microcap Index							14.89
PZI	Powershares Zack Microcap							18.03
BRSIX	Bridgeway Ultra-Small Company	0.7	24.0	4.9	79.4	20.1	4.1	11.5

Bond ETFs from Vanguard

2007-04-11T14:25:00.000-05:00

Vanguard has created more bond ETFs. At this point, you can use ETFs for the entire portion of your indexed portfolio in bonds.

They are:

BND: Vanguard Total Bond Market Index (note: this one has big competition in AGG. Vanguard's ETF has a 0.11% expense ration vs 0.20% for AGG. Vanguard replicates the whole index, while AGG samples the index.
BSC: Vanguard Short Term Bond
BIV: Vanguard Intermediate Term Bond
BLV: Vanguard Long Term Bond

The only thing really missing here is an inflation-protected bond index like TIP.

Money Magazine Annual Mutual Fund Review

2007-03-29T12:55:00.000-05:00

Money magazine has put up their annual mutual fund review.

It's not perfect, but the more information you have to compare investments the better. I'd like to see their "annualized returns" data corresponding to calendar years, and I'd like to see a 10 year annualized return.

The Largest Mutual Funds

2007-03-27T13:16:00.000-05:00

Kiplinger's Personal Finance recently ran an article detailing the largest mutual funds in the U.S. market. This can be interesting information; some people recommend that you be cautious about investing in a fund that is too large. Some like a $20 billion limit, others like a $40 billion limit. Note - the limit would not apply to index mutual funds like Vanguard 500 or Vanguard Total International Stock Market.

Mutual fund -- Size -- Expense ratio

1. Vanguard 500 -- $117.7b -- 0.18%
2. Vanguard Total Stock Market Index -- $89.1b -- 0.19%
3. Fidelity Contrafund -- $68.8b -- 0.88%
4. Dodge and Cox Stock -- $64.8b -- 0.52%
5. Vanguard Windsor II -- $49.2b -- 0.35%
6. Fidelity Diversified International -- $45.8b -- 1.05%
7. Vanguard Wellington -- $44b -- 0.29%
8. Fidelity Magellan -- $45.4b -- 0.59%
9. Fidelity Low Priced Stock -- $39.8b -- 0.88%
10. Dodge and Cox International Stock -- $28.5b -- 0.67%
11. Vanguard Primecap -- $22.4b -- 0.46%
12. Fidelity Equity-Income -- $30.6b -- 0.67%
13. Fidelity Growth Company -- $29.2b -- 0.96%
14. Fidelity Growth and Income -- $30.6b -- 0.69%
15. Dodge and Cox Balanced -- $27.1b -- 0.53%
16. Fidelty Puritan -- $25.8b -- 0.62%
17. T. Rowe Price Equity Income -- $23.6b -- 0.71%
18. Fidelity Balanced -- $22.2 b -- 0.63%
19. Vanguard Total International Stock Index -- $19.1b -- 0.31%
20. Fidelity Blue Chip Growth -- $20.1b -- 0.63%

Sorry for the formatting - it's a Blogger feature.

New International Investing Options

2007-03-15T21:24:00.000-05:00

Finally, there are a few new ways to invest outside the U.S. using indexed ETFs.

If you're looking to keep things simple by sticking to a foreign index AND using only a small number of investment vehicles, your options are few. I've used VGTSX, the Vanguard Total International Stock Index (which is simply a mix of 3 Vanguard index funds - a Europe fund, an Asia Pacific fund, and 5% or a bit more of their emerging markets fund) or the EFA ETF (Europe, Far East, and Australia), which has even less emerging markets exposure. By the way - both options have holes: Canada, for instance.

Let's compare and contrast 3 options:

VEU (Vanguard FTSE All World ex-U.S. ETF): This index ETF will cover everything outside the US, including emerging markets. It will have broader coverage than Vanguard's Total International Stock Index fund, which has over 2000 stocks. It will have a 0.25% expense ratio. No country breakdown is available yet.

CWI (State Street All Country World Index ex-U.S. ETF): This is another recently established all-world index. It has around 2000 stocks, has a 0.35% expense ratio (same as EFA), should yield about 2.5% (EFA yields 2.1%) and has about 13% in emerging markets. That's a pretty good percentage; it will be interesting to see if the Vanguard ETF has that much in emerging markets.

DTH (WisdomTree DIEFA High Yielding Equity Index ETF): WisdomTree released a slew of ETFs over the last year or so based on proprietary indexes. Their theory is that basing indexes on dividend yields can yield good growth; this theory has held water in the U.S. market since forever. This ETF will not have as much emerging markets exposure as CWI.

VEU and CWI could both be considered core portfolio holdings. I've added all 3 options to the Sectors page. There are no 2006 results for these investments, since they are brand new.

529 Plan Reviews

2007-03-12T15:22:00.000-05:00

Morningstar ranks 529 plans. They have an overall review and a complete ranking of 529 plans with individual reviews.

Healthcare Sector Investing

2007-03-06T15:11:00.000-06:00

One of the reasons the January Effect was interesting to me this year is that I've been considering putting some money in the healthcare sector for the long term. One of my healthcare stocks (I still own a few individual stocks) has disappointed me for 2 years now, so it's time for that stock to go. I'll put that money into a healthcare sector ETF; question is which one?

First, the 2 main ETFs:

Ticker	Name	2001	2002	2003	2004	2005	2006
IYH	Ishares DJ US Healthcare	-13.31	-21.29	18.35	4.22	7.66	6.16
VHT	Vanguard Healthcare Vpr					8.2	6.54

There's a 3rd option I don't have in the table yet; IXJ, the iShares Global Healthcare sector ETF. NOTE: I've added IXJ to the chart and you can view it here.

If you look at the limited back data the chart shows, the Vanguard ETF has an edge; this could well be due to Vanguard's low expenses.

IYH's top 5 holdings are Johnson and Johnson, Pfizer (both over 10)%, Merck, Abbot Labs, and Amgen. VHT's top 5 holdings are the same. IXJ's top 5 are JNJ, Pfizer, Noven Pharmaceutical, Rogers CP and GlaxoSmithKline.

Diversification and global reach are important to me. I like a global index, and IXJ has 35% of it's holdings in international companies vs. 15% in other healthcare ETFs. Plus 1 for IXJ.

The thing is, large caps make up 90% of its holdings, according to Morningstar (this index is a subset of the S&P Global 1200 index, almost all largecaps). If the huge healthcare companies aren't moving, this index won't move. In addition, IXJ has only 7% of its holdings in biotech, less than average, vs. 17% for the Vanguard ETF.

In the end, the Vanguard ETF VHT seems to offer some international coverage (somewhere around 15%), good biotech diversification, and the usual low Vanguard expense ratio - in this case 0.25%.

I'm only moving between 1% and 2% of the portfolio here, but the Vanguard ETF looks like the best call.

The Rule of 25

2007-03-02T23:58:00.000-06:00

It's always tricky to figure out how much you'll need for retirement; my goal of "millions" doesn't really tell me anything.

I wrote here about how to figure out what you need by setting a savings percentage goal each year and aiming for a multiple of your pre-retirement salary.

There's another simple rule you can follow based, instead, on what you want your retirement income to be: The rule of 25.

The idea is this; you need a sum of money that will last at least 30 years. So, figure out a sum of money that allows you to withdraw 4% the first year, and at least 4% each of the following years in order to give you the money you need.

1. Figure out your retirement income. Usually, you start with 80% or 85% of your pre-retirement income. Say you were making $100k/year when you retired, and you'd like to have $85k/year after retirement.

2. Estimate what social security (via your social security statement each year) and/or any pensions will give you. Subtract that from your goal, in this case $85k. Worried about social security or unsure about that? Make the calculation easy and leave it out.

3. This is the total you need to fund. Multiply this by 25 and you'll get the amount you need to have saved. In our case, $2.125m.

Your first year of retirement, you withdraw 4%, and you adjust up a little bit each year to account for inflation - so you'll be upping the amount you withdraw each year by something between 2.5% and 3.5%.

This should stretch your money over 30 years (your investments will still be growing during that period, of course).

It seems like a lot to save, but keep several things in mind. Odds are you'll get something from social security. If you have all your debts paid off, AND YOU SHOULD, pre-retirement, you can reduce your retirement income needs. Finally, if the financial leaders of this country continue to keep low inflation as a primary goal as they have for the last 25 years, we might not need to worry quite as much about the erosion of the value of our retirement nest eggs.

Money Magazine Portfolios

2007-02-27T21:47:00.000-06:00

Back in the 90s, Money Magazine ran financial "makeover" type articles every month, looking at a family's investments, debt, etc. and recommending changes. It was usually interesting stuff. They stopped doing that, and I dropped my subscription to the magazine. In the last year or so (I think) they've started doing it again. In the February 2007 issue, they featured a large makeover article looking at fourl famlies in different situations and recommended investment portfolios. You can complete these portfolios with mutual funds from Vanguard, ETFs, etc.

1. First, a young couple just starting out in investing. This is a relatively simple portfolio; note the lack of bonds. The couple can use their emergency cash savings as a substitute for bonds.

2. A 57 year old woman who got started late and needs to catch up. Note that this is a riskier portfolio (more international, more small cap, some mid cap as opposed to just a bunch of large cap) BUT there's more diversification and a bond portion to help lower the overall risk in the portfolio.

3. A couple in their mid to late 30s who have come into a $100k inheritance. They have some retirement savings, but not a lot. Most of their equity is tied up in their house. Money calls this a conservative growth portolio; note diversification is similar to the aggressive growth portfolio, but the percentage allocations are slightly different. At this stage of their lives, I'd make this a bit more aggressive (more international, maybe) but this certainly works.

4. Finally, a "mostly retired" couple in their early 60s. They've got $1.1 million saved up, and want to make it last as long as possible. They have calculated they need to withdraw 3% a year to fund their lifestyle (will you be able to live on $33k in retirement?). The retired husband has taken up the "hobby" of managing the money and doing some online trading. This "retiree portfolio" is less aggressive, though still well diversified. Also, note that 3% is set aside for the husband to play with and that some real estate (an REIT) has been added to add dividend income to the portfolio (the REIT helps save on taxes, too).

These are pretty good portfolios; I'm glad to see Money didn't go overboard with creating complex portfolios.

15 Years of Sector Performance

2007-02-21T15:04:00.000-06:00

Sector performance of the Dow Jones Total Market Index, ranked highest to lowest, for 1992 through 2006.

The January Effect

2007-02-21T12:42:00.000-06:00

Now here's a market forecast legend that isn't just useful - you can actually understand it. There are no lengthy equations involving economic variables, and the whole thing actually makes sense.

A lot of analysts track the January effect, whether formally or informally. Standard and Poors 500 sector strategist Sam Stovall has tracked sectors since 1990 (uh oh, that "tracked it during a huge bull market" thing) and discussed the January Effect in a Chicago Tribune article recently.

The idea is this:

1. As the market, or more specifically the S&P 500, goes in January, so it goes for the rest of the year. This is correct about 85% of the time.

2. The market sectors that perform best in January should perform the best for the rest of the year. In theory, if you buy the 3 strongest sectors in January, then buy them and hold them for 12 months, you will on average beat the S&P 500. The sectors will give you about 15.4%, while the S&P 500 will give you about 10.2%.

So what performed the best in January 2007?

1. Materials (XLB): 4.3%
2. Healthcare (XLV): 3%
3. Telecommunications (VOX): 3%

I've chosen sector ETFs from a particular vendor; you could use different ETFs or sector mutual funds.

What are analysts thinking about these sectors? Materials company profits will only go up 7.3% for the year, after 42% growth for 4q 2006. Of these 3, analysts only recommend overweight in health care.

Health care would seem the obvious long term play, but I also like materials as a long term play, especially the new international materials ETF I've mentioned before (though there's no performance data on that ETF yet).

I think this is worth tracking each year.

Consumer Reports All-Index Portfolio

2007-02-21T10:38:00.000-06:00

Do you put a lot of stock in Consumer Reports? Many people do, and for good reason - they tend to offer reasonable, well-researched advice. I happened to run across a May 2006 edition of a Consumer Reports newsletter about investing. They had a cover article on an all-index portfolio. It was a reasonable, though slightly conservative, portfolio. I thought I'd post the ideas here.

They posted several investment alternatives for each step; I'll just post the Vanguard option. Note that ETFs are available for each option as well.

Step 1: Select A or B for 60% to 70% of your portfolio.
A. A broad market fund for 70% of your portfolio (Vanguard Total Stock Market Index)
B. Pick one S&P 500 fund for 50% or 60% of your portfolio (Vanguard S&P 500 Index) AND
Add 1 to 3 of these for 10% to 20% of your portfolio:
1. A midcap blend index (Vanguard midcap Iidex fund) - S&P Midcap 400)
2. A smallcap blend index (Vanguard smallcap index fund - Russell 2000)
3. A smallcap growth index (Vanguard smallcap growth index fund - Russell 2000 growth)
4. A smallcap value index (Vanguard smallcap value index fund - Russell 2000 value)
5. A foreign largecap blend (Vanguard Developed Markets fund or Vanguard Total International fund)

Step 2: Add 1 of these for 30% of your portfolio: A bond market index (Vanguard Total Bond Market or AGG ETF) or Vanguard Intermediate Term bond fund.

It's a little conservative for younger investors, but that probably wasn't the target of the article. Note that this portfolio doesn't allocate a lot to the international portion. If you like, you could simply take some percentage off the bond portion and add it to the "Step 1 - B" part of the portfolio.

Where To Put the Low Risk Part of Your Portfolio?

2007-02-21T10:20:00.000-06:00

I've got a little over 13% of my total portfolio in bonds; to be honest, I've only got that much because everyone's conventional wisdom seems to be that part of your portfolio needs to be more conservative than equities, and should therefore be in bonds. I originally invested in a Vanguard Long Term bond fund and then later in total-bond-market ETF (AGG).

I did not put a lot of research into the bond side of my portfolio; lately I've wondered if it wouldn't be simpler just to put this part of the portfolio in cash. So I decided to check it out.

	2001	2002	2003	2004	2005	2006
Vanguard Prime Money Market	6.29%	4.17%	0.9%	1.11%	3.01%	4.88%
Vanguard GNMA	7.9%	9.7%	2.5%%	4.1%	3.3%	4.3%
Vanguard Long Term Bond Market	8.2%	14.4%	5.5%	8.4%	5.3%	2.7%
Vanguard Total Bond Market	8.4%	8.3%	4.0%	4.2%	2.4%	4.3%
AGG				3.99%	2.16%	4.13
TIP				8.27%	2.49%	0.28

Conclusions?

Cash is great, but as a part of your investment portfolio it's going to have a ceiling. That ceiling is probably somewhere around 6%, and you're only going to get that near the bottom of a market - exactly the point where your cash fund will lag bond funds.

The idea behind TIP funds is great; they help you negate the effects of inflation. But keep in mind that they are adjusted twice a year; the adjustment that helps you beat inflation will happen 6 months AFTER you're hit with the inflation. My original choice, the Vanguard Long Term Bond Market fund, looks pretty good here. It should - the long term bonds should in theory always give better yields than the short term funds.

A total bond market fund seems like a great idea, but as you can see a total market fund can lag a long term bond fund in some years. BUT - either a total market fund or a long term bond fund is going to have a higher ceiling than a money market cash fund. It can pay to do your research on total bond funds; a check of Morningstar reviews shows that the index used to create the AGG ETF is a much smaller index than the one Vanguard uses to create their total bond market fund. That could imply that you could get higher highs (but perhaps lower lows?) with a total bond market fund.

Bond funds are even easier to invest in now. There are now iShares bond ETFs and Vanguard bond ETFs.

Middleton Updates ETF Portfolio

2007-02-21T10:19:00.000-06:00

Tim Middleton has updated his ETF portfolio for 2007. I think he generally has some good ideas; he also keeps an all-ETF portfolio.

While I don't strictly follow Middleton's portfolio, he sort of follows the same general principle I do. Set up the core of your portfolio (whatever you think that should be) and then add pieces to that. For instance, Middleton often keeps around 25% of his portfolio in large cap U.S. stocks and somewhere between 15% and 20% in foreign stocks, then gooses that by putting 5% to 10% of the portfolio in other sectors like tech or real estate.

He's cutting part of the S&P 500 portion of his portfolio (SPY) and moving it into a newish FTSE RAFI US 1000 index from Powershares (PRF). This is an index based on technicals rather than cap weight, as the S&P 500 is.

He's also trimming the portion invested in the Russell 2000 (IWM) and real estate (ICF). Makes sense; those 2 sectors have been on a huge roll for the last 3 years and therefore those 2 portions of his portfolio have gotten far too large. He's moving some of that into international stocks (EFA).

Interesting stuff and again, a good strategy. Set up the core of the portfolio, and add pieces to that.

The Giant 5: A 5 Sector Strategy

2007-02-21T10:18:00.002-06:00

Here is a Yahoo Finance/Investor's Business Daily article on an interesting portfolio idea. Mike Willis, founder of Giant 5 Funds , has supposedly 17 years of equity market experience (so that's 2 recessions and one of if not the longest bull market in history). He has a portfolio that spreads investments among 5 pieces: Bonds, energy, capital markets, raw materials, and real estate. According to him, these are "the things you need to have no matter what happens to the market."

There is no separate category for international funds. "We don't keep international as a separate category. Stocks are stocks no matter where they are," he said.

He has a mutual fund you can track, FIVEX. Here's the deal, 20% in each:

Bonds: He recommends Morgan Stanley Insured California Municipal Securities (ICS). This is a closed end fund (trades like a stock) yielding 4.2%

Energy: He recommends the iShares Global Energy ETF, IXC.

Basic Materials: He recommends the iShares Dow Jones U.S. Basic Materials ETF, IYM. I think a better choice might be a newer ETF, the iShares Global Basic Materials ETF, MXI. It's new this year and doesn't have years of data to back it up like IYM does. However, it offers global exposure (only 24% U.S. content), less exposure to chemical companies and more exposure to real basic materials companies like mining companies.

Equities: He divides this into pieces. The iShares S&P Europe 350 Index (IEV), iShares Russell 1000 Index (IWD) and then the 3rd piece is iShares Russell Midcap Growth Index (IWP) plus iShares Russel Midcap Value Index (IWS).

Real estate: The Streettracks Dow Jones Wilshire REIT (RWR) and the usual ICF plus VNQ. Morningstar likes RWR because it has the broadest exposure. I'm not aware that it has any international exposure; there are ETFs that cover international real estate, but I'm not sure anyone knows if they're worth investing in yet.

So the portfolio is:

20% ICS
20% IXC
20% IYM (though I think I'll track MXI)
6.67% IEV
6.67% IWD
3.33% IWP
3.33% IWS
20% RWR

1 Decision ETF Portfolio Update

2007-02-21T10:18:00.001-06:00

I did a little research into Appel's ETF book; he DOES actually talk about 2 portfolios. He spends much of his book talking about a U.S. only portfolio; his main point is that emerging markets are much too volatile for investment. Of course, emerging markets are only a small part of international investment opportunity. In the last chapter or so of his book, he then abruptly changes course and talks about an ETF portfolio that includes international investment (though not emerging market investment).

His most rounded portfolio consists of 4 parts and requires research each month. The parts are:

1. 25% bonds (AGG)

2. 25% EFA (international, SPY (S&P 500) or cash. If SPY performance lags EFA by 15% or more, invest in EFA. Other wise, SPY UNLESS certain interest rate conditions are met. Then this 25% goes into cash.

3. Invest 25% in large caps (Russell 1000) or small caps (Russel 2000). In general, you use the one that outperformed the year before - his stats say this makes you right 70% of the time. You also do not use the straight index; you use the value or growth version of the index. If you see a) sharply rising commodity prices, b) a strong dollar, and c) accelerating economic growth, you choose the value version of the index. Otherwise, you choose the growth version of the index.

4. The last 25% goes into a real estate ETF, preferably ICF.

. As you can see, this isn't simple. Some of the calculations for step 2 are pretty interesting. I think a simpler portfolio might be composed of the AGG bond index, EFA for international exposure, IWB for the Russell 1000 (stick with large caps and ignore the value vs. growth question) and ICF for the REIT portion.

Dividend Income

2007-02-21T10:17:00.003-06:00

I've been meaning to add some information on dividend ETFs, and this Motley Fool article reminded me of that. I wasn't sure where to put it, but I'll simply add an "Income" group to the sectors page. I'll track the big iShares Dow Jones Select Divident (DVY), a couple of Vanguard dividend ETFs, and the State Street SPDR Dividend ETF (SDY). Maybe even a Powershares International dividend ETF if I'm in a good mood.

They're populated by big-cap relatively safe stocks. The interesting thing is, China is opening up to international banks; bank stocks make up a significant chunk of these dividend ETFs.

Emerging Market ETF (EEM) Distribution

2007-02-21T10:17:00.001-06:00

Ever wonder what emerging markets are? Do you think South Korea is a developed market? Everyone talks about the big 4 (BRIC): Brazil, Russia, India, and China. This summary for the EEM ETF is pretty interesting.

South Korea = 16.47%
Taiwan = 10.72%
Brazil = 10.25%
Russia = 9.91%
China = 9.81%
South Africa = 9.16%
Mexico = 7.64%
India = 5.49%
Other = 20.55%

The 1 Decision Portfolio

2007-02-21T10:16:00.001-06:00

Dr. Marvin Appel has written a book called Investing with Exchange-Traded Funds Made Easy. I originally saw a reference to a "1 Decision ETF Portfolio" discussed in his book in a Yahoo article back in August, but the link disappeared. I've recently seen references here and here to his "1 Decision ETF Portolio." The idea is that the only decision you make each year is re-balancing the portfolio.

It's 50% equities (S%P 500, REITs, and small-cap value) and 50% income (investment grade bonds and cash). This portfolio is supposed to make over 10% each year, yet still be safer (i.e. more stable) than a complete equity portfolio. All set up like this:

20 percent S&P 500
20 percent REITs
10 percent small-cap value
20 percent investment-grade bonds
30 percent cash (90-day U.S. Treasury bills)

Several things jump out at me. First, WOW is that a high percentage of cash. Second, where's the international portion? Third, 50% in income investments is a lot unless you're at least in your mid 40s, and I'd say it's lot unless you're in your mid 50s.

But here's the kicker: This is NOT the same "1 Decision" portfolio I saw in the article in August! I wrote down the portfolio and the link, the link just doesn't work anymore. Here's the portfolio and the associated ETF:

25% bond index (AGG)
25% real estate index (ICF)
25% international index (EFA)
25% domestic stock (right now a Russel 1000 value index, IWD)

The one decision you make each year is what that 25% domestic stock portion can be. You're supposed to pick what is performing best: S&P 500, Russell 1000 Value or Growth, or Russell 2000 Value or Growth (so it's large cap vs. large and medium cap vs. small cap). That's a big decision to make! If you guess right, this portfolio is supposed to get 15%/year. You probably wouldn't do too bad sticking with either S&P 500 or Russell 1000 - either Value or Growth, depending on what type of investor you are.

Now THAT is a portfolio worth tracking. A little more aggressive (less percentage in income-type investments) and a portion in international stocks (though no emerging markets).

My guess is that, though the articles don't mention it, his book has several "1 Decision Portfiolos."

2007 Predictions

2007-02-21T10:14:00.000-06:00

I enjoy tracking investment predictions for the coming year to see which analysts have a clue and which don't. The Chicago Tribune on 12/17/2006 had an article in which they asked several analysts how to invest $10k for 2007. I'll leave the names out, but use their titles.

Chief Market Strategist for Stifel, Nicolaus and Co. in St. Louis: The market rally will continue, taking the DJIA to 13k in the first quarter before a 10% or more correction in late spring and summer. Invest $10k in Coventry Healthcare, Inc.

Chief Investment Strategist for Standard and Poor's Corp: Historically, the 3rd year of a presidency has produced an average gain of 18%. His choices are the Consumer Discretionary SPDR or Coach Inc. In Industrials, the Industrial Select SPDR or L3 Communications. In technology, the Technology Select SPDR or Western Digital Corp.

Founder, The No Load Investor: Stock valuations remain reasonable despite the recent run-up. Divide the $10k between T. Rowe Price New Era fund, a natural resources fund that is 'pseudo-commodity', and the Powershares FTSE RAFI US 1000 ETF.

President, Garzarelli Research, Inc: Invest $2500 each into Nasdaq 100 Trust, iShares MCSI Emerging Market, iShares Russell 2000 Index, and Merrill Lynch and Co.

Investment Director with Hinsdale Associates: We're playing a defensive game. Divide the money between bonds and the stocks of Anheuser Busch, Bristol-Meyers Squibb, and American States Water Co.

Managing Director for Investment Strategy, Raymond James and Associates: Invest it all in ETFs, esp water, aerospace/defense, financials, and technology. E.g. Powershares Water Resources, Powershares Aerospace and Defense, Vanguard Financials ETF, and Technology Select SPDR.

Chief Market Strategist, A. G. Edwards and Sons: The economy is already slowing, corporate earnings will slow, the overall market will be reasonable, Fed will lower interest rates in the spring. Stick with larger cap quality growth companies.

Director of small-cap stock research for Prudential Securities: Small caps may be overextended. Lean toward large cap growth, especially technology and healthcare.

Managing Director of Morningstar: Cards are lining up for large-cap growth. Put $10k into Primecap Odyssey Groth Fund

The Permanent Portfolio

2007-02-21T10:10:00.000-06:00

What's a permanent portfolio? It's one you wouldn't have to change. None of this cycling between large cap and small cap stocks. No need to pick sectors. No need to worry about the percentage of your portfolio in international stocks.

It's kind of a defensive portfolio. Timothy Middleton wrote an article about a mutual fund called Permanent Portfolio, started in 1982. Here's what the portfolio is invested in. There are some interesting ideas here. Note that in good times, this mix doesn't usually do as well. But in bad times, it's not nearly as bad.

20% gold

5% silver

10% Swiss denominated assets like government bonds

15% in U.S. and foreign real estate and natural resources

15% in U.S. growth stocks (e.g. S&P 500 or Russell 1000)

35% in U.S. Treasuries and high growth corporate bonds

Ticker	Name of fund	1999	2000	2001	2002	2003	2004	2005	06Q3
PRPFX	Total Return	1.2	5.9	3.8	14.4	20.5	12.0	7.6	11.2

Compare that to some results on the indexes page.

Starting a simple portfolio

2007-02-20T20:40:00.000-06:00

Ben Stein (did you know he was an economist?) often writes relatively simply but good articles about investing like this one. He likes simple strategies, and he likes variable annuities.

His idea is this. Your main investment should be a broad based index like the S&P 500 or the Vanguard Total Market index (see the indexes page) or the Russell 1000 (see the sectors page) or the Russell 3000, which is a very broad index, though not quite a total market index.

That index should be the majority of your portolio - never less than half. Then, you simply add small pieces of more specific or more risky index - say, 5% or 10%. Stein suggests 10% in 1) EFA, the Europe, Far East, and Australia developed market index to catch international market performance, 2) EEM, the emerging market index, to catch hot undeveloped countries like China, Russia, Brazil, and India, and 3) a Russell 2000 value fund to as to capture small cap stocks.

This makes a lot of sense. Here's a table showing how this would have performed over the last few years. It's smart enough that I may add it to the portfolios page.

Note: Personally, I might drop EEM to 5% and up EFA to 15% or even 20%. 25% might be my max to have invested in international stocks.

Ticker	Name__________	2001	2002	2003	2004	2005	2006
SPY	70% S&P 500 Spyder	-11.81	-21.54	28.17	10.7	4.83	15.85
EFA	10% Ishares MCSI EFA		-15.41	39.8	18.96	13.33	25.81
EEM	10% Ishares Emerging Markets				24.63	32.62	31.44
IWN	10% Russell 2000 Value	13.62	-11.92	45.96	22.11	4.36	23.48
	Total Return				14.06	8.41	19.17

etfguide.com Strategic Balance ETF Portfolio

2007-02-20T20:26:00.000-06:00

The October 8th, 2006 Chicago Tribune had a short article on the proliferation of ETFs. This is true - between Barclay's, Vanguard, Powershares, Rydex, and now Wisdomtree, we're going to be buried in ETFs. This will make them all impossible to track (which is why I just track popular/large/important ones.

However, the article also quoted a man from etfguide.com on several things. It also gave details on his Strategic Balance Portfolio, which you'd normally have to pay to see. Here it is:

29% VTI - Vanguard total stock market ETF
21% EFA - Ishares Europe, Australia and Far East ETF
17% VNQ - Vanguard REIT ETF
15% cash
13% AGG - total bond market ETF
5% GLD - StreetTracks gold ETF

This is similar to a couple of other ETF portfolios you'll see here on my site. The differences? First, the cash. You could just set aside 6 months of living expenses and leave this part of the portfolio out if you want. Second? The gold. Another instance where someone took what was popular and performed well the past few years and added it to a portfolio. It's not a BAD idea. It's just a popular idea. The same could apply to the REIT portion of the portfolio. Most investment analysts would tell you this is too much REIT for an individual portfolio. Would it hurt you? Probably not. Is it popular to add lots of REIT to a portfolio because of REIT performance over the last 4 or 5 years? Sure is.

How much will you need to save for retirement?

2007-02-20T20:15:00.000-06:00

I saw this article discussing how much you'll need to save for retirement a while ago. It's one of the most useful articles I've seen in a LONG time. I've always just set a goal of "millions" but this is a realistic article that you can use to figure out how much you should try to save. The details can get involved, but as a bonus there are good charts.

In a nutshell, here's the process:

Start saving 12% of your income at age 30.

Pay off your debt (house, car, etc.) by the time you retire.

Assuming a 5% rate of return (nice to see an assumption on the low side) you should have 12 times your pre-retirement salary saved up when you retire.

You can withdraw 5% of these savings per year after retirement; this should give you 60% of your pre-retirement income.

Social Security should give you another 20% of your pre-retirement income. So even if Social Security goes away, you still have 60% of your pre-retirement income.

Voila. You've got 80% of your pre-retirement income.