As you can see, an investment in gold (or GLD, my preferred ETF) 5 years ago gives you a very nice return today.  The S&P 500 is still negative, however.

The chart below illustrates this

After briefly touching $2,000 an ounce, gold has pulled back (a little) to around $1,750.   I like this price as a entry point for anyone thinking about starting a position.  Even a 5% portfolio allocation is a good start with GLD.  This can be used as a hedge against inflation or a spreading crisis in Europe.  If stocks do well in 2012, gold will probably lag a bit.  If that’s the case, buy more next year.  In any case, gold isn’t going back down to $1000 an ounce.

**Disclosure – I have no positions in physical gold or GLD at the time of this article.

Here’s our original investments and allocations -

Investments for 2011

Here’s how we did.

More details and analysis to follow.  Although we lost money, we still beat the market.  Not bad in my mind!

Except a small window in late 2008, VWO outperformed the S&P 500 by almost double digit percentage gains.

International stocks and indexes are still very risky assets to own, however.  One year you’ll see a 70% gain, the next year you’ll see a 40% drop.  That’s the nature of the beast.  This is why you only want to allocate no more than 10% of your portfolio to an international fund or ETF.  Obviously, I am a bit convserative and you can adjust this up if you have a longer time-frame to retirement.  People in their 20′s could invest up to 15-20% internationally depending on their risk tolerance.

Here is VWO’s profile

The Fund seeks to match the performance of the MSCI Emerging Markets Index. The Fund employs a passive management or indexing investment approach by investing substantially all (normally about 95%) of its assets in the common stocks included in the Index.

You may notice I’ve been recommending a lot of Vanguard ETF’s.  They are by far any away the best in my opinion.  They have absolutely the lowest fees, period.  And fees can add up.

Let’s say you have $100,000 of VWO.  The yearly expense ratio of VWO is .22%.  That’s roughly $220 per year.  Now let’s look at a competitor.  iShares Emerging Market ETF – EEM charges .69% – or almost triple the fee for roughly the same exact fund.  Multiply that times 10 years of investing and that’s some serious cash you’re saving.

Some specifics on VWO:

VWO      S&P

These are crazy returns – don’t expect this every year.  The 5 year obviously includes the 2008 financial disaster.

From NLY’s profile

Annaly Capital Management, Inc. is a Maryland corporation that commenced operations on February 18, 1997. It owns, manages, and finances a portfolio of real estate related investment securities, including mortgage pass-through certificates, collateralized mortgage obligations (or CMOs), agency callable debentures, and other securities representing interests in or obligations backed by pools of mortgage loans. The Company’s wholly-owned subsidiaries offer diversified real estate, asset management and other financial services. The Company’s main business objective is to generate income for distribution to its stockholders, mainly from the net cash flows on its investment securities. RCap is its wholly-owned broker dealer taxable REIT subsidiary which generates fee income. It is mainly engaged in the business of investing, on a leveraged basis, in mortgage pass-through certificates, collateralized mortgage obligations and other mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans issued or guaranteed by Federal Home Loan Mortgage Corporation (Freddie Mac), Federal National Mortgage Association (Fannie Mae) and the Government National Mortgage Association (Ginnie Mae) (collectively, ‘Mortgage-Backed Securities’). It also invests in Federal Home Loan Bank (FHLB), Freddie Mac and Fannie Mae debentures. The Mortgage-Backed Securities and agency debentures are collectively referred to herein as Investment Securities.

There are some risks with NLY.  The fat 14% dividend is very appealing.  With the inevitable rise in interest rates the stock and dividend is surely to go down.  NLY basically makes it’s money by borrowing near zero percent and keeping the difference.  As rates rise the spread gets smaller.  This is still a stock I’d like to own for the rest of 2012.  I have been long NLY since around $17.90.

The expense ratio of 0.60% is a bit higher but still in line with most ETF’s.  I’ll pay a little higher expense ration for higher returns any day.

Top Fund Holdings
SEADRILL LTD     1.48 %
CONOCOPHILLIPS .     1.38 %
CHEVRON CORP .     1.34 %
LINN ENERGY LLC .     1.29 %
WELLS FARGO & COMPANY     1.12 %
EATON VANCE LIMITED DURATION INCOME FUND     1.10 %
ALLIANCEBERNSTEIN GLOBAL HIGH INCOME FUND INC     1.07 %
PROVIDENT ENERGY LTD     1.06 %
ANNALY CAPITAL MANAGEMENT INC .     1.03 %
AMERICAN CAPITAL AGENCY CORP     1.03 %

TOP FUND SECTORS

SECTOR     WEIGHTING
Finance     20.50 %
Oils/Energy     18.12 %
Consumer Staples     13.06 %
Utilities     12.53 %
Closed End Funds     9.66 %
Computer & Technology     6.83 %
Medical     6.02 %
Aerospace     2.93 %
Basic Materials     2.56 %
Consumer Discretionary     2.31 %
Industrial Products     1.46 %
Construction     1.37 %
Retail/Wholesale     1.00 %
Transportation     0.85 %
Business Services     0.79 %

As you can see, the fund is leveraged heavily into energy and financial services.  Another economic downturn could hit this fund quite hard.  But with just a 10% portfolio allocation like I recommend, you aren’t betting the farm on this either.  I believe this ETF is also one to keep for a while.  Energy isn’t going anywhere and financial services will pick back up.  There may be some short term speed bumps though.

**disclosure – I am long CVY

The Fund seeks to track the performance of the Dividend Achievers Select Index that measures the investment return of common stocks of companies that have a record of increasing dividends over time.

In other words, it only invests in the best high quality stocks that have consistently increased their dividends year over year.

http://www.mergent.com/news-2006-10.html

Dividend Appreciation Index Fund will track the performance of the Dividend Achievers Select Index™, an index created exclusively for Vanguard by Mergent. A unique dividend-growth investment tool, the index is a subset of Mergent’s Broad Dividend Achievers Index™ which follows U.S.-listed companies that have increased their annual regular dividends for at least the past 10 consecutive years and have met specific liquidity screening criteria. The Dividend Achievers Select Index uses additional proprietary methodology to focus on approximately 200 stocks, and offers investors access to companies with consistent earnings growth and bolstered diversification across securities, sectors and investment styles.

Again, this is one to own and hold forever.  Even though it only yields about 2% this is very misleading.  These are companies that are very strong financially.  These companies are almost zero risk for losing large amounts of money.

Top 10 Holdings as of 4/30/11… quite a list!  Buy this one and forget about it.  You’ll thank me in 20 years!

CSJ is the iShares Barclays 1-3 Year Credit Bond ETF.  It currently yields around 2% and is a relatively safe investment.

From CSJ’s information page:

The Fund seeks investment results that correspond to the investment grade credit sector of the U.S. bond market as defined by the Barclays Capital 1-3 Year U.S. Credit Index. The Index includes investment grade U.S. credit securities that have a remaining maturity of 1 to 3 years.

The reason I like CSJ so much is that it invests in short term corporate bonds.  Almost all holdings mature in less than 3 years.  This keeps interest rate risk to a minimum (but it is still there).  As rates start to rise we will see a pullback on security price.  But on the long term this should still be a fairly safe income investment. This is especially useful for someone looking to diversify out of US Treasury bonds.

The expense ratio only knocks off 0.20% off your return.

Here’s my opinion on what to own in summer 2011.  I am a more conservative investor during big run-ups like we’ve seen since 2008 (100% gain!!).

Here’s what I like.

Investments for 2011

More details to come on each stock and why I like it…

CSJ – Online Investing Advisor Notes

VIG – Online Investing Advisor Notes

CVY – Online Investing Advisor Notes

VWO – Online Investing Advisor Notes

Quotes – CSJ , CVY , HYG, VIG, NLY

Sound like I’m nuts??  We’ll I’m not.  Let me introduce you to investing 2.0.  It’s called Lending Club.  Believe me – I was skeptical too.  But with no minimum investment I figured I would give it a shot.  I’ll tell you I was pleasantly surprised.  Below is my review.

LendingClub’s homepage claims a 9.5% annualized return as of 09/05/2010.  They also report a mere 2% default rate on their total number of loans.  How in the world can that happen was my first question… how can make 9% in this economy?  The answer is pretty ingenious.  Makes me wonder why I didn’t think of it first…

After signing up and making my first cash deposit (paypal was offered at signup) you are then able to buy notes.  Below is a sample of what you can search for.  You can filter by interest rate, length of note, or keyword (ie. credit card).

Everything a bank would use to lend money is available for you to see.  Within each loan is a detailed look at the profile of the requester.  Employment history, gross income, number of delinquencies, bankruptcies, etc.  If you see a red flag in the profile – don’t invest!  Very easy.  You are also able to ask the member questions if you decide to.  For instance – if you were on the fence because of his high revolving credit balance you could ask them how they plan on using this loan.  Please note:  much of this info is unverified.  Members who are requesting loans are encouraged to get their income and employment verified.  This at least give lenders a better idea of their financial situation.

So how has my experience gone?  I signed up for LendingClub in April and so far I’ve been very impressed.  One BIG limitation for me is that I was not able to lend directly in new loans.  LendingClub loans are only allowed in 17 states (check the terms for list).  That doesn’t mean you can’t buy the notes from other lenders though.  LendingClub has a trading platform to buy and sell your notes before they reach maturity.  I actually bought most of my notes at a 1-2% discount.  You have to watch out though, there are people on there trying to dump worthless default notes so make sure you only by notes that are current on payment.  As you can see below, you can filter by interest rate, term, etc and also sort the columns.

You are also able to view the original listing thru the trading platform so you’re still able to see all of the original Q&A’s, financial information, and notes from the member.

So now I have my account … How do I make money?

Great question!  Most of the loans are structured as 36 month notes.  60 month notes came out a few months ago but i haven’t really looked at those much.  As you can see, it’s all about risk and reward.  Want to take a chance on a less than steller credit score?  Then you could make up to 20% interest on your investment.  But even the top credit scores will earn you over 8%.  And with credit scores in the 700+ range… your risk of default is next to zero.  In today’s volatile stock market – I’ll take that!

I picked a wide range of notes from the A grade (top credit) to the G grade (bottom).  Below is my portfolio of notes.

So far I’ve only had one note go late (the G grade) but they’re on a payment plan so I am still getting paid.  All of my others have been on time.  As you can see I am making just under 14% with my allocation of notes.  I went a little on the risky side just to see what the collection process was if a note went late.  Lending Club does all of the collections, payment plans, payment reminders, etc.  You sit back and collect the interest and late fees.  Not bad at all.

Overall, I think Lending Club is great for an investment.  If you are looking for a semi-liquid investment I think you’ll find Lending Club is perfect for you.  I believe the only drawback is the amount of time it takes to research your potential loans.

]]> http://onlineinvestingadvisor.com/2010/09/who-needs-stocks-or-bonds-when-this-makes-you-at-least-8/feed/ 1 http://onlineinvestingadvisor.com/2010/09/retirement-investment-options-its-not-like-the-old-days/ http://onlineinvestingadvisor.com/2010/09/retirement-investment-options-its-not-like-the-old-days/#comments Wed, 01 Sep 2010 20:20:44 +0000 Advisor http://onlineinvestingadvisor.com/?p=51 Anyone who has money in a 401k or any retirement account knows that 2000-2010 was the “lost decade”.  In this 10 year period stocks basically stayed flat after the big booms and busts.