Thursday Tidbits--Special March Madness Edition

Yesterday I participated in the retirement panel with Seeking Alpha. This was the second panel like this (the other was a different topic back in November) I've done with them. The positive, at least the ones I've done, is that we cover a lot of ground including reader questions. The negative is that I am not sure if the format allows for a lot of depth. Clearly we delve into the topic I'm just not sure if we meet expectations on depth but it is fun and we are trying to help people which is a net positive.

My opening comment for the panel;

Generally I am not a believer in taking on a lot volatility and risk in the fixed income portion of a client’s portfolio. Quite simply if we, generically, are in a 5% world and you buy something yielding 10% you are taking risk. You either understand the risk or you don’t - but you are taking it. Obviously there is not always a negative consequence for taking risk, but that does not mean you are not taking it.

Unfortunately, we are now in a 0% or 1% world, which is a source of frustration for people of course, but if you are getting 5% in a 0% world you are taking risk.

The way we are positioned for most clients, fixed income wise, is three domestic, high quality corporate issues maturing in 2-3 years, short term sovereign debt from Norway, Australia and Denmark, Vanguard Ginnie Mae (VFIIX), one or two bank preferreds, MFS Intermediate Trust (MIN) - this is a closed end fund and varying level of TIPS exposure depending on the income need and age of the client.

I believe this allows us to avoid being overly exposed to normal risks and if things look like they are headed to yet another 100 year flood, we could cut back quite quickly.

Owning dividend paying stocks makes sense, but too much of anything becomes a bad idea. If all you own are big dividend payers then you will not have a diversified portfolio. A diversified equity portfolio means owning stocks with varying characteristics.

A few days ago I sold the PowerShares Agriculture ETF (DBA). I first bought it ages ago in the mid to high $20s sold a little (not enough as it turned out) in the low $40s and sold the rest last week with a $24 handle. The fund changed its makeup to take in more commodities as a way to address position limits and ever since then the fund has not done much but seemingly eroded very slowly.

Part of the problem might have been low correlation between the components being a drag on the fund but also some of the components aside from being in downtrends were also in a contango. For now no soft commodity exposure but we do have the MOO ETF which owns stocks. Given what might be the new dynamics of the holdings it might be that the single commodity ETNs or narrower ETNs from iPath could be the better way to go in terms of accessing the asset class.

Barry Ritholtz posted this video about five keys to happiness. Two things stuck out to me above the others. One was about exercising. Per the video the various chemicals released from exercising act like anti-depressants and also being fit makes for healthier aging. Dr. Oz, not sure why, put in a quick appearance on CNBC a week or two ago and made an interesting comment. he said that if your waist measures more than half your height you have a problem. I've never heard it put that way before, hopefully you make exercise a priority.

The other nugget from the video was about simplicity. This is a good one and it relates to portfolio management and cycle navigation. What constitutes "simple" is in the eye of the beholder. One way I think of simple, kind of parroting Peter Lynch, is being able to explain why I hold something in a sentence or two to a friend who is not active in the markets and the friend follows the logic.

From the panel yesterday I was down on various types of products (annuities and currency CDs) that I think make things more complicated especially at times where no one wants more complicated. In the panel discussion we broached covered calls and while the strategy has its pluses and minuses it is not simple. I was able to see some of the question from people watching (is that the right word?) the panel live and quite a few of them went beyond simple strategies. Complex, especially where enhancing or chasing yield is concerned, often ends badly.

To clear one thing up, I said that people might have to consider ratcheting down the withdrawal rate to 3% from the normal 4%. One reader left a comment agreeing with my change of mind. I would not say I have changed my mind but in general people need to put everything on the table. One common point I make here is about something having to give. For some people that will mean withdrawal rates.

On a more positive note the NCAA tourney starts in a couple of hours--March is my favorite month of the year.