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Mazo Model Investment Portfolio

| April 15, 2021


Know What You Own and Why

Know What You Don't Own and Why Not

 

Description

 

 Advantages

 Disadvantages

Stock Index Funds

Diversified and / or

Concentrated / non-diversified

  1. Upside potential
  2. Historically helps protect against inflation
  3. Low costs & fees
  4. D-I-Y pretty easy
  5. Know what you own 
  6. Potential broad diversification ...
  7. And / or potential concentration e.g.
    A. Sectors
    B. Real Estate
    C. Commodities
    D. Etc.
  1. Historically large losses (“drawdowns”) have occurred
  2. Better potential results with longer holding periods
  3. So potentially less effective for retirees and pre-retirees.

Individual Investment Grade Bond Ladder

  1. Mandatory principal return at maturity or call
    (absent default)
  2. Historically much lower risk of capital loss (“default”) than stocks
  3. Periodic income known in advance
  4. Interest paid typically 2X annually
  5. Interest rate known before purchase
  6. Price known before purchase
  7. Know what you won
  8. Historically & expected lower volatility than stocks

 

  1. Historically and expected lower return than stocks
  2. Price variation before maturity
  3. So loss potential if not held to maturity
  4. Significant dollar minimum needed for suitable diversification.
  5. Management fee
  6. Significantly less price transparency
  7. Potential for pricing conflict of interest
  8. D-I-Y difficult / unrealistic / substantially different possible result unlike D-I-Y for stock index fund

 

Bond ETF / Mutual Fund

  1. Historically much lower risk of capital loss (“default”) than stocks
  2. Liquidity better than individual bonds
  3. Pricing more transparent than individual bonds
  4. Lower dollar minimums than individual bonds Historically & expected lower volatility than stocks
  5. Ease of Use / Potential D-I-Y

 

  1. Historically and expected lower return than stocks
  2. While bonds held to maturity absent default will return principal, actually holding to maturity inside this structure is rare.

 

Active Strategies

"Picking Winners & Losers"

  1. Largest potential upside

  2. Available from many multi-billion dollar financial services firms


  1. Largest loss potential

  2. Broad availability could also be construed as a disadvantage


Cash

  1. Liquidity
  2. Zero nominal US$ loss potential
  1. Historically low returns
  2. Potential purchasing power loss during inflation


Footnotes

1. Feb. 27, 2019 Video Speech of Robert Shiller  https://www.youtube.com/watch?v=RpbW_kQdc-w

2. July 9, 2014. Stanford GSB (Graduate School of Business. Jonathan Berk: "Are Mutual Fund Managers Skilled or Just Lucky?  
https://www.gsb.stanford.edu/insights/jonathan-berk-are-mutual-fund-managers-skilled-or-just-lucky

3. Feb. 9, 2020 Investopedia "While diversification is a good way to preserve wealth, concentration is often a better way to build a fortune."   https://www.investopedia.com/articles/investing/030916/concentrated-vs-diversified-portfolios-comparing-pros-and-cons.asp



Disclosure

Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The return and principal value of stocks fluctuate with changes in market conditions. Shares when sold may be worth more or less than their original cost.
The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value. US Government securities are backed by the full faith and credit of the US Government as to the timely payment of principal and interest. The principal value will fluctuate with changes in market conditions. If they are not held to maturity, they may be worth more or less than their original value.
Mutual Funds and Exchange-traded funds are sold only by prospectus. Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained directly from the company or from your financial professional. The prospectus should be read carefully before investing or sending money.
REITs are subject to various risks such as illiquidity and property devaluations based on adverse economic and real estate market conditions and may not be suitable for all investors. A prospectus that discloses all risks, fees and expenses may be obtained directly from the company or from your financial professional. Read the prospectus carefully before investing. This is not a solicitation or offering which can only be made in conjunction with a copy of the prospectus.
Cetera Advisors LLC does not offer direct investments in commodities. A diversified portfolio does not assure a profit or protect against loss in a declining market. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.




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