blog11mar2007

Hot Off the Web
In the wake of last week’s stock market volatility, you would expect lots of articles to address the value of diversified portfolios for risk reduction. Here are some of them. In “There’s strength in diversity of portfolio assets” Richard Croft of the Financial Post explains how adding an asset to an existing portfolio affects the return and risk and that the correlation of that asset with the portfolio is a determining factor for risk reduction. However Berman in the Financial Post’s “Stock diversification is getting tricky” explains how much more difficult it is to get significant diversification with stock by going overseas in 2007 than 2000, and he recommends bonds and cash for diversification (My inclination has been to use more cash as rates for U.S. cash are higher, about 5%, and you don’t have to contend with the risk of rising interest rates.) Barrons cover article this week “A world at risk-Wake-up call” refers to Niall Ferguson’s view that there are close parallels between today’s lack of regard for risk to the situation in 1914. Also, given the current geopolitical risk, he suggests that there may be a case for “the Rothschild principle” of a portfolio constituted of equal parts of securities, real estate and art. Some might feel he is an alarmist, but to completely dismiss the parallels may be reckless. Also in Barrons, the growing popularity of life-cycle funds (discussed at the Portfolio Management link of this site) and their application to 401(k) plans, due to their simplicity and low maintenance is discussed in “Cruising to retirement” . And finally IBM, like a growing number of other companies has switched from pension plans to 401(k)s, but to ease the pain of the shifting investment and retirement income burden to employees, they are introducing comprehensive financial advice to all their employees, “IBM to provide financial advice to workers”
As a follow-up to the February 23, 2007 blog of Florida property tax crisis you can read my letter to the editor of the Palm Beach Post that appeared in yesterday’s paper, entitled “Tax system not just ‘loony’: to snowbirds, it’s outrageous”
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