How To Choose An Investment Blend That You Don’t Have To Monitor

How To Choose An Investment Blend That You Don’t Have To Monitor

How To Choose An Investment Blend That You Don't Have To Monitor

This post is directed at people who don’t get the markets.  People who think they they are experts can stop reading now.

I’m the Chairman of the Pension Board of the Reformed Presbyterian Church of North America.  Yes, that long-lived, but small denomination that never went through the controversies of modernism, still teaching that Jesus Christ rules everything on earth NOW, and we exclusively sing the psalms of David without accompaniment in our worship.

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Here is something that is no surprise: most pastors who are serious students of Scripture don’t get financial markets.  Truth, that is true of most people who know their technical crafts, but don’t get how financial markets work.

What I am about to say should work for most people who don’t get investing — choose a blend of risky and less-risky assets.  Ask your self this question: how much are you willing to lose in a year at worst as a percentage of assets? Take that amount and multiply it by 2.0-2.5.  That is the maximum amount that you should allocate to risky assets.  (Strangely, that mostly corresponds to the current margin rules.)

Average people can’t monitor the markets, and even if they did, they would not know what to do.  Far better that they “set it and forget it,” than that they panic when things are are going bad, or get greedy when things are running hot.

Thus we encourage the pastors to buy blended funds.  I encourage them to buy one notch down on their risk tolerances, because the return give-up is small, but the likelihood of them not panicking is large.

For those who are uninformed, that is important.  Buy-and-hold is a good strategy, if maintained at a risk level that avoids panic.

Now. I’m not crazy about the market at present.  I would shade allocations to the 2.ox side of risk, not the 2.5x side.  But what we have found at the pension board of the RPCNA is that the pastors do best, who choose a blended fund that they can stick with through tough times.

My own pastor is squeamish with investing, but I looked at what he “should” do in investing, and told him to dial it back one notch.  It has been to his benefit.  He has not panicked, and has made decent money over the last 10 years.

Thus to summarize: estimate your willingness to lose money over a year, and size your allocation to risky assets appropriately.

By: alephblog


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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.
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