Beat Wall Street Fund Managers at Their Own Game
December 9, 2008
By Mukesh Chatter
Paul Lim of the New York Times had a story over the weekend about asset allocation:
It May Not Look That Way, but Diversification Still Works
“For example, over the 10 years through November, the S.& P. 500 lost almost 1 percent a year, on average. But a diversified portfolio of 40 percent S.& P. 500 stocks, 25 percent foreign shares in the MSCI EAFE index, 25 percent in fixed-income securities found in the Barclays Capital U.S. Aggregate Bond Index, and 10 percent in Treasury bills gained nearly 2 percent annually, on average, according to T. Rowe Price.”
Even with a gain of 2% per year (which is less than the inflation rate), the net return is still negative. What Paul did not mention is that if you had put your money in high-interest-rate-paying CDs over the past 10 years and rolled them over to yet more high-interest-rate-paying CDs at their maturity, you are likely to have earned a completely risk free 5%+ on an annualized basis. The principal was protected all along, insured by the government through the FDIC (up to the applicable limits, of course), and the accounts would provide a guaranteed cash flow.
Today, the three-month treasury is yielding under 0.01%, while you can get 3% at some FDIC-insured banks - and both are equally protected by the government. Yet one gives 300 times more return than other! The six-month treasury is returning under 0.3%, so the return is still at a minimum 10 times better in a 3% account. You can find out about these high-interest-rate-providing FDIC insured accounts at www.moneyaisle.com.
Beat most of the big Wall Street fund managers at their own game while your principal is protected by the US government. The returns are predictable and guaranteed. And furthermore, I forgot to mention that you won't even need to pay an annual management fee to manage your money!
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