Investments

VIX

VIX is an abbreviation for "volatility index." Its actual calculation is complicated, but the basic goal is to measure how much volatility investors expect to see in the S&P 500 over the next 30 days, based on prices of S&P 500 Index options. When options traders think the stock market is likely to be calm, the VIX is low; when they expect big swings in the market, the VIX goes up.

 

VIX Index (index readings—not returns)

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Risk Parity Funds

Margin Debt

According to a May 2013 WSJ article, the total amount of NYSE margin debt at the end of March 2013 was 2.7% of the total market capitalization of the S&P 500. At its previous peak, investors had borrowed as much as 2.9% of the S&P 500; at its crisis low, investors were borrowing 2.3% of the S&P 500’s market value.

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Roth 401(k)

The 60/40 Model Portfolio

The 60/40 (S&P 500/long-term government bonds) portfolio, rooted in modern portfolio theory, was first popularized in the late 1950s. Starting in the 1900s, the average annualized return of a 60/40 mix has ranged from 3% (1910s) to over 14% (1980s and 1990s) over the past 10 decades.

 

60/40 Portfolio: Average Annualized Return

 

1900s

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Junk Bond Update

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Mortgage REITs

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Natural Gas

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Downsizing

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Natural Gas

Master Limited Partnerships

Master limited partnerships (MLPs) can offer the investor an attractive income stream plus tax benefits. Tax on 80% of distributed income is deferred (until partnership shares are sold); the investor pays ordinary income taxes on the remaining income. Each year, partnership investors must fill out Form 1065 (Schedule K-1) to declare partnership income. MLPs pay out 5–6% a year and are projected to also enjoy 5–6% annual appreciation (source: Morningstar).

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MLPs

MLPs

Master limited partnerships (MLPs) are popular because of their high payouts that qualify for favorable tax treatment. The Alerian MLP Index (symbol AMZ) cannot be invested in directly, but the JPMorgan Alerian MLP ETN tracks this index (symbol AMJ). As of March 2013, AMJ had a 4.7% dividend vs. 2.0% for the S&P.

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