It was a dreary second quarter but it could have been worse. My model pension portfolio had less than half its assets exposed to the domestic stock market so it performed relatively well.

Emphasis on “relatively.” While the S&P 500 sank 5.4% in June and 11.9% in the quarter, my model slipped only 3.0% and 8.4%, respectively. That was a disappointment, but the model is still up 18.5% in the last year, which is its first.

Looking ahead, I am not shopping for bargains–yet. The Obama administration, whose bewildering incompetence is responsible for this mess, has barely gotten started. It seems likely voters will toss out the Democrats en masse this October, but enough of them will remain (including Barack Obama himself) to do enormous mischief. It will get worse before it gets better.

That said, my model is designed for the long term. And in the long term, Obama will be politically dead. continue »

The second quarter ended and the third began on a sour, and yet more souring, note. The Obama administration has fumbled its way through nearly a trillion dollars without accomplishing any economic resuscitation, and its open hostility to business portends more economic misery ahead.

So everybody with a lick of sense is running for cover. U.S. corporations, for example, are holding record sums of cash because they fear it will be confiscated if they try to use it to make a profit. That means they’re not hiring–which is the only path to recovery.

And small investors–quite logically–are deserting stocks because, after all, Barack Obama knows as much about economics as Hugo Chavez. But this, too, shall pass: Obama’s doppelganger, Jimmy Carter, only served one term. For long-term investors, the current malaise is just a pothole.

My model portfolio of exchange-traded funds finished the second quarter down 7.3%, with nearly half of that (3.0%) coming in June. Thanks to sheltering well more than half the assets from Washington, that was much less than the U.S. stock market’s plunge of 11.9% in the quarter and 5.4% in the month.

What’s next? continue »

My model retirement portfolio took a pasting in May as global markets corrected sharply. While it did better than the stock market, which tumbled 8.2%, its 7.3% decline was much worse than the 6.1% loss of its sister model portfolio of exchange-traded funds.

What happened? My mutual fund managers–and I consider each one of them the best in his or her business–did worse than the indices they were chosen to represent. ETFs are index funds; they are not vulnerable to the kind of mistakes active managers can (and obviously do) make.

Few individual investors even know what manager risk is. But they should. Over the very long term, and I mean 10 years, at least, active management consistently beats indexing, despite its higher costs. But in the short term is can depart radically from the investment category it is supposed to represent, and that can be painful. continue »

Gold did its contrarian job in my model exchange-traded fund portfolio in May. Its modest gain, with help from bonds, trimmed the portfolio’s overall loss to 6.1%, a quarter less than the 8.2% tumble experienced by the Standard & Poor’s 500 index.

Also in May, the stock market corrected violently, finishing down 10.5% from its peak on April 23, owing mainly to dread spreading from the looming bankruptcy of Greece, the European Union’s weakest sister. I bought gold at the end of April specifically because I foresaw a correction, but I sure didn’t think it would come so quickly.

Overall the model ETF portfolio performed excellently in May as most, but by no means all, of my strategic decisions performed as expected. So what do we do next? continue »

Markets held up surprisingly well in April, especially given the looming bankruptcy of Greece. My model portfolios of exchange-traded funds, and of a mutual fund-based 401(k), did even better than the domestic stock market.

But U.S. stocks are getting riskier and riskier. In just the last month volatility, as measured by the VIX, or “fear” index, has surged 35%. Bonds are dicey, since interest rates are more likely to rise than fall. Foreign markets are in a shambles. What remains?

Gold. And thanks to the strength of the U.S. dollar, we Americans can buy it at a discount. Its price in dollar terms is up only 8.8% in the last six months. That’s half the 16.6% rise in terms of the British pound, and a fraction of the 20.1% surge in euros.

We can afford to buy it because we have cash on hand. I’ve been worried about the increasingly fragile rally in U.S. stocks for several months. So my model portfolios are so well diversified they have outperformed the S&P 500 index. continue »