Fleurus Investment Advisory, LLC
Jeff de Valdivia, CFA, CFP®, founded Fleurus Investment Advisory, LLC at the beginning of 2014 with the objective of transferring institutional investment management processes to the wealth management sector. He was a portfolio manager for the endowment of the University of Wisconsin from 2011 to 2013.
Prior to joining the University of Wisconsin Foundation in 2011, Jeff was Deputy CEO of Amundi IS, the US subsidiary of Amundi SA, a large European asset management firm and a joint venture of the Société Générale and Crédit Agricole Groups. While there, Mr. de Valdivia ran their New York-based fund of hedge fund business from 2007 to 2010.
Earlier in his career, he held several positions of increasing responsibilities within the capital markets division of the Crédit Agricole Group in New York and Chicago over a period of close to twenty years.
In 2000, Mr. de Valdivia was awarded the Chartered Financial Analyst (CFA) designation. In December 2014, he was awarded the Certified Financial Planner (CFP®) designation. Mr. de Valdivia received an MBA in Finance and International Business from the University of Wisconsin. He is a native French speaker.
MBA, Finance, University of Wisconsin-Madison
BBA, SKEMA Business School
Assets Under Management:
Fee-only investment advisor
There is no obvious answer. It all depends on your specific situation and your tolerance for investment risk.
From a pure economics standpoint, if you think that the after-tax return that you expect to earn from investing your new sum of money is higher than the after tax cost of the mortgage, then it makes sense to invest the funds rather than to pay off the mortgage. That's the theory.
In practice,you should consider where you stand on the financial life cycle. No matter what the economics, if you are close to retiring, getting rid of your debts should be a higher priority than if you are in your thirties for example. Additionally, managing funds requires investment skills and temperament that many people do not have. You also need a bit of luck. Going back in time a bit, if you were asking this question in November 2007 and had decided to invest, no matter what your level of investment skills, you would have quickly regretted not paying off the mortgage.
There is a risk with investing the funds that you do not incur by paying off the mortgage. Your level of risk tolerance matters. I hope this helps.
This is a fundamental and complicated question.
The ability of a portfolio to sustain you forever during your retirement years, assuming no external addition to the portfolio, is dependent on three principal factors: 1) the size of the portfolio to begin with, 2) your annual withdrawal rate, 3) the performance of the portfolio. For these three factors, you need to add the uncertainty of your own longevity. Under current life expectancy tables where most men in their 60's are expected to live until 83-86 and females between 85-88, a withdrawal rate of 4% seems acceptable. That said, I personally tend to recommend a lower withdrawal rate of 3% to 3.5%, all things equal otherwise, given the low rate environment we are in and the likely slowdown in the performance of equity markets in the coming years.
In order to play it safer, you will want to adjust your annual withdrawal rate, based on market performance. The greatest risk to a portfolio for a retiree is the combination of: 1) a sustained level of withdrawals and, 2) a significant market decline in the early years of the retirement. That combination can devastate a portfolio, no matter what the subsequent performance is on the remaining assets. This is because the portfolio will have dropped in value so much in the early years that even above average performance in the later years will not bring it back to a sufficient size.
So the ability to reduce your withdrawal rate from one year to the next, based on your portfolio's performance the year before, will greatly enhance the chances of your retirement portfolio supporting you through end of life.
As I have said earlier, this is a very complicated question. If you are interested in researching this issue more, I would recommend that you read the various articles and publications by Moshe Milevsky, a university finance professor who specializes on these issues. His articles are somewhat technical but should nevertheless prove helpful.
All the best
I would say that it all depends on your risk appetite. Of the various portfolios that I manage for clients, there is always an allocation to high yield bonds. My allocations vary from 5% to 10% of their total portfolio (including equities etc...). That said, I tend to invest in the least " junkie" part of the high yield sector. I use VWEHX, the Vanguard Fund that has a good chunk of its holdings in BB rated bonds (not the CCC category). In 2008-2009 that fund's share value went from about $6 to $4.5, or a 25% loss of principal. This is what you potentially expose yourself to with the least "junkie" part of the high yield sector.
As some of my colleagues may have answered, high yield is the riskiest part of the bond market. In addition to interest rate sensitivity, one must account for default rates (the chances that your principal will not be repaid). Currently default rates in that sector are at a 2.5% average. During recessions they can go up to 7% to 8%. We are not close to a recession. Tha's why I am maintaining a resonable allocation to the sector currently. My recommendation to you based on your age and intended retirement age: 1) Invest in this market but try to stay with the less speculative funds (VWEHX is one of them), 2) Do not allocate more than 5%-7% of your total portfolio to that sector, 3) Monitor default rates and signs of recession. Reduce your positions signficantly as soon as they materialize, 4) be nimble!
I hope this is helfpul to you.
Although Dodd-Frank addresses issues such as consumer protection in a significant way, most of the financial deregulation that the Trump administration contemplates is likely to affect banks/brokers in their everyday operations, not consumers, at least not in the short run. Less regulation is likely to lighten the administrative burden on banks and decrease the amount of capital needed to run their operations, therefore, allowing them to better support the economy. This is why this sector of the stock market is currently rallying. I do not see an immediate impact on consumers yet, although this will depend on the extent of the dismantling of the regulatory apparatus. In the short run, this is market positive. In the long run, a substantial undoing of the protections against bank failures that were put in place post 2008 is likely to weaken our overall financial infrastructure.
Perhaps the best way to answer this complicated question is to tell you what institutional investors do. They have the resources and the time to properly research this more challenging part of the equities markets. Most institutional investors (Insurance, pension funds, endowments) will allocate anywhere from 20% to 40% of their equity allocation to international (non-US) equities.
Within their international equity allocation, they will distinguish, at the very least, between developed markets such as the UK, the EU, Japan, and emerging markets and within that category, between large emerging markets such as Brazil or China and frontier markets such as Vietnam or Nigeria. The point that I am trying to make is that "international markets" mean a lot of different things. Perhaps a good way to look at this sector is to compare it to the large cap, mid cap, and small cap segmentation of the US equities markets. The level of risk increases as you move from large caps to small caps. The same happens in international markets when you move from developed markets (France, Germany, UK for ex.) to large emerging markets (Brazil for ex.) and again to frontier markets (Vietnam).
There is much more to say about international markets, but I hope that this little bit will get you on your way to researching more about this fascinating part of the equity market. Good luck!