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Steve Hanly

  • Envision Your Financial Future and Plan How to Get There with a Portfolio of Portfolios

    Envision Your Financial Future and Plan How to Get There with a Portfolio of Portfolios

    How much money do you aim to have by when and why? How will you achieve that goal? In this post I will share my vision and plan with specific investment strategies while posing questions to you to help you envision your own financial future and take steps to get there.

    At the age of 28 when I started this blog with my former boss, Chris, and lifelong friend, I aimed to find an optimal investment portfolio. I had fun and learned some valuable insights (my 11 posts); but all my analysis and posts were too myopic – they focused on one investment mix. Chris was a bit ahead of me, maybe because he is 8 years older, and started writing about a comprehensive investment strategy of strategies (Chris’s 6 posts). But I haven’t posted anything here for over 7 years, since May 2018! What have I been up to, have I learned any valuable financial lessons worth sharing? Yes!!

    After maturing to now 37, having 2 more kids (4 total), buying/selling some homes, getting another masters degree, experiencing a global epidemic, changing companies, starting a philosophical blog on the meaning of life, and living more life myself – I’ve developed and want to share my family’s comprehensive financial plan in this post (while obscuring the absolute values). I’ll share how I arrived at these allocations and strategies to provoke you to consider yours with suggested ranges based on my life experiences. I hope this inspires you to document your own plan, align with your partner on it, and go achieve your financial dreams!

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  • This is Not Your Parents Diversification – Investment STRATEGY Diversification

    This is Not Your Parents Diversification – Investment STRATEGY Diversification

    We have all been beaten over the head about portfolio diversification and its benefits.  Don’t put all your eggs in one basket is probably the most widely known and respected colloquialism of the investing public.  Like the vast majority of people I fully buy into the benefits afforded by the diversification commandment.  However, as an engineer I don’t just accept things blindly, especially in the face of data.

    With all of the great work my partner Steve has been doing around different investment strategies and unique portfolio construction I’ve found myself in an interesting predicament.  Which of these approaches and strategies do I embrace?  I’ve always had a rock solid resolve with my investments.  Every book I’ve read and advice I’ve been given has been to pick an approach and stick with it.  I have had a diversified portfolio of different asset classes that is age and risk appropriate for me, I use low cost index funds, I rebalance regularly and I hold through thick and thin.  Prudent.  Most would say I’m a pretty damn smart person for investing like that.

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  • Get to Know your Small Business 401(k) Fiduciary…….and Save Millions

    Get to Know your Small Business 401(k) Fiduciary…….and Save Millions

    I was enjoying my Sunday morning coffee and paper a few weeks ago when I came across an article in the Boston Globe titled, “Warren’s Consumer Dream Dismantled.”  The story was about how the Consumer Financial Protection Bureau (CFPB), under new Director Mick Mulvaney, was switching their focus from enforcement of rules and penalizing fraudulent financial institutions to educating those institutions on how not to screw their customers.  Besides that last little jab I’ll leave the politics aside, but my interpretation of this Boston Globe article was that our government is going to keep the status quo:  (1) Give you complete freedom….including the freedom to be coerced into terrible financial decisions by the entity looking to gain from said terrible decisions; and (2) create laws that technically protect people but lay the responsibility for that protection at the feet of often uninformed persons, again enabling the financial institutions to reap massive reward at your expense.  In the case of your 401(k) plan those persons entrusted with protecting you are your plan fiduciaries.  Spoiler alert:  in many cases, especially with small and medium sized businesses, your fiduciaries do not know their responsibilities and even if they did they do not have the education or knowledge to be making sound financial decisions for you.   We need to fix that and I’m going to show you how by first identifying who your plan fiduciary is and then the steps to take to enact changes in your plan.

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  • Accelerating Dual Momentum Investing

    Accelerating Dual Momentum Investing

    Warren Buffett has said that trying to time the market is the number one mistake to avoid.

    Market timing is hard, if not impossible to do, as it often results in the investor buying or selling too late or too early rather than right on time.  To even consider a market timing strategy is generally frowned upon by professional investors.

    But we’re not professional investors, we’re just engineers who were convinced that there must be a simple yet effective way to pick up on and follow trends in uncorrelated asset classes.  We don’t hope or expect to be right every time, but we do hope and expect this strategy to do a decent job at minimizing losses to improve the effect of compounding gains.

    In this post, I will lay out the framework of a simple, intuitive and profitable strategy that has worked well over the last 150 years.  I will provide all the data used so that you can perform your own analysis.  I’ll also provide tools you can use to implement this, or a similar strategy, on your own for free.  No proprietary software necessary, no expensive financial advisor required – just you, some logic, and systematic rules-based investing (no emotion!).

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  • The Basics of Behavioral Finance: Tips and Tricks to Combat Your Cave Man Brain

    The Basics of Behavioral Finance: Tips and Tricks to Combat Your Cave Man Brain

    Thousands of years ago one of your ancient ancestors was enjoying the spoils of a recent hunting trip when suddenly a saber toothed tiger jumped out of the bush.  Your cave man relative had a choice, fight off the tiger or drop the food and run.  They ran….and they ran fast.  The human brain is an amazing thing, it has evolved over the eons to help us survive.  Most of those eons involved surviving physical threats where flight over fight was often the smart choice.

    The financial “threats” we face in the 21st century are diametrically opposed to the physical threats of ancient times.  Stock market crashes, unlike hungry saber toothed tigers, often present opportunities as opposed to imminent death.  My very simple example here downplays the complex neurobiology of the human brain that drives us to make poor financial decisions, but the end result is the same:  humans are hardwired to be poor investors.

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  • Which Country has the Best Stock Market?

    Which Country has the Best Stock Market?

    After my post on ex-US stock asset classes, I started to wonder if there are particular specific countries that have attractive stock market.

    Finding the historical returns of many different country stock markets would have been a tedious task; but thankfully the team at Credit Suisse does a summary of world equities every year in their annual yearbook!

    In this post I’ll summarize the Credit Suisse yearbook and then dive a bit deeper into the returns of 4 different stock markets: the United States, Australia, Sweden, and South Africa.  All the data presented is available to view and analyze yourself, and we encourage you to do that!

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  • Solving the Great Diversification Debate: Gold, Commodities, Treasuries or REITs

    Solving the Great Diversification Debate: Gold, Commodities, Treasuries or REITs

    For a portfolio compromised of mostly stocks and bonds, which asset provides the greatest diversification benefits?

    In this post we’ll quantify the diversification benefits that gold, commodities, long term treasuries, and REITs provide to a portfolio of mostly stocks and bonds. Annual data will be reviewed going back to 1972 and daily data is also analyzed going back to mid-2006.

    By the end of the post you’ll have a better idea of which alternative asset class to add to your portfolio to help reduce risk. As always, the data reviewed in this post is available to download.

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  • Historical Analysis of Bond Investment Returns Performance

    Historical Analysis of Bond Investment Returns Performance

    How efficient is the bond market?  We’ve found inefficiencies within US sectors, size/style, and international stocks.  Do similar inefficiencies exist in the bond market?

    One would belief that fixed income should be easier to accurately predict returns and thus the bond/fixed-income market should be relatively efficient.  In this post we’ll put this assumption to the test.

    We’ll go through the annual returns of 11 different bond asset classes (and the S&P 500 and inflation for comparison) to analyze the performance of these bond assets.  This analysis includes a look at the historical data (available to download here), comparison of moving trends, calculate 4 performance and 4 risk metrics, look at the correlation matrix, offer some additional resources and point out some investment opportunities to consider.

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  • Emerging Market and Small Cap Outperformance: Historical Comparison of International Equities

    Emerging Market and Small Cap Outperformance: Historical Comparison of International Equities

    Are there any international equity asset classes that have historically offered better risk/reward characteristics?  We found in US stocks that midcap value has been a very attractive investment in the long run, are there similar asset classes outside of the US?

    Turns out there are two: international (ex-US) small cap stocks, and emerging market stocks.

    In this post we’ll compare historical returns data from 1972 through the end of 2016 and highlight these two international stock asset classes that have grossly outperformed their peers.  We’ll look at correlations between these asset classes and US stocks too to see if there are better or worse diversification opportunities.

    As always, all data presented is available to download.

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  • The Corrosive Nature of Investment Fees

    The Corrosive Nature of Investment Fees

    Corrosion is the slow decay of metallic materials that, over a long period of time, can lead to catastrophic failure of a structure.  Investment fees act in a similar nature, slowly and constantly eating away at your returns and severely damaging your potential to buy that house, put your kids through college or retire when you want.  The good news is that, like an engineer dealing with corrosion, you can avoid the damage if you make smart decisions to protect yourself.

    “When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.”  -Warren Buffett

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