March, April Could Bring More Upside for Stocks

By Todd Shriber, ETF Trends

With the S&P 500 only modestly higher on the year and having traded lower in January, historically one of the best months for stocks, it would appear that U.S. equities are not obeying the seasonal trends offered by the best six-month period. That being November through the end of April.

Investors will be heartened to learn that March and April are strong months for U.S. equities. Over the last 20 years, March and April on average have delivered returns of 1.52% and 2.19%, respectively, topping all other months, reports Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.

That jibes with the outlook offered by Brooke Thackray, one of the foremost experts on seasonal investing.

“The next two months of March and April are on average two of the stronger months of the year. With this favorable seasonal trend just around the corner, it does not make sense to become overly bearish on the market. It is more prudent to be cautiously looking for opportunities,” said Thackray in a recent note.

Over the past 20 years, the S&P 500 has a March win rate of 70% and an April gain frequency of 75%, according to Equity Clock.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Men vs. Women: Investment Decisions

By Nelli Oster, PhD, Director and Investment Strategist in BlackRock’s Multi-Asset Strategies Group

Research behind gender-related differences in investment decision making highlights some interesting findings:

Q: Why do women and men make different investment decisions?

A: There are three broad ways in which men and women differ when it comes to financial decision making:

• Women tend to focus more on longer-term, non-monetary goals. Fidelity reports women generally associate money with security, independence and the quality of their and their families’ lives. According to a 2010 Boston Consulting Group study examining women’s experiences with wealth management providers, women tend to focus on longer-horizon planning, like college savings. Men, on the other hand, who tend to be more competitive and thrill-seeking by nature, often focus on the short-term track records of their portfolios.
• Women tend to be thorough and take more time to make decisions than men. Several studies, including a national survey by LPL Financial, show that women tend to research investments in depth before making portfolio decisions, and the process, as a result, tends to take more time. Women also tend to be more patient as investors and consult their advisors before adjusting their portfolio positioning, whereas men are more prone to market timing impulses. To gather information, women often prefer group discussions to men’s more independent learning approach.
• Women seek help more. A 2012-2013 Prudential study on women investors reveals that women are more receptive to financial research and advice than men. They often require more of a financial advisor’s time and resources, but once trust is established they are also more loyal clients with their focus on lasting relationships.

Q: What impact can these different investment decision making styles have on portfolios?

A: There are some potential pitfalls both men and women can watch out for. Women’s tendency to think in terms of qualitative longer-term goals (known as ‘mental accounts’) can lead them to separate money earmarked for different purposes into different investment accounts. This, in turn, can result in inefficient portfolio allocations overall. Similarly, women who are overly concerned about financial security may predominantly focus on downside protection and not take enough risk in their portfolios, subjecting them to insufficient income in the future.

While women risk missing out on some investment opportunities in taking more time to make decisions, men’s generally higher impatience when it comes to seeing good investment returns makes them more prone to attempt market timing, and to get hurt when timing is off. For example, a Vanguard study on individual investor behavior revealed that during the financial crisis of 2008 to 2009, women were less likely than men to sell out of equities.

Finally, women’s generally lower confidence levels and consensus-driven approach —as revealed in BlackRock’s Investor Pulse survey—may put them at a disadvantage, as good investment returns often require some degree of contrarian thinking. Men with their more individualistic approach may, on the other hand, be more prone to the confirmatory bias. In other words, they may discard information that conflicts with their existing knowledge, and be slow at cutting loss-making positions and taking advantage of capital losses for tax purposes.

Q: What can men and women do to mitigate the impact of their decision making tendencies?

A: Both men and women should make sure that their investment styles and horizons match their overall financial goals. For women, this may mean taking on more risk. For men, this may mean focusing more on longer-horizon goals, rather than on short-term trading track records.

Women may also want to review the efficiency of their investment allocations across their portfolios to counter the negative impact of mental accounting. In addition, they may want to consider attending financial education seminars to help boost their lower confidence levels and ability to make timely, well-informed investment decisions.

Meanwhile, to help avoid snap decisions and market timing impulses, men may benefit from implementing a systematic investment strategy and a periodic, rather than continuous, review of their accounts and rebalancing. Finally, to counter confirmatory bias, men may want to consider becoming a bit more open to professional financial advice.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

3 Reasons Why Bears Never Prosper

By David Fabian, Managing Partner and Chief Operations Officer of FMD Capital Management

I have a long history of watching bears destroy their wealth (and that of others) by living in fear of the next market meltdown. I used to work closely with an associate who felt it was his job to warn you about the next correction in stocks. In fact, this person was so wholeheartedly committed to pushing his agenda that he was able to convince many investors that he knew what the future held for stocks, bonds and commodities.
He must have had some sort of crystal ball under his desk that no one else knew about.

The most egregious error was not convincing people that a correction was going to materialize. Everyone knows that the stock market ebbs and flows just like the tides. We are going to experience periods of economic expansion and contraction, that is a part of every business cycle.

So, knowing that bears in general can be harmful to your financial health, here are a few things about them you should understand:

#1: Never Wrong, Just Early

The first thing you have to realize about bears is that they’re never wrong. They simply are early to a notion that the rest of the world has yet to realize. Whether it’s the next bubble that’s about to burst or a correlation to 1929′s Great Depression, the bears are always able to find a crisis that has yet to materialize.

If the market ignores their conviction and continues higher, they simply chalk it up to irrational exuberance of the masses and go into hibernation for a short period. Then when an opportunity presents itself, they trot back out the same arguments and try to convince you that the top is in.

I have watched bears call for a pullback over the last 100 points in the SPDR S&P 500 ETF (SPY). From a low of $125 in 2011 to a high of $185 in 2013 is a gain of 48% in SPY. Many bears have completely ignored this rally and have been left in the dust in terms of relative performance to the broader market.
However, I can pretty much guarantee that when we do see a 10% to 15% dip in the markets that they are going to tell everyone “they called it.”

#2. No White Flag When the Selling Is Over

One thing I have always noticed is that when the market goes down 10%, it looks like it’s going to go down another 10%. That’s just the emotional nature of watching the market fall and living in fear that it is going to continue its descent. The psychological circle of panic and greed can be vicious.

Just remember back in 2009 when the market had already dropped 40% from high to low and everyone felt it was probably going down even further? Then quantitative easing kicked in, the selling stopped and stocks rocketed higher. No one raised a white flag and said the coast is clear. You just had to either be in stocks or you got quickly left behind.

That’s why it is so hard for bears to get back into the market to realize the upside. They feed on the fear that drives their ego and allows them to thrive when stocks are falling. They are finally on the right side of the trade, and no one is going to take that satisfaction away from them.

Until the buyers step in, that is.

I have only heard of a few rare exceptions of investors that have successfully navigated both bull and bear markets to capture profits in both directions.

#3: They Have a Lot More Conviction Than Discipline

Most bears are unable to cope with the concept that price is the ultimate arbiter of reality. They feel that any gains in stocks are unrealized and that ultimately those who are long are going to pay the price.

However, if they aren’t going to capture any of the gains on the upside, what makes you think they are going to call the top and get short in the sweet spot on the downside?

In my experience, bears are battling the market when it’s rising and they are late to the party when it’s falling. They lack the discipline to be steady traders because of their one-sided bias. Often times they override any risk management discipline because they feel that they know more than the market. That combination of conviction over discipline can be very dangerous to your wealth.

The Bottom Line

In my experience, I have come across many bears who are better marketers than they are long-term investors. Fear is a powerful motivator, and they know how to push all the right buttons.

Many people make a great living by trading stocks on the long and short sides of the market. I am not trying to discount the notion that you can’t make money when stocks are falling. However, you have to have the time, tools and discipline to be able to successfully implement trading strategies that work when stocks are falling.

Markets aren’t always logical, but they offer us numerous opportunities for rewards if you are committed to a successful outcome.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

The Five Biggest Stock Market Myths

By Investopedia Staff

When fiascos like the Libor scandal, London Whale scandal, and analysts' conflict of interest occur, investor confidence can be at an all-time low. Many investors wonder whether or not investing in stocks is worth all the hassle. At the same time, however, it's important to keep a realistic view of the stock market. Regardless of the real problems, common myths about the stock market often arise. Here are five of those myths.

1. Investing in Stocks Is Just Like Gambling

This reasoning causes many people to shy away from the stock market. To understand why investing in stocks is inherently different from gambling, we need to review what it means to buy stocks. A share of common stock is ownership in a company. It entitles the holder to a claim on assets as well as a fraction of the profits that the company generates. Too often, investors think of shares as simply a trading vehicle, and they forget that stock represents the ownership of a company.

In the stock market, investors are constantly trying to assess the profit that will be left over for shareholders. This is why stock prices fluctuate. The outlook for business conditions is always changing, and so are the future earnings of a company.

Assessing the value of a company isn't an easy practice. There are so many variables involved that the short-term price movements appear to be random; however, over the long term, a company is supposed to worth the present value of the profits it will make. In the short term, a company can survive without profits because of the expectations of future earnings, but no company can fool investors forever - eventually a company's stock price can be expected to show the true value of the firm.

Gambling, on the contrary, is a zero-sum game. It merely takes money from a loser and gives it to a winner. No value is ever created. By investing, we increase the overall wealth of an economy. As companies compete, they increase productivity and develop products that can make our lives better. Don't confuse investing and creating wealth with gambling's zero-sum game.

2. The Stock Market Is an Exclusive Club For Brokers and Rich People

Many market advisors claim to be able to call the markets' every turn. The fact is that almost every study done on this topic has proven that these claims are false. Most market prognosticators are notoriously inaccurate; furthermore, the advent of the internet has made the market much more open to the public than ever before. All the data and research tools previously available only to brokerages are now there for individuals to use.

3. Fallen Angels Will Go Back up, Eventually

Whatever the reason for this myth's appeal, nothing is more destructive to amateur investors than thinking that a stock trading near a 52-week low is a good buy. Think of this in terms of the old Wall Street adage, "Those who try to catch a falling knife only get hurt."

Suppose you are looking at two stocks:
X made an all-time high last year around $50 but has since fallen to $10 per share.
Y is a smaller company but has recently gone from $5 to $10 per share.

Which stock would you buy? Believe it or not, all things being equal, a majority of investors choose the stock that has fallen from $50 because they believe that it will eventually make it back up to those levels again. Thinking this way is a cardinal sin in investing! Price is only one part of the investing equation (which is different from trading, which uses technical analysis). The goal is to buy good companies at a reasonable price. Buying companies solely because their market price has fallen will get you nowhere. Make sure you don't confuse this practice with value investing, which is buying high-quality companies that are undervalued by the market.

4. Stocks That Go up Must Come Down

The laws of physics do not apply in the stock market. There's no gravitational force to pull stocks back to even. Over 20 years ago, Berkshire Hathaway's stock price went from $7,455 to $17,250 per share in a little more than five year. Had you thought that this stock was going to return to its lower initial position, you would have missed out on the subsequent rise to $170,000 per share over the years.

We're not trying to tell you that stocks never undergo a correction. The point is that the stock price is a reflection of the company. If you find a great firm run by excellent managers, there is no reason the stock won't keep on going up.

5. A Little Knowledge Is Better Than None

Knowing something is generally better than nothing, but it is crucial in the stock market that individual investors have a clear understanding of what they are doing with their money. Investors who really do their homework are the ones that succeed.

Don't fret, if you don't have the time to fully understand what to do with your money, then having an advisor is not a bad thing. The cost of investing in something that you do not fully understand far outweighs the cost of using an investment advisor.

The Bottom Line
Forgive us for ending with more investing clichés, but there's another old adage worth repeating: "What's obvious is obviously wrong." This means that knowing a little bit will only have you following the crowd like a lemming. Like anything worth anything, successful investing takes hard work and effort. Think of a partially informed investor as a partially informed surgeon; the mistakes could be severely injurious to your financial health.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Americans Remain Mum About Finances

Americans would rather talk about religion and politics than about finances, according to a Wells Fargo survey.

Forty-four percent of the 1.004 adults surveyed said the most challenging topic to discuss with others is personal finances, while smaller percentages cited death (38 percent), politics (35 percent), religion (32 percent), taxes (21 percent) and personal health (20 percent).

Financial concerns plagued many respondents, with 39 percent saying that money is the biggest stress in their life and an equal percent saying they are more stressed about finances now than they were last year.

One-third of Americans report losing sleep worrying about money and 49 percent say they have regrets about their savings and spending habits.

Thirty-five percent of the respondents said determining the right approach to saving and spending is the most difficult part of managing finances and an equal percentage said sticking with a plan is difficult.

“There is a lack of understanding about the importance of designing a plan. Only a third of adults have some type of financial plan or a simple household budget in place, which means most Americans don’t have the roadmap needed to improve their financial health,” said Karen Wimbish, director of retail retirement at Wells Fargo.

Source:  Financial Advisor Magazine

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Investing in Retirement

You have retired and now have a lot of time on your hands.  With that nest egg you have accumulated there is always the urge to try to make it "better."  But don't makes these mistakes.

Mistake #1: You will try to time the market

The past 20 years of market ups and downs has taught us one very clear lesson: Sometimes investments go down. But it has led some of us to a truly dangerous conclusion — that we should try to predict the next collapse.

The market will decline again. That's as far as anyone can go with certainty. Yet retirement investors who decided at the start of 2013 to go to cash missed a huge climb in stocks. If history is any guide, they'll wait until the market is higher still and then go in big, likely just in time to buy the high.

Retirement investing is not about timing the market. Rather, it's about owning a disciplined portfolio that automatically takes gains when they appear and protects you from the downside in rocky times.

Mistake #2: You will speculate rather than invest

If you've been following the saga of bitcoin, the virtual currency, it has been a really interesting lesson in speculator hysteria. The cryptocurrency supposedly offers its holders shelter from the vicissitudes of printed fiat money, yet so far it's mostly been a roller coaster.

Dormant for many months, the price of the electronic money took off in November, going from below $200 to above $1,100 in short order. By the beginning of this year it had fallen in half, rebounded and now trades in the vicinity of $600.

Know what else demonstrates this kind of volatility? Technology stocks. Precious metals. Investors love the idea of a "silver bullet" investment that will solve all their financial problems. So they tend to glom onto a great short-term story and drive prices up. Sooner or later, reversion to the mean sets in.

You'd be much better served by owning the whole market in an index fund than in trying to figure out which stock or asset class will outperform. Even if you get it right today, there's no reason to believe you will stay right long enough to realize the gains. Yet you've amped up your risk tremendously in the meantime by doing so.

Mistake #3: You will trade

Oh, you will trade. You will watch cable TV shows on investing and subscribe to newsletters and talk with your friends about the ins and outs of IPOs in the news. You will know more about Mark Zuckerberg's latest plans for Facebook than you likely know about what's happening this weekend in your own hometown.

It's a fine hobby, but it isn't a retirement plan. Put some money in a side account and trade away, but keep your IRA and workplace 401(k) money far, far away from any kind of active trading.

Long experience in the markets and mountains of academic research have shown that investment success is greatly restricted by the costs of trading. One new study found that investors pay 1.44% a year on average just in trading costs .

The more a mutual fund trades, the worse its performance, the study concluded. The highest fifth of funds measured by trading activity trailed the least-trading fifth by 1.78 percentage points annually. That's a serious drag, and it doesn't even take into account the fees active funds charge for doing all this trading on your behalf.

Source:  Mitch Tuchman, Market Watch

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Market Outlook for Mid-February

By Russ Koesterich, Chief Investment Strategist for BlackRock and iShares Chief Global Strategist

Volatility Is Back - After a relatively tame 2013, market volatility returned in January and early February amid emerging market (EM) turmoil and disappointing U.S. economic reports. Though we foresee modestly higher U.S. and global growth in 2014, the combination of further soft economic data, Federal Reserve (Fed) tapering, and turbulence in emerging markets means more volatility in the weeks ahead.

Rates Likely to Modestly Rebound - Yields have plunged recently amid market volatility, but we still expect the 10-year Treasury to rise in 2014 to around 3.25% to 3.5% by year’s end. Although the Fed has begun its long-awaited taper, it’s likely to keep interest rates low until inflation is close to its long-term goal of 2%. With labor market conditions remaining soft and inflation well below the Fed’s target, we expect short-term interest rates to remain low for an extended period of time.

Stocks Still Look Attractive - We continue to advocate overweighting stocks. While we expect a rockier ride and more muted gains in 2014, we believe stocks can still offer better value than bonds. In fact, the recent drop in interest rates has made bonds look even more expensive in comparison to equities.

Especially International Ones - While U.S. equity market gains will likely be more modest this year than in 2013, international stocks have more room for multiple expansion, and we continue to advocate exposure to select developed and emerging markets. Within fixed income, there still are few bargains, although high yield looks interesting on a relative basis. Finally, we see low inflation, higher real rates and a recovering global economy further dampening demand for gold.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Dividends from Emerging Markets

By Genia Turanova, Editor, Leeb Group

Investors should consider diversifying with emerging market ETFs, suggests Genia Turnanova, although the advisor cautions that investors should stay mindful of risks, as these markets are typically volatile. Here, the editor of Leeb Income Performance highlights an exchange-traded fund.  She writes:

I believe SPDR S&P Emerging Markets Dividend ETF (EDIV) remains a good way to invest in the potential recovery in emerging markets.

Brazil is its number one country, with 22% of the ETF's total assets invested there. Other countries represented: China (13%), Taiwan (13%), South Africa (10%), Poland (10%), Turkey (8%), Thailand (5% on total assets), and more.

To ensure diverse exposure, no single country or sector has more than a 25% weight and no single stock has more than a 3% weight in the index. Top sectors are financials, with about 24% of the fund's assets, utilities with 19%, materials with 17%, and telecoms at 12%.

Stocks in the index trade at a forward Price to Earnings of 10, and a yield of 6.8% that collectively present an attractive relative valuation case.

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SPDR S&P Emerging Markets Dividend ETF (EDIV) is a component of the D2 Capital Management Multi-Asset Income Portfolio. 

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

This "Dividend Dogs" Approach

By Scott Chan, Leeb's Market Forecast

Years ago, before the financial crisis and quantitative sparked a wholesale re-writing of the ground rules, investors viewed dividend yields as afterthoughts, something that was nice to have but not a critical component. This did not always make sense - study after study has shown that over very long time periods, dividends account for the lion’s share of portfolio performance—but in prior eras boasting bond yields three or four times higher than today’s payouts, investors were more interested in stocks for capital appreciation.

Accordingly, dividends did not have the same cachet as they do in today’s Zero Interest Rate Policy world, and companies were less likely to alter their dividend policies from year to year. In fact, a theory sprang up in the early 1990s that essentially encouraged investors to buy the ten highest-yielding stocks in the Dow Jones Industrial Average on the last trading day of each calendar year. Under this theory, these “dogs” of the Dow were oversold.

The logic is that companies do not generally alter their dividend policies in response to normal fluctuations in the business cycle. An above-average yield, therefore, suggests a company near the end of a downturn. In turn, market forces should act to bring its dividend yield back into line with its peers. All else being equal (especially the dividend), this means a rise in price. Although beset with a lot of holes, the so-called “Dogs of the Dow” theory holds water; it has outperformed the S&P 500 over 1, 3, 5, 10 and 20-year time periods, and due to a furious pace of dividend increases in 2013, even trumped the broader market by a few percentage points last year.

Unsurprisingly, there is an ETF that replicates and expands on this theory. The ALPS Sector Dividend Dogs ETF (SDOG) takes the five highest yielding stocks in each of the ten S&P 500 sectors and simply weights them equally across its $469 million portfolio. Accordingly, no stock makes up more than 2.4 percent of the total, and positions are rebalanced quarterly. Sector diversification is provided as well, with roughly ten percent of assets allocated fairly equally across each of the ten sectors. Industrials, at 10.9 percent, have the largest share, while Energy makes up 9.3 percent. The largest positions at the end of 2013 were Pitney Bowes, Safeway, Seagate Technology and Bristol-Myers Squibb. 22 percent of assets are concentrated in the fund’s top ten positions.

Note that this is a blue-chip ETF with mostly blue-chip stocks. Nearly 60 percent of fund qualifies as either giant- or large-cap, with the remainder in medium-cap and no exposure to small-caps. Meanwhile, the ETF’s indicated annual yield comes in at 3.58 percent, in line with the other large-cap dividend value ETFs on our list.

The collapse of interest rates has driven yield-hungry investors to chase yield wherever they can find it. This approach, however, can lead to overconcentration. By expanding the Dogs of the Dow strategy to each S&P sector, SDOG delivers both above-average yield and broad portfolio diversification. Built on one of the simplest and most successful stock market strategies around, we suggest income-oriented investors buy SDOG.

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ALPS Sector Dividend Dogs ETF (SDOG) is a component of the D2 Capital Management Multi-Asset Income Portfolio. 

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Beware of cashing out

By:  Fidelity Viewpoints

All too often, people make a critical mistake when it comes to managing their 401(k) savings: They cash out prematurely. Recent data compiled by Fidelity notes that one in three 401(k) participants has cashed out of his or her plan, often when changing jobs.

For many, cashing out a 401(k) is a relatively easy way to solve a short-term cash crunch, whether it’s due to temporary cash-flow problems created by the loss of a job, or simply paying down a credit card or covering an emergency home repair. But while liquidating your 401(k) may not seem like a big deal, especially if you have a small balance over a long period of time, the consequences of cashing out can be devastating to the average investor.

“Once you withdraw those savings, they’re gone—and they can’t be replaced,” says John Boroff, Fidelity’s director of retirement product management. “While it can be pretty tempting to cash out your 401(k) and use the money to pay off a car or your credit card bill, you may want to think twice before doing so, and weigh the impact of that decision.” The power of tax-advantaged accounts such as a 401(k) is that they allow for pre-tax contributions to compound without taxes eroding that growth. Over time, earnings can generate earnings of their own, helping you accumulate more money than you would in an ordinary taxable account.

Younger investors who cash out miss out on that opportunity, setting their retirement savings back considerably. The average balance that people in their 20s, 30s, and 40s are cashing out is $14,300, according to a recent Fidelity study on 401(k) participants.

Older investors who choose to cash out may be taking away a key part of their retirement income picture. The older a participant is when withdrawing assets, the less likely it may be to generate a sustainable income in a retirement that could last 25 years or more.

The consequences of cashing out are the same whether you do it because you’re switching jobs or because you’ve run into temporary financial trouble and need cash immediately. If you run into financial trouble, you can apply for a hardship withdrawal from your 401(k), but the rules on qualifying can be tricky. If your sponsor offers a hardship withdrawal feature and you are granted one, you will owe ordinary income taxes and unless you qualify for an exception an additional 10% penalty. Taking out a 401(k) loan avoids the taxes and penalties. But you'll have to pay yourself back, with interest. And since your investments will be liquidated to make the loan, if the market shoots up you'll miss those gains. Plus, if you lose your job some employers may require that you pay back the loan(s), especially if you are closing the 401(k) account.

There also is an immediate cost to cashing out. For one, it can generate a large tax bill. Your plan administrator typically automatically withholds 20% of your balance and sends it directly to the IRS to cover the taxes you may need to pay on that withdrawal. “That means you just gave the IRS a huge chunk of the money you’ve been saving for years,” says Elizabeth Titmas, Fidelity’s rollover product director. “That’s money you’re no longer saving for retirement.”

In addition to federal and state income tax, investors younger than 59½ who cash out may have to pay a 10% early withdrawal penalty. The potential result: Cashing out $50,000 in 401(k) savings may leave just $35,000 in cash after 20% withholding and a 10% early withdrawal penalty.

Alternatives to cashing out

Fortunately, there are easy alternatives to liquidating your 401(k) that keep your savings intact— and, potentially, growing. If you’ve left a job and are considering what to do with your 401(k), here are the options:

A traditional IRA rollover. In both 401(k) accounts and traditional IRAs, contributions and earnings can grow tax free until you begin making withdrawals, when you’ll pay income tax on those distributions.

The rollover process is relatively easy—but every plan has different rules and the process can vary. Be sure to sure to request a direct rollover, whereby a check is made payable directly to your IRA provider. “The benefit of a direct rollover is that you won’t face taxes or penalties,” says Titmas.

You also can choose to do an indirect rollover, in which a check is made payable to you. However, in this case it’s up to you to make sure the money finds its way to a tax-advantaged account such as a traditional or Roth IRA. When you cash out your plan in an indirect rollover, your 401(k) administrator may withhold 20% of your account balance. You may need to come up with that 20% out of your own pocket to put the full amount of your 401(k) balance into your IRA. Otherwise, the IRS may categorize the difference between your plan balance and your rollover contribution as a withdrawal—even though they actually have possession of that money in the form of withholding.

This process can be complicated, and any missteps may trigger penalties and taxes. For example, if you don’t deposit the money into a tax-advantaged account within 60 days, it may be taxed as a withdrawal. “With an indirect rollover, it’s up to you to prove at tax time that you did everything right,” says Titmas. “With a direct rollover, you don’t have to deal with that.”

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.