My virtual library is a collection of online articles and other resources that I’ve assembled over the years. I originally created this library as a means to conveniently store all of the online materials I’ve read about retirement accounts (e.g., 401(k) and IRAs), investing, asset allocation, money management and the like. The materials include articles covering very practical aspects of personal finance and investing to more academic pieces. I thought this information would be helpful to you as well, so I decided to make it available here. I’ve grouped the resources by category, and provided a brief summary of each document. I have many more resources to add to this list, so I’ll be updating it regularly. If you know of great resources that are not included here, please let me know via my contact form.
The Volatility of Correlation: Important Implications for the Asset Allocation Decision
by Williams J. Coaker II, CFP, CFA, CIMA (2006)
This article looks at whether the correlation between the S&P 500 and 15 asset classes is consistent or inconsistent. The findings showed most relationships to the index were inconsistent over time. Interestingly, the author concluded that large cap value provided more diversity than large cap growth, and that small cap value provided more diversity than small cap blend or growth.
Emphasizing Low-Correlated Assets: The Volatility of Correlation
by William J. Coaker II, CFP, CFA, CIMA (link takes you to The Journal of Financial Planning where you can download a pdf version of the article)
Correlation among asset classes change over time. This article looks at the volatility of the correlation of asset classes. The article is extremely well written and includes informative charts showing the historical correlation among the major asset classes. Note, this is a continuation of the article listed above.
Buy The Numbers: Asset Class Correlations
by Richard A. Ferri, CFA (Fall 2006) (pdf download)
This is an ongoing supplement to Mr. Ferri’s excellent book All About Asset Allocation. One observation from this paper that really hit home was the following:
It should be noted that low correlation does not always increase return and lower risk. In several cases there is no beneft from adding a low correlation asset class to a portfolio because that asset class does not have the prospect of higher returns. Commodities are one example shown in this report.
New Concepts in Index Categorization
by Richard A. Ferri, CFA (Nov. 2007) (pdf download).
Ferri introduces a new way to classify an index. Rather than using the traditional style box, he proposes the Index Strategy Box. Here’s is brief description:
Index providers must follow self-created rules for construction and maintenance. Index Strategy Boxes(TM) differentiates those rules. The process focuses on two primary axes that set apart most indexes; security selection and security weighting. Each axis is divided into three primary categories creating nine boxes. Every index falls into one of those boxes. The system can be applied to all asset classes including stocks, bonds, and commodities.
The paper includes excerpts from his excellent book, The ETF Book: All You Need to Know About Exchange-Traded Funds.
Calculating After-Tax Asset Allocation is Key to Determining Risk, Returns, and Asset Location
by William Reichenstein, Ph.D., CFA (2007) (pdf download)
Reichenstein writes a lot about after-tax asset allocation. This article provides a thorough explanation of his approach and the math to support it. Briefly, Reichenstein believes that an investor should take into account how much of a portfolio will eventually be paid in taxes in establishing an asset allocation plan. For example, $100,000 in a Roth retirement account is worth the full $100,000 to an investor. In a 401(k), $100,000 is worth a lot less because taxes must be paid when the money is withdrawn. Here’s a chart from his paper that depicts his approach:
This guide is a thorough yet very approachable summary of mutual funds and establishing an investment plan.
Mutual Fund Prospectus, Tips for Reading One
U.S. Securities and Exchange Commission (2007)
The SEC put out this nice little piece on reading a mutual fund prospectus. My guess is that most investors never read the prospectus. I always do, and this guide will help you wade through what can otherwise be a difficult document to read.
401(k), IRA and Retirement Account Resources
Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
IRS Publication 560 (2006) (pdf download)(online html version)
This is a 27 page very thorough description of SEP, SIMPLE and Qualified Plans. Although it is for 2006 returns, it includes information relevant for 2007.
The IRS each year issues a very helpful and thorough publication about Individual Retirement Accounts or IRAs. Called Publication 590, the document covers traditional IRAs, Roth IRAs, SIMPLE IRAs and other related issues. You can also check out my summary of what’s new in 2008 for IRAs.
Retirement Plans FAQs regarding Designated Roth Accounts
Internal Revenue Service
This guide answers questions about the Designated Roth Accounts (i.e., Roth 401(k)). It’s a great resource that is very easy to follow.
401(k) Resource Guide–Plan Participants–General Distribution Rules
Internal Revenue Service
This is a great resource describing the rules relating to distribution of 401(k) balances.
401(k) Resource Guide–Plan Participants–Limitation on Elective Deferrals
Internal Revenue Service
This document describes the contribution limits for 401(k) retirement accounts.
Retirement Plans FAQs regarding IRAs
Internal Revenue Service
This provides some good information about the rules relating to IRAs.
Baking a Withdrawal Plan ‘Layer Cake’ for Your Retirement Clients
by William P. Bengen, CFP
Bengen is the father of the 4% withdrawal rate rule of thumb for retirement savings. In a nutshell, a conservative investor’s retirement savings will likely last at least 30 years if the withdrawal rate is limited to 4% each year, adjusted for inflation. Stated differently, multiply the yearly pre-tax income you will need from your retirement accounts by 25, and the result is the amount you’ll need in retirement savings. If you are willing to invest more aggressively, Bengen suggests the withdrawal rate can go as high as 7.6%.
Bengen, however, advises his own clients to withdraw no more than 4% as the best conservative approach. He wrote an earlier article on his approach that is worth reading, too: Determining Withdrawal Rates Using Historical Data, which was originally published in 1994.
Calculating a family’s asset mix
by William Reichenstein (1998) (pdf download)
This article recommends that asset allocation be based on after-tax values. In other words, you should adjust account balances for what you will eventually pay in taxes, and then determine your asset allocation. It also recommends including assets in the mix such as social security benefits, pensions and even your mortgage. This is a very interesting read.
Personal Financial Ratios: An elegant Road Map to Financial Health and Retirement
by Charles J. Farrell, J.D., LL.M. (2006)
This article looks at what your savings to income, debt to income, and savings rate to income should be at various ages if you are on track to retire at age 65 with savings equal to 12 times your income. The numbers can be a bit shocking, so you may want to sit down before reading this one.
Financial and Investing Journals
Journal of Financial Planning–JFP “is the official publication of the Financial Planning Association. Its goal is to foster intelligent and informed dialogue, and enhance the knowledge and understanding of the ever changing technical and practice management aspects facing the growing community of financial planning practitioners. From asset management to the needs of the elderly, all of the complex and diverse aspects of the financial planning process are explored.”
Journal of Wealth Management–JWM is “is dedicated to helping you preserve and grow the assets of high-net-worth investors and family offices. It addresses the investment concerns of affluent families and shows you how to profit from new investment vehicles like hedge funds and alternatives.”
Journal of Portfolio Management–JPM is a “source for thought-provoking analysis and practical techniques in institutional investing. It gives you cutting-edge research on asset allocation, performance measurement, market trends, risk management, and portfolio optimization. Contributors of The Journal of Portfolio Management are the industry’s foremost academics and practitioners, including many Nobel laureates.”
Financial Services Review–FSR is “the official publication of the Academy of Financial Services. The purpose of this refereed academic journal is to encourage research that examines the impact of financial issues on individuals. In contrast to the many corporate or institutional journals that are available in finance, the focus of this journal is on individual financial management.”
The Alternative Minimum Tax–Not Just for the Wealth
Yahoo! Finance How-to Guides
This is a short introduction to AMT. It’s an easy read and provides some good information on what is becoming relevant (unfortunately) for more and more taxpayers.
Also known as Publication 17, this is a 289 page beast of a document. But if you want comprehensive information on individual tax returns, it’s a great resource. And the internal navigation of the document is much improved.