An Earnest Conversation - Dealing with posts by commissioned sales professionals that you may disagree with

Money Maverick wrote a really sweet post which showed his human side.

I would like to invite everyone to read it here.

While you don't have to agree with Money Maverick (I certainly don't), you will probably accept that he should be treated like a fellow human being and did not deserve this level of abuse online.

Not everyone in the community likes the style used by Money Maverick, some folks say that he's too slick and basically would share details on the securities he pitches only to his clients. As a trainer who does uses my blog to promote my personal brand, I can understand that Money Maverick has to keep doing what he does because one successful case conversion can net him a reasonable amount of commissions and allow him to attain his life's aspirations.

So today, I just want to showcase a better way to deal with such articles.

A lot of unhappiness was directed at his claim that he has a fund that can provide passive income of over 7.8% but at a volatility below REITs.

a) Instead of attacking him for being secretive, why not try to make an intelligent guess as to what it is ?

If I may guess what he's referring to, it may be some kind of fund that specialises in junk bonds. As 7.8% yield is rather high, it may be focused on specific region like Asia. The low volatility probably comes from the fact that these bonds are thinly traded anyway and you might be taking on a larger share of credit risk. There is also forex risk as high yielding bonds come from countries experiencing high inflation. So while traditional measures of volatility would be rather low, you might not like it when one of these junk bonds default.

But why not challenge yourself to take a higher road ?

b) Another approach is to see if you can beat his fund at his own game using DIY components. 

We can find REITs that yield over 7.5% from the REITDATA.COM, simply picking out these REITs will give us about 10+ counters. I did an average of these yields and I got 8.61% which is already higher than 7.8%.

[ In November 2018, I backtested a dividends strategy with REITs and it returned about 19.8% a year with a semivariance of only 11.17%.  Volatility of REITs is already pretty low. ]

The next question is how do we get volatility that is below that of REITs ?

Simple. Just add retail bonds.

If we can add Astrea IV Bonds into the mix at a proportion of about 18%, you will end up with a portfolio that gives out about 7.8% dividend yields but have, generally speaking, lower volatility than REITs.

( A craftier investor can add a commodity ETF because of the lower correlations )

So if I have $100,000, the appropriate response is to structure a portfolio of equal weighted REITs that yield at least 7.5%. In such a case, $82,000 should be invested in this portfolio. $18,000 should be used to buy Astrea IV bonds.

So with a simple exercise, I can confidently build a portfolio that has a decent probability of beating Money Maverick's proposed fund.

If you are willing to go DIY, you have a huge edge over solutions offered by sales professionals - You pay lower commissions, management expenses and there might even be tax advantages as we're talking about S-REITS here.

Let's try to make the financial blogosphere a nicer place for folks like Money Maverick. There is no need to condemn him for his choice of profession.

When he proposes an investment idea, challenge yourself to guess what it is.

Then take the high road and engineer a DIY solution to the best of your ability.

This why I always take the position that blogs like Money Maverick can potentially teach us a lot about investing.