INVESTING CAN AND should be simple—and yet sometimes I make it so hard. Blame it on my ego and a faulty belief in my ability to pick winners among exchange-traded funds (ETFs) and, once in a while, individual stocks.
Problem is, I’ve had a few things go my way this year. Now that know-it-all feeling is rearing its ugly head again—“hey, I can pick stocks and sectors”—even though it’s hurt me badly in the past.
A NEW RESEARCH report confirms that there are darn few reasons to consider an actively managed fund over an index fund—and, indeed, this year’s bear market has made the case for active funds even weaker.
Remember active fund managers, those stars of TV and magazines in days of yore? Purportedly, they could beat their relevant indexes by buying the best-performing stocks and bonds, shifting sector and country weights, and sidestepping market pitfalls. That notion seems almost quaint today—because it’s been proved so thoroughly and repeatedly wrong.
BEING MECHANICAL and unemotional is a poor way to live life. But when investing, it just might make you richer.
Through this year’s stock market turbulence, I’ve been even keeled. My reaction to the plunging bond market has been more agitated, as I wrote about here and here. The fact is, while I’m convinced the stock market will rebound, I don’t have the same belief in bonds.
Armed with my faith in stocks, I’ve adopted a mechanical approach to investing,
SOMEBODY OUT THERE is buying and holding longer-term bonds—but you probably shouldn’t. Yes, they’ll notch big gains if interest rates fall, but perhaps suffer even bigger losses if the upward trend in rates continues.
To be sure, investors in almost all bonds have been hit this year, with the iShares Core U.S. Aggregate Bond ETF (symbol: AGG) down 9.6% in 2022 through May 13. Shorter-term funds have fared better but are also in the red,
BOXER MIKE TYSON observed, shortly before he bit Evander Holyfield’s ear, that, “Everyone has a plan until they get punched in the mouth.”
Well, the bond market has me black and blue and gnashing my teeth. Have Treasury bonds lost their diversifying power in these inflationary times? For decades, they’d mostly held their ground or gained during stock market routs. Not this year.
My longstanding plan has been to invest in conventional short- and intermediate-term Treasury funds to cushion volatility and as a source of money to add to my stock funds when the market tanks.
MUCH HAS BEEN written about the virtues and pitfalls of index funds that weight stocks based on their market value. In theory, every company’s stock market value reflects the collective wisdom of market participants. Apple the biggest stock in the world? Must be for good reasons, the thinking goes, so it should get a big index-fund weighting.
Well, the market cap of Russia in the Vanguard FTSE Emerging Markets ETF (symbol: VWO) as of Oct.
THERE’S A SCENE in Three Days of the Condor, that very ’70s, America-in-decline movie, where the CIA is the bad guy and Robert Redford’s character is in danger of imminent extinction.
Max von Sydow’s character Joubert—the Alsatian assassin—warns him that he has “not much future.” Then he calmly describes how the CIA will come for him.
“It will happen this way,” Joubert says. “You may be walking. Maybe the first sunny day of the spring.
WE OFTEN WRITE at HumbleDollar that saving and investing aren’t everything. Spending money on the right things—such as fulfilling experiences—can also be a great investment, especially if the dollars bring ample happiness.
Nearly seven years ago, I thought I’d wasted $4,000 on a foreign trip. But the law of unintended consequences has since worked in my favor.
The 2015 trip was supposed to be an investment in my career. I thought I could make a difference in the world and become a freelance foreign correspondent.
THOSE OF US WHO aspire to be shrewd investors try to buy when opportunities present themselves, while avoiding “crowded” trades.
I broke that last rule when I recently bought a second car. Yes, prices are skyrocketing as a result of supply-chain bottlenecks and strong consumer demand. But I had a good reason: My son’s entering the fulltime workforce—and he’s taking over use of my current car.
It was the worst time to put myself at the mercy of car dealers.
MY LAST BLOG POST—about value-oriented Dodge & Cox Stock Fund—got me looking at the long-term returns for some highly touted large- and mid-cap growth and blend funds from 15 years ago. My surprise: Of the 15 funds in my admittedly unscientific sample, six went on to outpace both the S&P 500 and an index fund focused on the same market segment.
The six winners are boldfaced in the accompanying table. Note: For two of the winners,
AFTER A 13-YEAR drought, value stocks surged over the past year, and arguably no fund rode the wave better than the venerable Dodge & Cox Stock Fund (symbol: DODGX), which was launched in 1965. Long one of the largest and most respected mutual funds, it’s run by a nine-member investment committee, though the fund is perhaps most associated with Charles Pohl, who has been a manager for 30 years and is set to retire in 2022.
INVESTORS SHOULD diligently track two things: their portfolio’s performance and their asset allocation.
To monitor overall performance is humbling. If you’re like me, you eventually realize how much your cockamamie market-beating schemes have lagged the market—and it dawns on you that you could do much better by simply mimicking the market with index funds and occasionally rebalancing.
What percentage of your portfolio should be in U.S. shares, foreign stocks, cash, bonds and other assets?
BEHAVIORAL ECONOMISTS long ago discovered that the pain we feel from a $1,000 loss is about twice as great as the joy we feel from a $1,000 gain. Daniel Kahneman and Amos Tversky documented the phenomenon and coined the term “loss aversion” in 1979. That was just a few years before I began investing.
Since then, I’ve made a discovery about my own psychology: I’d rather underperform in out-of-favor stocks than risk losses in glamorous ones—because my gut tells me that the more something is celebrated,
BECAUSE WE’RE HUMAN, we always find something to complain about. But I’ve come to believe there’s never been a better time to be a regular, everyday investor.
No, I’m not suggesting stocks are some great once-in-a-lifetime bargain. Rather, I mean the choices available to investors have never been greater, thanks in part to the growth of exchange-traded funds and the disappearance of brokerage commissions. On top of that, the costs of fund investing have never been lower.
CAN YOU EVER HAVE enough? Yes, I’m talking about money.
But I’m not some gazillionaire burning up billions on a rocket to space. I’m talking about emergency savings for ordinary people. A cash stash. Rainy-day funds. Mattress money.
I thought I had enough a few months ago, but then life happened. Dental work. A blown clutch. More support for my son, who has a great job offer but won’t start work until later this year.