WHEN I WAS a columnist at The Wall Street Journal, I repeatedly heard two complaints from editors, especially those with little understanding of personal finance: “Our readers want something more sophisticated” and “Where’s the news hook?”
That, in a nutshell, explains why the media can be so bad for our financial health. When print and broadcast journalists cave in to the twin imperatives of timeliness and sophistication, they’re almost guaranteed to lead their audience astray—for three reasons:
WE CAN’T CONTROL the financial markets. But we can pretty much guarantee we’ll pocket whatever the stock and bond markets deliver—by buying index funds. So why do I hear so much grousing from indexers?
At issue isn’t a failure of index funds, but rather a failure of investors’ expectations. Over the past few months, I’ve heard from countless hardcore indexers who have done the sensible thing and built globally diversified portfolios. Often, they own some variation of the classic three-fund portfolio: a total U.S.
IF YOU’RE A FAN of basketball, you may be familiar with the Lopez twins—Brook and Robin. On the surface, they are identical in every way. Both stand seven feet tall. Both went to Stanford University. Both entered the NBA draft in 2008 and both were picked in the first round. Since then, both have enjoyed successful careers.
A casual observer would be hard-pressed to see any difference between the Lopez twins, but there is one: While they are both impressive players,
WE HAVE FINALLY hit rock-bottom. Last week, Fidelity Investments announced that it was introducing two index funds with zero annual expenses, while also slashing expenses on its other index funds and dropping the required minimum investment on all funds, both actively managed and indexed. All of this raises five key questions.
1. Why is Fidelity doing this? I view Fidelity’s move as both bold and borne of desperation. When I started writing about mutual funds in the late 1980s,
A QUESTION FOR YOU—a trick one, I admit: Should you invest in technology stocks, such as Apple?
My answer: Yes, certainly.
Another question, also a trick one: Should you invest in the stocks of entertainment companies like Netflix?
My answer: Again, yes, of course.
A third question: Should you invest in energy companies, such as ExxonMobil?
My answer: Again, yes.
You might wonder why I’m asking these questions and why I’m answering “yes” to all of them.
FORGET XBOX and PlayStation. If you’re an investment nerd, nothing beats playing with a financial calculator, especially running scenarios that combine dollars, investment returns and great gobs of time. Here are six mathematical musings—not all of them happy:
Got a newborn daughter or granddaughter? If you invest $1,000 on her behalf and the money notches 6% a year, she’ll have almost $106,000 at age 80. That 6% is my assumption for long-run annual stock returns.
IS IT TIME TO STOP messing around with our portfolios—and go for radical simplicity? I’ve been asking myself that question in recent months, as I eye the growing list of funds that offer broadly diversified “one-stop shopping” portfolios built solely with low-cost index funds.
Take Vanguard Target Retirement 2050 Fund, which invests its assets in four Vanguard index funds and is geared toward those retiring in 2050 or thereabouts. The 2050 fund has a $1,000 investment minimum and charges just 0.15% a year,
SOCRATIC DIALOGUE, anyone? Today, we’re tackling three questions. Almost all HumbleDollar readers will, I suspect, readily answer ”yes” to the first two questions—and balk at the third.
1. Are markets efficient? We can debate just how efficient the market is. But most readers, I suspect, will agree that the financial markets are sufficiently efficient that there’s no easy way to score market-beating gains—especially once we factor in the investment costs involved.
MY FRIEND ROSTISLAV, who would know, tells me that in Russian there’s no equivalent for the word “privacy.” That’s because privacy—as we understand it—is a foreign concept. Children’s grades are posted publicly in schools and it isn’t considered impolite to ask someone’s salary.
Why is this relevant? As a stock market investor, if you have international exposure, you’ll want to be aware of these cultural differences, because they impact how other countries run their economies and how they regulate—or don’t regulate—their investment markets.
SOME PEOPLE SAY I eat like a dog. I eat the same food everyday. For breakfast, I have egg whites with mushrooms on a whole wheat tortilla, and oatmeal with fruit and almonds. For lunch, I have a salad of tomatoes, cucumbers, carrots, avocado and baby spring mixed lettuce, and usually a nonfat bean and rice burrito. For dinner, I have vegetables like broccoli, cauliflower, spinach and squash with fish or poultry. When I feel adventurous,
ANNUITIES ARE OFTEN dismissed as costly, complicated contraptions that are more lucrative for Wall Street than investors. And I’m half-inclined to stick with that blanket condemnation, rather than muddy the waters by offering a more nuanced view. I hate the idea that somebody might read this article and then buy the wrong type of annuity—and end up making a horribly expensive mistake.
Still, I believe there are four types of annuity that can make sense for investors.
PERHAPS YOU’VE heard the story of Ronald Read. A lifelong resident of Brattleboro, Vermont, Read was a quiet man. He preferred flannel shirts and spent much of his career as an attendant at a local gas station. Yet, when he died in 2014, even his closest friends were surprised to learn that Read had accumulated a fortune of more than $8 million.
Stories like this appear with some regularity. In 2010, Grace Groner, who was an administrative assistant in Lake Forest,
WHEN I WAS A CHILD, I remember my parents putting great store by antique furniture, silver cutlery, bone china, cut glass and fine rugs. My maternal grandparents had rare books and old prints. My paternal grandfather had built an extensive stamp collection.
When Clem—as we all called him—died in 1988, he left me his stamp collection. I rarely look at it these days, but I’ve been dutifully carting it around for 30 years, through six changes of residence.
THE FEDERAL government recently issued its monthly inflation report. The resulting headlines could have put you to sleep: “Consumer Price Index Rises 0.2% in April.” It would have been easy to skip over this seemingly insignificant story for two reasons: First, the way the government reports inflation data, focusing on the monthly increase, isn’t terribly meaningful. Second, even if you looked at the annual rate, which is 2.5%, inflation just doesn’t seem like much of a concern.
WHEN ASKED WHY he robbed banks, Willie Sutton replied, “because that’s where the money is.”
Similarly, private investment funds—such as hedge funds and private equity funds—are attractive to high net worth investors, because they carry the potential for outsized returns. That, supposedly, is where the big money is. Several factors explain this potential. Among them: These funds not only use leverage to increase the size of their investment bets, but also they may buy investments that aren’t publicly traded—and hence they could receive higher returns because these investments are mispriced or as an inducement to accept their illiquidity.