Investing Blogger - Money, Finance & Investing

1%

2010-02-18T15:32:00.002-06:00

1-2% may not sound like much but over time, its a huge cost which lowers your investment returns. Its ok to pay for advice but you must know what that advice is really costing you.

See the chart off to the right from the SEC.gov. This shows what the difference is between paying 1.5% and 0.5%. After 30 years (and we should all be long term investors) at average return of 8% with an initial investment of only $10,000. The difference is $22,634 in your pocket!

Many investors utilize a stockbroker or financial advisor for advice and of course, thats not free, usually the fees range from 1-3%. So now consider that for every $10,000 you hand over to a stockbroker or financial advisor, after 30 years, you will have given them well over $20,000.

Its a lot of money, a huge cost which lowers your investment returns in a big way so you better be sure you are getting something in return, some great advice, some hand-holding during the tough times, etc. but just don't expect higher returns.
Fact is that over 90% of professional money managers cannot beat the S&P 500 with any consistency.

So just keep it in the back of your mind that while paying for advice may seem like a good idea, and sometimes it is, just remember that 1-2% is a lot of money over time and only you can decide if the advice you are getting is worth it.

If Its Too Good To Be True ...

2010-01-22T08:05:00.002-06:00

People will ask me about investing in pink sheet stocks (.pk) or over the counter bulletin board stocks (.bb) from time to time and my answer is always the same, I have yet to see anyone make any money buying them. So run, dont walk away from anyone who is offering to sell you anything like that.

I have been around stocks for almost three decades and the story is always the same, its a small company with a great product that just needs funding. Maybe something to do with China or India. Biotech and a cancer cure always generates some buzz. Homeland security is new. JUNK. I know the stories sound good but so does Dr. Seuss.

If the company actually had a real product, they would go the private equity route to fund their needs but those guys are far too smart for that junk. So the peddlers of pink sheet and otcbb companies have only the regular investing public to prey on. Stay away.

Your 401k

2010-01-04T09:46:00.003-06:00

With stocks up more than 60 percent since hitting bottom last March 2009, the red ink is finally fading on the typical 401k account and younger investors are mostly solidly back in the black.

As long as you didn't panic and sell, you are probably pretty happy getting back to pre-crash levels.
Now is the time to re-evaluate both how much you are contributing and what investments are inside.

The GAO (US govt accounting office) says that a long term 401k investor paying fees of 0.5% will have 20% more than another investor paying fees of 1.5%. Unfortunately, you may not have a choice.

What you can do is pick the lowest cost funds inside to lower your costs. These are typically index funds and non-managed funds which as you know from reading this blog or my book will match or beat almost every managed fund anyway.
Visit us at http://www.moneyfinanceandinvesting.com/ for more great stuff.

Emerging Markets

2009-12-14T10:31:00.002-06:00

I am asked on occasion about investing in emerging markets. While it is tempting to invest in markets such as China, India, Brazil, Korea etc, it is also quite risky. Besides the obvious risk inherent to investing in companies in countries outside the US that have much less stringent reporting requirements, there is also a currency risk.

I tell people that when you invest in a broad based US index fund, see VTI, then you are already getting some international and emerging market exposure since the companies within such as Caterpillar, IBM, McDonald's, Exxon & GE are already investing in those countries.
Stay tuned.

Lower fees = money in your pocket

2009-11-19T12:02:00.005-06:00

I have always said that fees are everything. Here is a marketing piece from Vanguard. I am not a shill, nor do I work with or for them but I do like their mutual funds and exchange traded funds (etf's) largely because they are the lowest cost, period.

Its hard to read but this is the comparison of $50,000 invested over twenty years in two funds, both with returns of 8%. The high-cost fund has fees of 1.19% compared with 0.20% for the low-cost fund. You can see the difference is almost $40,000, which is money in your pocket!!!

Now I know you like your stockbroker but you are paying him and his firm a ridiculous amount of money for the exact same product. If you like him so much, buy him a car because thats about what you are paying.

Dollar cost averaging is why 401k's work and buying individual stocks doesn't

2009-11-10T07:45:00.003-06:00

Dollar cost averaging (and time) is exactly why 401k's are so successful. People mindlessly (in a good way) add to a diversified portfolio when its up, and when its down.

Buying more when your individual stock goes down is exactly why people rarely make money outside of 401k's. You know the scenario, you buy XYZ and it goes down, you buy more and more and again and again until your portfolio has ten or fifteen losers in it. You hold until breakeven (if you are lucky) and sell, whew, only to try again, most times with the 'aid' of a stockbroker.

Thats why I tell people to buy no load mutual funds or etf's and treat monies inside and outside of 401k's the same. Its a winning strategy so don't mess with it.

ETF's that mirror the index's

2009-10-30T11:53:00.002-05:00

Fact - over 90% of financial professional money managers cannot beat the indices, the S&P 500 and/or Dow Jones 30.

Fact - neither can you, your stockbroker of financial advisor.

Fact - with a stockbroker, you pay more, sometimes 1%-3% just to get lower returns

See the chart to the right, VTI (blue) and Dow Jones 30 (red). VTI is Vanguards total market return etf which I own personally. It mirrors the indices as you can see which outperform over 90% of the so-called financial professionals who charge fees for that underperformance!
The fees on this particular etf are .07%, thats right, less than 1/10th of 1%.

Stop being the 'stupid money' stockbrokers refer to when you open up your account with them and start being the smart money who beats 90% of all investors and pays less to do it.

1929 and today

2009-10-20T07:55:00.001-05:00

I'll start out by telling you that I am not bearish, just cautious. I noticed this article by ETF newsletter, good stuff on the parallels between 1929 and today.

When was the last time you saw stocks decline 54% followed by a 55% rally?

When was the last time you saw stocks, bonds and commodities move in sync for nearly two years?

When was the last time, a ten year investment in the stock market delivered negative returns?

Investors that care to harken back 80 years will find that the 1929 - 1932 era is the only period of time that compares to today. In fact, the parallels between now and then are bountiful and scary.

If there is one thing we should have learned from history, it's that the bear strikes hardest when least expected. The market always tries to inflict the maximum amount of pain.

Black Monday's or Thursday's wouldn't be called 'black' if they were expected. Market tops are always marked by extreme levels of optimism.

From 2007 to 2009, the major indexes declined some 50%. Following the 1929 highs, the Dow Jones declined 48%. The market rallied 50% in 1929/1930 and today.

Following the initial 48% decline in 1929, the Dow Jones rallied 48% within a period of six months. This rally was powerful and retraced 52% of the Dow points lost in the initial decline. Even though the market was far from its previous highs, investors had once again gotten excited about owning stocks and felt confident that the market would continue to move higher.

Once the bear market resumed, it erased another 86% of the Dow's value.

Did you know that the Great Depression was preceded by a great real estate boom centered in Florida? The Florida real estate bubble burst in 1926, three years before equities. Just as we've seen recently, investors took their leftovers from the real estate bust and poured it into stocks.

The bear market from the 2007 highs has humbled all markets: large cap stocks, mid cap stocks and small cap stocks. Defensive sectors such as consumer staples and aggressive sectors such a consumer discretionary. Global developed markets and emerging markets too. This unique 'red across the board' behavior has not been seen in the 70s, 80s or 2000 bear markets. The only other similar time period to be found is during the Great Depression.

If this sounds impossible, consider that the Dow Jones measured in the only true currency, gold, has already declined over 80%. To reset valuations, the Dow Jones measured in dollars will have to follow. Its already happened in Japan, the Nikkei has lost as much as 80% since its 1990 all-time high.

Can it happen again, possibly, the only way out is would be the growth/industrialization of China and India.

As people who attend my webinars or teleconferences know, I am wary of most people investing much in stocks anyway but this is a period in time where even savvy investors need to be extra cautious and lighten up on equities. As I always say, there is nothing wrong with a nice safe CD at your local bank.

Please don't assume that time in the markets lowers your risk

2009-10-13T10:40:00.001-05:00

I just read a great article from Jason Zweig at the WSJ. Exactly what I have been saying for years. Many investors think that you make the risk of stocks go away just by owning them long enough which is simply not true.

While everyone knows that since 1926, that stocks have returned approximately 10%, that doesn't help someone who had their retirement investing 100% in stocks over the last few years, assuming they didn't get scared out near the lows, they are still down 20-30% and possibly 50% (unless they dollar cost averaged but retirees dont).

The moral of the story is do not buy what the investerati are selling, that is, do not subscribe to the idea that you need to own stocks at all, but if you do, be careful, invest only a portion of those investable assets in stocks. Remember bonds and CD's are just fine, not very sexy, but have to be a part of your portfolio, a big part of your portfolio.

You can buy individual bonds, a low cost bond fund or ETF, even CD's through your discount brokerage firm and save thousands in fees over a lifetime.

S&P 500 is comfortably above 1000

2009-09-09T14:27:00.004-05:00

Well the S&P 500 is over 1000, in fact, its comfortably above 1000, near 1030. For those that aren't keeping track, during the recession that is coming to an end, the S&P 500 got down to an ominous reading of 666, thats a 54% gain from the bottom.

Not to bore you with any more details, I bring these numbers to your attention to reinforce two things;

1. if you stayed the course and continued to add to your S&P 500 index fund or etf, you have done quite well and have lowered your average cost considerably (isnt that the point, buy low, sell high?)

2. you still dont need a stockbroker (my guess is that you were told to get out near the bottom in march 2009 or you have been under-invested during this period and failed to buy low)

Stay tuned and keep an eye out for my new book 'that little green handbook'.

Chevy Volt

2009-08-11T21:40:00.007-05:00

Ok, I know this is an investing blog and not car & driver but hear me out. If the Chevy Volt can deliver on its claim of 230 mpg and zero gas usage until 40 miles, that is a game changer. Period.

I never advocate single issue stock trades but I must say that this could make GM a winner. Its a good thing you can't buy GM stock today or I would be tempted, yes, I know there is a pink sheet version but thats not tempting.

A car that gets 230 mpg is a game changer like the computer in 1975 or the Internet in 1994. I knew we could do it, interesting that it took america this long but I won't get political. This will affect car companies, oil companies, suppliers and many other companies. There will winners and losers but in a good way, this is innovation and technology and only time will tell which stocks and investments will gain from this but I can certainly tell you one thing, this is good for America.

ETF's

2009-07-28T10:11:00.003-05:00

ETF's (exchange traded funds) are great. They are to the 90's-00's what mutual funds were in the 70's-80's. A relatively new but very simple investment.

ETF's are similar to a mutual fund in that they are a collection of stocks but they trade like a stock which these days is a huge advantage because costs to buy/sell are so low. In addition, most ETF's have extremely low expenses which as I have stated before is the number one factor when looking at any investment.

ETF's low expenses combined with the low trading expenses at most discounters have allowed every investor the chance to do what they need to do to well in the stock market. This doesn't mean you cannot lose money. When I say well, I mean better than 91% of the people who are involved in the stock market. Simply because the bulk of people are idiots watching cnbc, listening to guys scream to buy this and sell that or just as bad or worse, paying a stockbroker to do that for you.

Just stop it, open an account at a discounter (they give advice if you want it), buy some ETF's that mirror the S&P 500, add to them when you can and leave it all alone. Simple.

Approach to Investing

2009-07-20T15:15:00.007-05:00

Your approach is everything. Bottom line is that while the bulk of investors are awaiting a pull back from the March 2009 lows, I am pretty confident that any pullback will be mild.

Your approach to investing has to change if you think you can time the market. I just read an article at yahoo finance which backs up what I've known for years, that timing the market is virtually impossible.

1983-2003 period for S&P 500

Buy and Hold ~ 10%

Minus 30 worst days ~ 19%

Minus 20 best days ~ 5%

Moral of the story is that if you are willing to risk missing the best days trying to miss the worst days, go ahead but you will have probably wasted a lot of your time, and money and got nowhere. You need to change your approach to investing.

I have said it before and will say it again, buy a no-load mutual fund or ETF that tracks the S&P 500 and you are doing really all you can do.

Warren Buffett

2009-07-14T16:55:00.003-05:00

I blog, write and speak about investing all the time. One common theme is that very few can beat the S&P 500 with any consistency so why try. Buy the S&P via an ETF or no load mutual fund and forget it, you will end up beating 91% of investors and save a fortune on fees.

Unless you've been living under a rock, you know the name Warren Buffett who is one of the rare individuals / institutions that have beaten the S&P 500 with some consistency. If you like him, and its hard not too, you are in luck, you can invest side by side with Warren Buffett by owning his companies shares (Bershire Hathaway) which is listed at the NYSE as brk-a and brk-b.

Let Warren Buffett do the heavy lifting for you.

BTW, WB obviously has a vested interest in his companies shares but it is interesting to note that he buys US treasuries for his personal account.

Trickle Down Economics

2009-07-10T12:22:00.004-05:00

My blog is normally about investing but I can't help myself and would like to post about something I hear about all the time, trickle down economics.

I used to be a big believer in trickle down economics but have changed my position lately. Hear me out. The theory is that if you give a tax break to those with money that they will spend it and grow the economy.

In practice however, think of it this way, lets use a family making $400,000 a year. If we give them say another 1% tax break, that is $4,000 which they won't miss and will probably never spend so it does not end up in the economy, rather ends up in the kids trust fund.

Instead, tax that family 1% more or $4,000 and give four families that make say $50,000 a year a tax break of $1,000 each and I can pretty much guarantee that that extra $1,000 will end up being spent and in the end will help the families that need it and the economy too.

Keep in mind of course that the law of diminishing returns will of course work here, ie. that you can tax an extra 1% here or there, but you can't keep doing it (taxing more and more) because sooner or later, those that make a good income will simply stop working or intentionally make less, hide income, etc to avoid taxes altogether. Its like anything. Too much of a good thing is a bad thing.

Index Funds

2009-07-01T12:14:00.001-05:00

Think of an index fund as the house in gambling, sure there are going to be times when a 'player' or in this case some money manager or stockbroker playing with your money beats the index but over time the 'house' always wins!

What that means for you is that you will beat 91% of all investors who try to do better than the market (try to beat the house) using a stockbroker, timing the market, using this strategy or that, whatever - the reason is simple, fees.

And you will have the peace of mind knowing that you do not have to work at it, instead you can concentrate on your work, your kids, grandkids, health, whatever.

So if you feel like you have to be in the stock market (and by the way, you don't), do yourself a favor, decide what portion of your nestegg you are going to risk/invest, buy an index fund and add to it when you can and forget about it.

The Other 9%

2009-06-29T09:21:00.001-05:00

I have blogged here and in many places about fees and that most investors ought to think long term, buy the S&P 500 and forget it and beat 91% of money managers.

But what about the other 9% who do manage to beat the averages ??? Its true in any one year you may have 9% beat the S&P 500 but its unlikely that same individual or group will manage to do it with any consistentcy.

There are however a few strategies that do allow for the possibility of consistently beating the S&P which is rare. An example would be a trader / specialist on the floor of the NYSE. Another would be a specialized trader or strategy such as call/put options.

These money managers are able to do what is extremely rare and beat the S&P 500 and are obviously worth what you pay them. The trick is to find one that will take your account :)

How About Real Estate?

2009-06-26T12:14:00.003-05:00

I am often asked about real estate as an investment. Arrgh. As if the last few years didn't teach us anything!

Real estate is where you live. Not what you invest in. There are countless studies that show that real estate lags the S&P 500 over any meaningful time frame. This is largely because of the costs associated with RE, sure if you just look at the purchase price and the sales price (even after a ridiculous fee to a RE agent), it may seem like you made money but consider your mortgage along the way, interest, taxes, repairs, etc, it all adds up fast and doesn't add up to RE being a great investment.

Can you make money in real estate, of course, and there are always exceptions to the rule but the rule is that real estate cannot beat the S&P 500 over time.

Real estate as an investment has a reasonably good reputation because people view it as a long term investment, if they would only treat stock investments with that same courtesy.

Fees are Everything

2009-06-25T13:23:00.007-05:00

Do you know why 91% of mutual fund managers cannot beat the S&P 500 ???

Do you know why your stockbroker continues to lag the market averages ???

Do you know why financial advisors never post their numbers ???

FEES !!!!

Fees are everything and is exactly why you, your stockbroker, your financial advisor and most of the big time traders cannot beat the S&P 500. Imagine we flip a coin (and thats all you are doing) and you pay a 1.5% fee everytime and I pay a .5% fee, well that 1% difference over time will be the only difference because everything else will equal out. Check out the chart from the SEC at sec.gov.

The chart from the sec.gov shows how much you will have paid on just a $10,000 investment over thirty years with the difference of 1%, they use .5% and 1.5%. It would be alot more if you are trading and paying commissions.

Bottom line, do yourself a favor, buy the S&P 500 and forget about paying higher fees for absolutely nothing.

Dollar Cost Averaging

2009-06-22T13:03:00.002-05:00

I know you have heard of dollar cost averaging but lets talk about it anyway.

Dollar cost averaging is when you buy the same dollar amount of a stock or mutual fund in regular intervals. This means you will buy less when the market is higher and more when the market is lower. Buy low, sell high, right!

Dollar cost averaging is powerful. Dollar cost averaging is exactly why 401k's work so well, in addition to the fact that people truly treat it as a long term investment vehicle and not to trade.

So, pick an amount you are comfortable in putting away for a long time and add it regularly to your favorite low cost mutual fund or ETF.

Beat 91% of the Crowd

2009-06-19T09:42:00.003-05:00

You want to know how to beat 91% of the crowd?

How do you think you can out invest all the highly paid money managers and traders?

Its simple, very simple and the reason you hear very little about it is that no one has a vested interest in educating you.

Buy the S&P 500 and forget it. Thats it. Back when I was a stockbroker, there were alot of barriers to doing this. There were mutual funds that tracked the S&P but you had to pay a broker to buy them and of course there were minimums and account fees, etc.

Now, with ETF's (exchange traded funds) such as vanguard and very cost effective accounts such as fidelity and scottrade, you can buy your way into the S&P slowly, with the money you have set aside for the long term (yes, i said long term, ten yrs or more) and let it sit.

You won't beat the market but you will participate in it with the lowest possible fees. This doesn't mean you can't lose money, it means you will track the S&P which is the benchmark by which 90%+ of money managers and traders cannot beat with any regularity.

More on fees later. Stay tuned.

Investing Is Easy

2009-06-17T09:35:00.004-05:00

The investerati has convinced the public that if you save a few extra dollars or come into some money, that you need to 'invest' it in the stock market. This is simply not true, there is nothing wrong with a nice safe CD or money market at your local bank.

Having said that, if you have decided to invest, do yourself a favor and invest on your own and save a fortune.

The investment community are masters of marketing and have you convinced that you cannot invest on your own.

Here's the scoop. 91% of money managers cannot beat the S&P 500 and neither can your stockbroker of financial advisor.

How do I know? I was a great salesman and convinced alot of people to take on more risk in stocks and got paid well for doing it. The dirty little secret is that you can do the same thing yourself and save alot of money, hundreds of thousands over a lifetime!

Most stockbrokers or financial advisors are genuinely good guys interested in your accounts well-being. The problem is that stockbrokers (and thus the brokerage firm they represent) get paid by assets under their control and charge you a management fee of 1%-5% to do nothing more than you can do. Value added, are you kidding? How did you do over the last year?

Stay tuned for exactly what to do.