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Weekend reading: The $35 billion passive man

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Good reads from around the Web.

Have you ever tried to convince somebody they should invest passively with just a few funds? You’ll discover an interesting new way to bang your head against a brick wall.

Some people get it right away. It helps to have Monevator articles – and those recent videos from Lars – to send them to.

But very often they tell you (or you can see that they think) you’re short changing them.

It can’t really be so simple. Do you believe they’re not smart enough to invest properly? Rich enough? Ambitious enough?

Worth it?

Adding to the problem with my friends is that many know I’m a market mad investing nut job.

What am I holding back?

If it’s good enough for Nevada…

Happily, reader S. pointed me to an article in the Wall Street Journal [Search result] that may become a powerful part of my passive persuasion arsenal.

Because if my friends are worried I’m suggesting their £15,240 ISA isn’t worth “proper” investing, maybe they’ll be reassured by seeing somebody invest $35 billion using passive principles.

As the chief investment officer for the Nevada Public Employees Retirement System, Steve Edmundson works in a one story building and has no co-workers. He brings homemade lunch to work in a Tupperware box – often last night’s leftovers. He keeps spare paper clips in a tin.

And – even more like a switched-on seeker of early retirement than a Master of the Universe – he invests all his $35 billion under management passively, having fired 10 external managers when he took the job in 2012.

The strategy is doing the business, of course:

Returns over one-year, three-year, five-year and 10-year periods ending June 30 bested the nation’s largest public pension, the California Public Employees’ Retirement System, or Calpers, and deeply-staffed plans of many other states.

…although it does go a bit Monty Python:

With no one else on his investment staff, Mr. Edmundson rarely uses his conference table and four extra chairs. He volunteered his office to pension-fund employees who work for accounting or benefit calculations.

Last month, a wall went up dividing the room.

“I’m not going to complain about my office,” he says. “It was too big.”

When people write articles ‘fearing’ the shrinking of the wealth management industry due to the rise of index funds, remember Mr. Edmundson – and all the expenses paid to his colleagues who mostly added little value while earning sports cars and country homes with our money.

Thanks for reading, and have a great weekend!

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: Banks and building societies are culling their Best Buy saving rates – and they weren’t much cop to start with. ThisIsMoney says National Savings & Investments is now a table-topper, thanks to a mere 1% interest rate. Your cash is 100% guaranteed by the government with NS&I, too. But I’d expect its rates to be cut pronto if money starts flooding in.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1

Passive investing

  • A review of robot money managers in the UK – Telegraph
  • Swedroe: Why do people actively reduce their wealth? – MutualFunds
  • Commodities are not a good inflation hedge [US but relevant]Forbes
  • The dying business of picking stocks [Search result]Wall Street Journal

Active investing

  • Gilt yields are rising. What does it mean? – ThisIsMoney
  • Could bond funds close their doors on a “rush” of withdrawals? – Telegraph
  • Five inflation-beating dividend stocks [Dropbox/PDF]Master Investor
  • Investors are using passive for active – Bloomberg

A word from a broker

Brexitwatch

  • London after Brexit: What will happen to the UK capital? – Bloomberg
  • Pound below worst ‘Project Fear’ projections – ThisIsMoney
  • Immigration myths collide with reality in austerity Britain [Search result]FT
  • Last ditch attempt to save EU-Canada trade deal – BBC
  • Inflation hits two-year high, cash savings shrink in real terms – ThisIsMoney
  • Can you identify these rival currencies and their fortunes? – ThisIsMoney
  • Venezuela, Sierra Leone, and Angola: Bargains for Brexiteers [Search result]FT

Other stuff worth reading

  • When (and where) the 4% withdrawal rule failed – Morningstar
  • Re-branding investing for millennials – Bloomberg
  • Property is theft? Well, leasehold certainly is – Guardian
  • Make your house airtight to slash your energy bills – Guardian
  • Loneliness often follows sudden wealth – BBC
  • Men need help. Is Hilary Clinton the answer? – New York Times

Book of the week: It’s worth visiting Amazon’s Echo Dot product page just to watch the demonstration video. Sci-fi has never seemed so Made In Surbiton! But I’m convinced it (voice-control) is the future.

Like these links? Subscribe to get them every week!

  1. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

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{ 20 comments… add one }
  • 1 Mroptimistic October 22, 2016, 10:58 am

    Keep up the good work. I have spent the last week tidying up my pension investments and some holdings in trust. Both on the Fidelity platform. One fund had a TER of 1.99% ! I found the Fidelity fund supermarket limited in its choice of ETFs and expensive. The pension scheme has a very limited subset. When I found myself worrying about whether to put money into one of two funds, one which hedged it’s bond holdings back to GBP and one which didn’t, I threw in the towel and dumped it into a property fund.

  • 2 The Escape Artist October 22, 2016, 11:11 am

    @ The Investor

    Love the story about the Nevada public employee pension CIO

    The link in the article to The Top 10 TV Shows of FI currently goes to Liberate Life….(which may well be better)…but looks like an error!

    https://theescapeartist.me/2016/10/20/fitv-the-top-10-tv-shows-of-financial-independence/

  • 3 Grant October 22, 2016, 11:21 am

    Once you get your head around passive investing it takes all of the worry, time and stress out of investing. You know that your money is spread across the globe and it will react in your sleep to any new developments, to both positive and negative developments.
    I have tried many times to convince family members and friends to invest passively and also recommending Lars Kroijer’s great book, but having the British obsession with property they always tell me that property is best. I then politely listen to the usual clichés of why you can’t lose with property.
    I think that we, as individual investors, should realise that we do not know what will happen in the future. The only way to protect against future changes is to invest passively.

  • 4 Opposite October 22, 2016, 11:24 am

    “What do you do?” “Are you keeping busy?” Just two of the questions I am sick of hearing, as if being “busy” is some kind of measuring stick right of passage.

    Not a lot, and NO, tend to be my replies. Try telling an average person that you are basically retired at 35 years of age and living off passive income and investments (acquired from nothing but sweat-equity, incidentally). It is hard for them to swallow, especially if they are stuck with a mortgage and job they don’t like, a family, and maybe a troubled marriage. Oh well, too bad…

    The result of a society that measures ones identity and social status according to a persons occupation.

    Patience and self restraint are perhaps the hardest disciplines to master. Humans tend to live life the wrong way round: spend in their twenties thinking they can save later. Wrong.

    “Investing should be like watching paint dry or grass grow. If you want excitement…go to Vegas.”

  • 5 The Investor October 22, 2016, 11:25 am

    @TEA — Ack, apologies! Fixed now.

  • 6 Neverland October 22, 2016, 1:44 pm

    @Grant

    I work with lots of people making six figure incomes who aren’t very financially sophisticated

    It’s way more common than you would think

    Simply (apart from some funds that are automatically invested in the company pension scheme and maybe an isa allowance stuck into whatever Hargreaves Landsdowne are pushing that March) they just buy property – a holiday cottage, a flat/house for a child or a flat off plan to let

    They just buy because they get no interest from a bank and folklore that “property always goes up”

  • 7 Matt October 22, 2016, 1:44 pm

    “Investing should be like watching paint dry or grass grow. If you want excitement…go to Vegas.”

    Appropriate that’s it’s Nevada that’s chosen to make its investments as boring as possible! Great post, once again, Investor!

  • 8 Learner October 22, 2016, 3:51 pm

    Mroptimistic, the Fidelity pension scheme is indeed a tiny selection but maybe that’s a good thing – keep it simple. I’ve just joined via a US firm (quite exciting to be invested again after 18 straight months out of market) and had to pick funds for a 401k. There are a couple of low expense (<0.1%) trackers of global and S&P which got 70% of my allocation, then a couple of oddballs in the ~.5% range (EM, property, gov bonds). The remaining offerings – making up 90% of the list – were all high expense small cap, active and fund-of-active-fund jobs. It's certainly tilted toward bilking customers on fees unless you know to reconfigure the list to show fees and google up the info sheets. I can't help think the firm could have provided a few "model portfolios" to help out but that would probably be much too close to "advice" in this litigious country.

  • 9 Mroptimistic October 22, 2016, 5:48 pm

    Learner, yup. The Fidelity supermarket is limited in the UK. With a 0.35% platform charge even fund trackers at 0.2% aren’t that cheap. You can hold investment trusts and ETFs which have a different charging rate but the range is limited. May be different in the USA. The pension fund offers may be a dozen funds of which not one is an index fund. The Trustees are sick of hearing from me on the subject. Even sent them a link to this site! I am a couple of years away from retirement and hold 50% in the pension in cash owing to the way the tax system works ( it is linked to a defined benefit scheme). So I congratulated myself in living in a low inflation era. This week’s headlines is all a.bout inflation. Typical. In trying to dodge the cyclists on the pavement I may end up inadvertently stepping under a bus.

  • 10 Mathmo October 22, 2016, 9:57 pm

    Thanks for the links this week, TI. Love the Nevada story and TEA’s TV choices (well maybe not Desperate Housewives).

    In a time when the subtle flickering of asset-ownership panic is setting in (record highs in FTSE100, VWRL never been higher, Gold up!, Yields crushed), it’s good to have a few more perspective gathering articles like the Morningstar 4% note (4% is wrong, but you need to hang your hat on something).

    I love the Finance at 40 and the death-maths therein. That should be compulsory reading for all 18 year olds. They should do one on health too. I can’t count how many 40ish recent Dads I know who are suddenly losing weight and saving money for the first time in their lives. Turns out compounding doesn’t just affect your pension.

  • 11 Retirement Investing Today October 23, 2016, 8:14 am

    @Mroptimistic
    If you’re worried about minimising fees (I am) why don’t you just play the partial transfer game which should mean your work pension remains open while you transfer what you’ve built up to a low cost SIPP provider. You could then do it continuously at periodic intervals. Not as good as being with a low cost provider from day 0 but not far off.

    Fidelity is a member of Origo and so as long as you pick a low cost SIPP that is also a member (HL and YouInvest both are for example) it should be able to be done electronically and so relatively quickly. I just did a partial cash transfer to HL via their online transfer method. No stamps or paper forms and the process was 100% complete in 11 calendar days (an in specie might take longer). Of course you’re out of the market for X days which is of course a risk in itself.

    Please DYOR if this does seem attractive.

  • 12 Mroptimistic October 23, 2016, 8:54 am

    @RIT, thanks. Problem is it is tied to a recently closed DB scheme so I can take roughly 5 x DB pension plus 25% of DC fund as tax free cash. As I understand it, if I move the DC bit I lose that link. Hence the near 50% in cash. The scheme offered me a factor of 27 if I switched the DB scheme out which I am thinking I may do next year. I have another closed DB scheme with an ex employer who offered a factor of just 20 so that stays! Issue is risk of high inflation (above 5%) or, I suppose, early death but that shouldn’t happen as I think my contract offers immortality. Must dig it out and check.

  • 13 David October 23, 2016, 10:59 am

    Regarding paperclips in a tin, I might have lost perspective, but is this meant to imply miserliness, or at least frugality? What do “normal” people do with paperclips, treat them as disposable?

  • 14 hosimpson October 23, 2016, 1:21 pm

    @David – I’ve retired my paperclip jar after I was given a paperclip magnet by some people at work who, clearly, didn’t like my jar. IMHO, the jar was better than that stupid magnet, but never mind. I don’t really know what my jarless colleagues do with their paperclips. I’ve always assumed they chucked them in a drawer where they’d accumulate for years until a resignation / retirement / office move and then they’d get tossed out by the packing/pedestal cleaning contractors.

  • 15 L October 24, 2016, 11:33 am

    I can’t believe that, tucked after articles on changes to the workforce and recent articles on AI, automation etc., we are discussing paperclips.

    I wouldn’t know where to find a paperclip if I wanted one!

  • 16 Aliya October 24, 2016, 11:55 am

    I’m just starting my passive investment journey. I did come to a conclusion that investing into Vanguard funds isn’t the best idea for now as these funds are nominated in US Dollars. Could somebody please recommend passive investment trackers nominated in pounds/worth looking at? Thank you.

  • 17 andy October 24, 2016, 12:15 pm

    Re paperclips. The article wants you to see him as some sort of weird loser stereotype. Reusing paperclips, eating leftovers, driving a 2005 Honda, in an empty office with no coworkers, reluctant to spend $10 on lunch, earning only $127,121.75, etc. All perfectly normal behaviour and of no relevance to the article, but it will be unattractive to your typical WSJ reader.

    I really hate this style of article writing.

  • 18 The Investor October 24, 2016, 12:57 pm

    I think Andy is right about the lunch and paperclips, but I disagree with the conclusion.

    You don’t have to spend much time around the City of London / know many VPs of this and that at investment banks to know he *is* an outlier. I consider it worthy of comment, although it is only an anecdote.

    Would be interesting to see data plotting likelihood of wealth manager to bring packed lunch against propensity to invest clients’ money in passive products! 🙂

  • 19 The Investor October 24, 2016, 12:58 pm

    @Aliya — Denominations don’t matter IMHO, it’s where the money is invested (and how much you’re charged of course) that does. See this article:

    http://monevator.com/currency-risk-fund-denomination/

  • 20 FrugalFox October 25, 2016, 5:33 pm

    Another great set of links.
    I love the fact that essentially we should taking advice from somebody in Nevada. Everytime I’ve been to Vegas all they want to do is take your money.

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