Good reads from around the Web.
Investing can be very simple, provided you don’t want to beat the market. Since most people will fail to do that anyway, the conclusion is that investing should be simple for nearly everyone.
Once upon a time that was okay in theory but difficult to put into practice. Between you and simple investing stood the Financial Services Industry with its expensive funds and obfuscating flak, and its foot-soldiers – the legions of badly-named Independent Financial Advisers, who would have been better named the In-It For Themselves Advisers.
At their worst they were swindlers and leeches [1].
A lot has changed in recent years for the better. RDR has done away with much of the hidden costs of investment. Monevator readers may be aghast [2] when their annual expenses go up by 0.3% a year, but that pales besides the 5% upfront fees and 2% annual commission my father’s generation paid.
Savvy readers are already exploiting simple passive allocation strategies [3] and cheap index trackers to make their money stretch farther.
The ubiquity of such cheap funds – plus far more education about them, usually online – has been the other great change in the landscape.
Even a schoolkid can do it
Some are still skeptical about simple investing. Particularly if they have complicated investing products to sell.
Such people should read the always excellent Allan Roth, this time writing at Index Universe [4], where he details the 10-year performance of his “Second Grader” portfolio.
This mixes just three index funds – at its most aggressive some 60% in US equities with 30% international equities, and a 10% bond allocation.
[5]Aggressive is 90% in stocks, moderate 60%, and conservative is 30%.
Was this the perfect allocation?
No, but you won’t get that either.
Was it the highest returning?
No, don’t know what was, and for our purposes here I don’t care.
The point of such as strategy is not perfection. It’s simplicity and ease, and the fact that it works. And that’s all most people need.
UK investors should have more in international stocks and less in our home market because it’s so much smaller than the US, but aside from that there’s no reason you couldn’t repeat the trick here, and then go off and learn the violin or read the complete works of Proust or do something else with all the time – and money – you’ve saved.
Why does simple brilliance work, Roth asks [4]?
First, it has the lowest costs, and we all know costs matter.
Second, it uses the broadest index funds. Research demonstrates that narrow index funds have larger gaps between fund and investor returns—geometric versus dollar-weighted—than broad funds. That’s to say we do more performance chasing on narrow funds than broad funds.Again, the conclusion is that broader is better.
Third, rebalancing resulted in investor returns exceeding the funds’ returns. While simple, it’s not easy to ignore the media, which usually predict the continuation of the past.
Wise words, but don’t ignore Monevator when you go on your media diet, I beg you!
You can think of our repeated doses of essentially the same message as a top-up vaccination jab that saves you from something much nastier. 😉
From the blogs
Making good use of the things that we find…
Passive investing
- A reality check for couch potatoes – Canadian Couch Potato [6]
- Gurus achieve an astounding 47.4% accuracy – Rick Ferri [7]
- Real bond market losses over the ages – Wade Pfau [8]
Active investing
- The outlook for UK equities – The Value Perspective [9]
- Risk management and psychology – Zone of Competence [10]
- Is Games Workshop a buy? – Expecting Value [11]
- Fund managers are still very bullish – The Fat Pitch [12]
Other articles
- Controlling the investment lizard brain – Investing Caffeine [13]
- Are UK households saving enough? – Under the Money Tree [14]
- Vanguard’s economic outlook [PDF] – Vanguard [15]
- Bond funds vs ladders [US, so ignore the tax stuff] – Retirement Cafe [16]
- The millionaire next door’s micro-apartment – Mint blog [17]
Product of the week: Why can’t we have 40-year mortgage deals in the UK, asks The Telegraph [18]? Longer fixes are common in other countries. The writer also rounds up the best fixed deals that are on offer.
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 [19]
Passive investing
- Strange new ETF tracks 100-year old companies – Index Universe [20]
Active investing
- Emerging markets look cheap enough – Yahoo Finance [21]
- Goldman analyst barracked for calling market expensive – WSJ [22]
- The incredible gold / interest rate correlation – MarketWatch [23]
- Do Morningstar cover stars get cursed? – Morningstar [24]
- Terry Smith: Stick to the facts [Search result] – FT [25]
Other stuff worth reading
- Are REITs right for property investors? [Search result] – FT [26]
- Tackling your self-assessment tax return – The Guardian [27]
- Hargreaves Lansdown asking for cash upfront – The Telegraph [28]
- How to get rich, feel rich, and stay rich – Motley Fool [29]
- How to retire 35 years early – MarketWatch [30]
- 85 people as rich as the bottom 3.2 billion – NBC News [31]
Book of the week: Jim Cramer has a book out that you might like if you’re one of the mad ranting active pundit’s many fans. It’s audaciously entitled, Jim Cramer’s Get Rich Carefully [32]
Like these links? Subscribe [33] to get them every week!
- Reader Ken notes that: “FT 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”.” [↩ [37]]