Good reads from around the Web.
One of my richest friends got a huge headstart in life in the form of money running into the millions.
I’ve never heard him explicitly acknowledge his good fortune in this respect, and I don’t really expect him to bang on about it.
It’s obvious someone who starts life with millions is better off than the vast majority who don’t.
Assuming you’re able-bodied, do you constantly acknowledge your precious inheritance of four working limbs?
Do you fall to your knees at the end of a jog or even a walk to the shops and thank the heavens for your good fortune?
Or is it so obviously a boon that it’s not worth remarking on?
Don’t get me wrong – long-term readers may recall I believe in high inheritance taxes and curbing inter-generational wealth transfers to whatever extent is practical (and, on the other side, in taxing earned income less heavily).
But if you’re born into money, I can understand it’s your reality.
Why bemoan it?
Born into more than just money
What’s interesting is that while my friend doesn’t talk much about the material boost money has given him – or even about the profitable business risks I am certain it’s enabled him to take – he does often cite the financial example of his parents and grandparents as precious.
He’s a strong investor in his own right, and he often credits that to seeing and hearing how the previous generations compounded their money.
And he’ll cite aphorisms and habits picked up from his parents concerning the “stewardship” of wealth.
Corny? I don’t think so.
If you consider how often lottery winners or sports stars go from millionaire status to bankrupt, you’ll see that such an upbringing is indeed a valuable inheritance.
Somehow I suspect my friend’s grandparents weren’t teaching him that the best thing to do with your spare cash is to prop up a failing sports team, invest in a luxury nightclub, or only buy sports cars when they’re brand new and you already have two in the garage.
Common sense investing advice
I was thinking about all this as I read a blog post by US investment professional David Merkel on managing your own financial path into and through retirement.
The article doesn’t say anything earth-shattering, and I don’t agree with all of it. (He talks more about active investing and assessing businesses than most people need to bother with these days).
But it does come across as solid grandfatherly advice that might substitute for the fireside chat that perhaps you never had.
Tellingly, Merkel also acknowledges the downsides of being of grandfatherly vintage:
Retirees need a defender or two against slick guys who will try to cheat them when they are older. Those who have assets are a prime target for scams.
Most of these come dressed in suits: brokers and other investment salesmen with plausible ways to make assets stretch further.
But there are other scams as well – retirees should run everything significant past a smart younger person who is skeptical, and knows how to say no when it is necessary.
This is so true, as anyone who listens to the unending tales of Home Counties 70-somethings getting ripped-off on Radio 4’s MoneyBox will know.
The whole post is well worth a read on a wet Saturday afternoon, whether you’re managing hundreds, thousands, or a few modest millions.
From the blogs
Making good use of the things that we find…
Passive investing
- Actually, few people panic in market sell-offs – Vanguard
- The evolution of a passive investor – diy investor (uk)
- The Trinity Portfolio [Scroll down past ad] – Meb Feber
Active investing
- Do you speak VC? 30 terms all bluffers should know – Medium
- An interview with Mario Gabelli [Podcast] – The Big Picture
- How patient an investor are you? – Humble Student of the Markets
- Do you believe in unicorns? – The Value Perspective
- Which return premium weighting works best? [Geeky] – Alpha Architect
- Exploring hedge fund returns (or lack of) [Academia] – CFA Institute
Other articles
- Driving home the insanity of modern life – Mr Money Mustache
- 10 ways to slash your home energy bill – The Escape Artist
- 20 years in, the coffee craze gets to Suffolk 😉 – S.L.I.S.
- You are (almost) not indispensable – Adventures in Capitalism
- Are you determined to be free? – Retirement Investing Today
Product of the week: Paying 2.25% a year interest and another 0.2% to support nurses who care for those with terminal illnesses, Yorkshire Building Society’s two-year Marie Curie Bond narrowly beats Coventry’s Poppy Bond in leveraging your savings for a good cause, says The Telegraph.
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 UK investor sticking with Smart Beta funds – Telegraph
- Active investors are desperate for the jackpot – ETF.com
- Ranking passive versus active funds: Mid-2015 scorecard [PDF] – SPIVA
A word from a broker…
- Why BestInvest is adding gold to its ready made portfolios – BestInvest
Active investing
- Emerging markets look like great value – ThisIsMoney
- Cure for low commodity prices staring us in the face [Search result] – FT
- Bill Bernstein: Gold equities are cheap and interesting – Morningstar
- Short vs long-term investors [Nice graphic] – New York Times
- John Lee: Stockpicking and the stop-go conundrum [Search result] – FT
- The Eros 6.5% retail bond has crashed 50% in two weeks – ThisIsMoney
- Is Bitcoin making a comeback? – New York Times
Other stuff worth reading
- An overview of the changing income tax regime – Telegraph
- Should under-30s battle for London property or think different? – Guardian
- Savills (arguably best record) says house price growth to slow – Guardian
- Daft things idiots do on social media that help scammers – Guardian
- Bloke earns £1,200 a month for having adverts on his car – ThisIsMoney
- A positive view of the UK’s auto-enrollment pensions push – NPR
- The growth of robo-advisers is slowing – The Economist
- Why specialist longform sites (like Monevator) are becoming extinct – Vox
Book of the week: Tren Griffin at 25iq has distilled everything he’s learned from super-investor Charlie Munger into 500 words. But if you want more of Munger’s wisdom, Griffin’s Charlie Munger: The Complete Investor
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- 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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Excellent comment and list.
I agree, I think the aspects of “stewardship” of generational funds is very important in the early education of children. Even families who are not traditionally seen as wealthy should see it in that light. Ok, you may not receive a few million in cash from your parents. But a share of their house is equally significant. But many squander it in some more or less frivolous way, sadly.
Of course, we see such stewardship in many excellent investments (think the likes of PZ Cussons, the family brewers or Schroders or the like). But unfortunately it is under-appreciated more generally.
Thanks for putting this together and let’s hope that the last link is wrong!
Vox piece must make depressing reading for you. Sorry
Another great set of links….it is indeed a wet Saturday afternoon.
Yes, agree that grandfatherly ‘fireside’ type chats are wonderful and sometimes we need to get them from somewhere other than our grandparents, or parents. I was just ruminating this morning on how I came to end up on the investing and saving path that I’m on – my Dad was a spender, my mum a saver – but it didn’t matter which one was in charge of the money (they swapped from time to time), because it always seemed like we never had any. I had no real financial advice given to me by either them or my grandparents.
Funnily enough, I think I tracked it back to Midland Bank of all people/organisations, who came to our school and set up the school bank. We were encouraged to save every week out of our (very low) pocket money. I saved religiously, just like my mum, but spent profligately, just like my dad. When a fellow bank member pointed out my deposit book stubs’ total would have been over £100 if I hadn’t have spent all the money, that really sowed a new seed in me. £100 represented the kind of money that could buy freedom (i.e. a small, used car).
This school friend did me a favour, and I realised later it was her family background and ‘fireside’ type chats with her Dad that gave her a better perspective – they’d been hard-working immigrants from the Middle East and always respected what they’d brought with them and what (little) they’d received from previous generations, which helped them escape. Thankfully, my friend was good at passing on these good pieces of advice/pointing things out in such a way to make you WANT to do better financially.
P.S. Thank you for the link to 25iq – a great summary of points
The system concentrates wealth (unless you are really daft).
Let’s look forward to full inheritance tax then this guy can start with nothing. But hey that’s fine right – he’ll be rich anyway because his granddad taught him. So no complaints from him I’m sure.
Interesting reading, as always. I’m not sure about the Vox piece. The internet is clearly evolving but where it’s going is another matter. It sometimes feels like it’s cannibalising itself. Perhaps when Twitter, Facebook and the rest have all eaten themselves, sites like Monevator will be the only ones left standing.
Gold miners are really cheap (for example: P/B below 1)! Thanks Mr. Bernstein!
By the way William Bernstein is a famous crusader of passive investing so this article surprised me. He suggests to buy a special asset class now due to it’s current value.
But taxing inheritance, isn’t punishing the parents who earned the money as much as the children who are receiving it?
@Ben
The idea that the system concentrates wealth is defended by Thomas Pikkety in his famous book ‘Capital in the XXI Century’.
There might be a misconception, however, in how he understands wealth. I’ll try to explain.
He sees capital as something with a backward-looking value, when in fact the value of capital is determined looking forward.
Imagine somebody buys a house worth 1 million €, then he passes it over to his heir. The value of the house will not depend on the money it was worth in the past plus the value added through time. The value of the house will depend on the future, and on the prospect of benefits. If you expect to get a 2000€ monthly rent, the house will have great value. But if the house ends up located in a deserted village, or a degraded neighbourhood, where nobody wants to live, then the prospect of benefits will be much lower, and so will be the value.
Equally, Bill Gates may be the richest man because he owns stocks of his company Microsoft. But the value of his capital depends on the expectation of future benefits from that company. If the rival businesses frustrate this prospect of future benefits, the value of Bill Gates’ capital may shrink very quickly.
That’s why the idea of capital as something with a set value endlessly compounding through time and accumulating almost by inertia is, in my opinion, wrong.
If you want a proof, compare the Forbes list of the richest people when it was created (1987) and today. Has the capital of those 1987 millionaires been going on accumulating and compounding all this time? Some funny stories there.
@Juan — I am not interested in punishing anyone with taxes! It is simply that we have a state, it needs to be funded, we can argue about how much, but we can’t argue really about the fact that it has to be funded by its inhabitants.
I would rather tax those given money for doing nothing (heirs) than those working or inventing or investing or experimenting or risk-taking to earn it. 🙂
@Gregory
“By the way William Bernstein is a famous crusader of passive investing so this article surprised me. He suggests to buy a special asset class now due to it’s current value.”
The last two paras of Wm Bernstein article put this into context :-
“Let’s say you typically have a 2% allocation to precious-metals equity. To maintain that 2% position, you have had to continually be buying over the past two or three years. And if you wanted to more strategically (does he mean dynamic?) allocate, you would have been plowing even more money into it to increase your allocation as it was getting cheaper.
You have to also ask yourself the question, “Do I really want to go through the trouble?” Because the data shows that it’s hard to beat a regular old 60/40 stock/bond portfolio with a fixed allocation between foreign and domestic asset classes within your stock allocation. It’s really, really hard to beat that.”
Two/Three points really :-
1. We are talking yielding equities, not pure commodities.
2. We are not talking earth shattering %s and the 60/40 gets approved mention.
3. This investor has long term BRCI (mentioned recently by The Investor) at 6% of stock portfolio. Really uncorrelated with other stocks.
Read enough of Wm B’s books/articles and he does not appear totally passive.
In a search for non-correlated assets Commodity Equities seem to have always interested him, e.g. as mentioned in ‘Skating where the Puck was’.
Also straying from the usual straitjackets of the passivist, in ‘The Intelligent Asset Allocator’ for example pages 137 – 139, he gives a qualified nod to horror of horrors, the ogre of Dynamic Asset Allocation (Variable Ratio), as opposed to the true passive Strategic Asset Allocation (Constant Ratio) practised by the majority of passive investors.
It is good to see such free thinking in the semi-passive school.
Long may he inform us!
The Vanguard link is intriguing :-
‘Actually, few people panic in market sell-offs’
“You can see the jump in trading activity in volatile markets. Each volatile period is higher than the reference period. But it’s also worth noting the scale of the changes. For example, on August 24 of this year, 0.37% of all Vanguard DC plan participants made an exchange—relative to a normal number of participants of one-tenth of 1%. That means the surge in trading was the result of an additional one-fourth of 1% of DC plan investors moving money. To put it another way, if you add up all of the people who traded during the week surrounding the China market crisis and subtract the ordinary level of trading, about one-half of 1% of people chose to make a move in response to the crisis.”
Do we conclude :-
1. Vanguard clients are less herd-like than most market participants?
2. It doesn’t take many people to move the markets?
3. Markets are not moved in fact by herd-like emotional sellers/buyers, but by those sitting on the side-lines refusing to trade until more advantageous prices are on offer?
A good reminder that wealth creation and education can be generational. I wish I had a Grandfather or even Father to advise me when I was young but then even knowledge is not acquired across generations without access to sites like this.
I mentor students starting life at University and have created a website with links to Monevator and other such site to tray and be the Grand fatherly figure they may never had.
If we can get finance and investment into the school education system then we may be able to educate and stimulate interest amongst the next generation who may not have Grandfather advisors or the assets to invest and protect.
Please do not under estimate the value you and your colleagues offer to us and through us to the next generation.
Many thanks
@Magneto
“‘The Intelligent Asset Allocator’ for example pages 137 – 139, he gives a qualified nod to horror of horrors, the ogre of Dynamic Asset Allocation (Variable Ratio)”. It is interesting, thanks!