The Average Investor Should Use An Investment Advisor: How to Find One
Should the average investor use an investment advisor? I used to think no, but now I would say yes.
I thought no because investing well isn’t that hard on the surface. In its simplest form, you make just one decision: how much in stocks and how much in bonds. If you don’t know better, there’s that "age in bonds" rule to help. Then you pick a target date fund that matches your decision the closest. Done deal.
If you want go one step further, make two decisions: (1) how much in stocks; and (2) how much stocks in international. You invest in three mutual funds: a US stock fund, an international stock fund, and a bond fund. How hard can it be?
Spot Fake Reviews, Favorite Airlines
It’s been a busy week at work. Here are some noteworthy articles I read:
3 Ways to Spot Fake Reviews at Devil in the Details by Kathy Kristof. I remember Mike Piper wrote this article some time ago.
Comparing Airfare is Frustrating: What Would Make You Loyal? at Consumerism Commentary by Flexo. Southwest Airlines is my number one choice. If Southwest flies to where I’m going, I’d take Southwest. They treat customers fairly. No change fee and no baggage fee make me loyal. I heard JetBlue is also good, but JetBlue doesn’t have many flights from where I live.
Are Scholarships Taxable? at Five Cent Nickel by Nickel. Like everything about taxes, the answer is it depends.
Free File Fillable Forms: Not Directly With IRS
Am I the only holdout who refuses to use online tax software or e-file through a third party?
I refuse to give my tax data to anyone except the IRS. Putting my tax data online with a third party is out of the question. I use tax software but only software I install on my own computer. After I’m done, I print the forms and send them by mail, because if I e-file from the software, my data will go to the software vendor. That’s not acceptable.
The IRS promotes Free File Fillable Forms as an alternative to pencil-and-paper forms. If you think you are filing directly with the IRS when you e-file with Free File Fillable Forms, you would be wrong, although the IRS does its best not to mention that fact. By hosting a massive set of FAQs, the IRS creates the impression that Free File Fillable Forms is a service owned and operated by the IRS itself.
Invest Successfully, Asset Allocation, Understand Your Portfolio
The noteworthy articles I read this week come in series.
Quest for Alpha: 10 Rules for Being a Successful Investor at Wise Investing by Larry Swedroe. Excerpts from Larry’s new book Quest for Alpha. More rules in part 2 and part 3 of the series. Of the 30 rules, I like these ones the best:
"Risk and return are not necessarily related; risk and expected return are related. If there were no risk, there would not be higher expected returns."
Book Review: The Power of Passive Investing by Rick Ferri
Rick Ferri is the founder of a Michigan investment advisory firm Portfolio Solutions. I came to know Rick from his postings on the Bogleheads Investment Forum. When the PR person for the publisher contacted me about Rick’s new book The Power of Passive Investing, I eagerly asked for a review copy.
Passive investing means investing in index funds and ETFs, not in mutual funds with a manager trying to beat the market, by picking and screening ("security selection") and/or by going in or out of market at opportune times ("market timing").
Passive investing isn’t new. Princeton professor Burton Malkiel has been talking about passive investing for nearly 40 years in his classic book A Random Walk Down Wall Street. Vanguard founder John Bogle has been talking about passive investing in his many speeches and books including Common Sense on Mutual Funds and The Little Book of Common Sense Investing. Long time readers know I’m already convinced by Malkiel and Bogle that passive investing is the way to go. So what’s new in this book by Rick Ferri?
Retirement Income: OAS and CPP in Canada vs Social Security in US
Reader KD always gives me good suggestions. In my post about backdoor Roth IRA, KD suggested that I add some charts. I did, and I think the charts made a big difference. In my post about Social Security family benefits, KD suggested that I look into the system in Canada and compare it with Social Security in the U.S. Great suggestion, thank you KD!
Canada has two government sponsored programs for retirement: OAS and CPP.
OAS stands for Old Age Security. OAS is non-contributory. You get OAS just for being a senior citizen. The primary qualifying factors are age and number of years lived in Canada.
Media Too Negative, Advisor Fees Too High
Here are some noteworthy articles I read this week:
Is Unemployment Really That High? at Financial Samurai by Sam. Sam is still convinced the media is too negative. Jobs are not filled because people take time off living on severance and unemployment benefits.
8 Bad Excuses for High Advisor Fees at RickFerri.com by Rick Ferri. Low-fee investment advisor Rick Ferri knocks down excuses for high investment advisor fees. The real reason other investment advisors are able to charge higher fees is their clients let them. No excuses needed. Investment advisory service is a luxury good. Luxury goods don’t compete on price.
What’s In My Portfolio? (Choosing Mutual Funds) at Oblivious Investor by Mike Piper. Mike shares his simple portfolio. Simplicity helps him stay the course and not chase performance. My portfolio isn’t that simple. I have more bonds (including munis and TIPS), less international stocks, more small cap, and more value.
Dollar Cost Averaging: Don’t Stop Buying On the Way Down
Dollar cost averaging means investing a set amount on a schedule, for example $500 a month every month.
Dollar cost averaging isn’t the same as periodic investing. Dollar cost averaging means you have the cash to invest in a lump sum now but you choose to phase in your purchases over time. Periodic investing means the money you invest hasn’t been earned yet; as you earn the money, you invest, like you do in a 401k account.
Dollar cost averaging helps smooth out the price fluctuations. If the price drops, you buy more shares. If the price rises, you buy fewer shares. It also helps minimize regret for having poured everything into an investment when the price was high.
In-Service Withdrawal: The Law and The Plan Rules
It’s a sad fact many 401k plans are bad: the investment choices are poor; the fees are high. People naturally ask if there’s a way to take the money out of the plan to their own account. We all know when you leave your job, you can. It’s called a 401k rollover. In most cases you should do a rollover as soon as you leave.
Can you take money out without leaving your job? Some plans do allow it. It’s called an "in-service withdrawal" or an "in-service distribution." In-service means you are still working for the employer sponsoring the plan. Because some plans allow it, a common suggestion is "ask your plan administrator."
It’s a little more complicated than that.
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