February 24, 2010

Productivity and Your Finances

Too many people spend too much time on their personal finances, whether its rebalancing their 401k, talking to guy down the hall about a hot stock or worst of all, trading stocks.

This is wasted productivity, not only for the employer but for the employee since every study on the subject conclusively proves that the more time messing around with your finances lowers your returns.

Passive investing beats managed investing all the time. 

90%+ of professional money managers cannot beat the S&P 500 so quit paying them fees for nothing.

Moral of the story, leave your 401k alone, dont trade stocks, dont try to beat the market.  Get back to work because that 15-20 minutes everyday adds up, in fact, it works out to be a difference in productivity of plus (or minus) of 6%.

If your an employer and your employee asks for a 6% raise because they want to trade stocks on your time, would you say, yeah sure, no problem, of course not.  But thats what you are doing by not addressing this problem.

February 18, 2010


1% 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.

February 17, 2010

Trading is Gambling, Period.

I was a stockbroker and a trader.  The best clients, those that generated the most commission, were always trading their account, buying stocks they thought they knew something about only to sell them shortly thereafter.  These days with flat fee accounts, there is no commission incentive but trading is still a terrible strategy.

Here's what happens.  You buy a stock because you think you know something about a company, their products or services, the mgmt, etc. (all of which doesn't matter unless you plan to hold it for a long period of time, more than two or three years).

The stock then goes up and you sell for a quick profit, great.
Or it goes down and you hold it, waiting for it to return your buy price, sometimes it does and you sell.
Or it goes down a lot and you are stuck.
This is a terrible strategy.  At the end of the day, your account is full of losers, not winners.

Trading is gambling, period.

February 5, 2010

Warren Buffett

No thats not Warren Buffett but why not let him do the heavy lifting for you?  I blog, write and speak about investing all the time.  One common theme is that very few money managers 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 (Berkshire Hathaway) which is listed at the NYSE as brk-b
Interestingly, Buffett obviously has a vested interest in his companies shares but for his personal account, he buys US treasuries!