My husband and I both know there is some padding in our checking account. Paying overdraft fees is a pet peeve of mine so I try to make sure we have a little more than we think. This month, we both used the debit card a few times and before we knew it, [...]
Filed under: Finance, Money Saving Ideas | No Comments »
In a comment to an earlier post (see New iShares Emerging Market and World ETFs), Henry noted that the iShares MSCI Emerging Markets ETF (EEM) seemed to track the index better than the Vanguard Emerging Markets ETF (VWO). As you can see from the Google Finance chart below, since 2007 EEM’s return is more than [...]
Filed under: Finance, Money Saving Ideas | No Comments »
I am not a big fan of purchasing credit scores. I can understand why a lender would pay to get a calculation of your likelihood of defaulting on your loan, but if it’s based on our data, why do we have to pay just to see it? Even if I am declined for a loan, I can only see my report, not the numerical score that supposedly defines my financial life.
There are plenty of “fake” credit scores out there, but there is no way to get your real FICO scores anywhere but myFico.com. If you must order your score, use the promotional code CPPSAVINGS to get 20% off all credit report and monitoring services orders. It’s the best coupon I found that worked:
Whenever you do buy a score, I would recommend trying to correlate your score and the current information on your report. Then you can start to learn beyond the generic rules they spit out, and see how changes really affect your score. I’ve applied for 12 credit cards and canceled 5 with almost no affect to my scores – despite all the “rules” – only to have a huge balance on my mom’s credit card (with me as authorized user) show up and drop it by 30 points.
An possibly cheaper alternative is to sign up for a free 30-day trial of Scorewatch, which includes two free Equifax scores and reports. Just remember to cancel as soon as you decide you don’t need it anymore.
* Experian no longer allows Fair Isaac to sell FICO scores to consumers at all (even though lenders still buy and use them). But they’ll happily charge you money for their own attempt at a credit score.
Filed under: Finance, Money Saving Ideas | No Comments »
It’s time again for the annual Globe and Mail Best of Blogs poll. This year, Million Dollar Journey had the honour of being nominated a few times by:
Ram Balakrishnan – The popular blogger behind Canadian Capitalist.
Rob Carrick – The personal finance columnist for the Globe and Mail.
Chaya Cooperberg – The blogger behind the new Home [...]
Filed under: Finance, Money Saving Ideas | No Comments »
A regular reader Don sent me a post entitled Long Term Buy And Hold Is Still Bad Advice. Okay, fine, everyone and their mom has been telling me this recently. But I read it, and it was such a bad analysis that I had to rebut it here. I think Mish writes a lot of useful and thought-provoking stuff on his popular blog, but he really missed a big error here.
First, a recap of the post. Basically, a guy called “TC” has the idea of comparing S&P 500 returns vs. that of 6-month CDs. I’ll ignore the fact that this has been done many times already. But wait! He comes up with a startling conclusion. For long periods of time, the S&P 500 has actually lagged or been about equal to the returns of safe and steady 6-month CDs. (!!!) His graph:
Keeping my parents in mind, you’re probably wondering how someone did by simply investing in 6 month CDs. The answer is for any holding period of less than 25 years, a stock market investor who made regular and equal contributions has actually underperformed a CD investor! Yes, you read that right for time periods of 1 – 20 years a CD investor outperformed the stock market by 1.6 to 20.1 annual percentage points.
Additionally, if one extends the time window to 50 years (clearly “long term”) CDs again have outperformed the stock market by 0.3 annual percentage points. Even when one extends out the time period to the full 59+ years (the start of the S&P 500 index); the stock market has outperformed short-term CDs by a mere 0.2 annual percentage points – not much of an equity premium.
Wow, this is a shocker. I need to call my broker! Oh wait, there’s a little fine print.
TC is ignoring dividends
Let’s bold that. The analysis and data above completely ignores the dividend return of the S&P 500. This is like buying an investment property and ignoring the rent payments coming in. What? There are checks coming in every month from the tenants? Nah, let’s not cash those.
Let’s take a look at the historical dividend yield of the S&P 500, courtesy of Bespoke Investments:
For the periods compared above, the a true owner of the S&P 500 has earned 2-6% annually from dividends alone, with a long-term average of 3-4%. Now, if you add another 3-4% to the analysis above, you see again the long-term equity premium. Instead of 8% vs. 8%, it’d be more like 12% vs. 8%. That’s an enormous difference.
(I also wonder where TC got his/her data for historical 6-month CD rates. Are these averages, since every bank offers vastly different rates, and doesn’t report them to a central bureau? Usually studies like this use 6-month US Treasury Bill rates instead, as the data is reliable and widely-accepted.)
Massive Conflict of Interest?
Another argument given as to why buy-and-hold is bad is because there is a conflict of interest between investment advisors and their clients, as they have a “vested interest in keeping clients 100% invested 100% of the time, even if they know it is wrong.”
Actually, brokers get paid the more you trade than anything else. They earn money based on total assets, but a huge chunk is from commissions. This means convincing you to buy stocks when they’re hot (tech stocks)…. and then sell them (cash!)… and then buy others (mortgage-backed securites)…. and then sell them (cash!)… and then buy new ones (??).
True buy-and-hold means very little trading. At Vanguard, I buy-and-hold(-and rebalance) for a total cost of about 0.20% of assets annually. That’s $20 a year per $10,000 invested. Guess what the average expense ratio of a money market fund is? According to Lipper Inc., it was 0.60% at the end of 2007. Even the Vanguard Prime Money Market fund (VMMXX) has an expense ratio of 0.28%. The S&P 500 fund (VFINX) charges 0.18%. Vanguard actually gets less money from me if I hold cash instead of stocks.
More Arguments Against Buy-And-Hold
There are many more things I hate about articles chronicling the death of buy-and-hold, all of which I won’t go into here. But I want to say this. Bonds have outperformed Stocks in various time periods, including recently. This has happened before, even if people ignored it. This is why investors need to have a balance of both stocks and bonds/cash, not just 100% one or the other. If you needed the money soon, then you should have been at the most 60/40 in stocks/bonds, if not even more conservative. In that case, your portfolio would have dropped about 15% over the last couple of years up until today, and you’d be worried but not broke.
If you use the correct numbers (ahem), stocks still have higher historical returns over extended periods, with many rocky patches. We balance this knowledge with the also-historically steadier but lower returns of bonds and cash. That’s really about it. As for the future, nobody knows, as much as they’d like to suggest they do. Some will be right in hindsight, and many will be wrong.
Filed under: Finance, Money Saving Ideas | No Comments »
| Free Credit Report - free and available online. |
| Automobile Insurance |
| Trade Show Displays - from a full service custom and rental exhibit company. |
