New Money
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Investing Insights from Morningstar
Continue reading… 0 CommentsEach summer, hundreds of investing gurus and financial advisers come together in Chicago for a powwow known as the Morningstar Investing Conference. Here, they discuss hot topics in the investing world, have round-table chats on stocks, and plot strategies for the rest of the year. Thursday's agenda featured sessions on bargain-hunting, bonds, exchange-traded funds, and the psychology of investing. Here are a few highlights from top stock-pickers:
During the morning stock-pickers panel, Charles Pohl, chief investment officer of Dodge & Cox, said: "It's a really interesting time to be an investor in financials, especially if you have the ability to do a lot of due diligence and basic research.... Some of these companies are excellent franchises, and they're selling at very low valuations, so they represent really outstanding opportunities right now. Now there are real problems out there, particularly in the residential real estate market, the home builders, etc., and there'll be more losses; we're not through it yet, and trying to identify who the long-term winners are, where the long-term values are, is potentially a really profitable activity right now."
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Guilty Pleasure: A 'Mad Money' Account
Continue reading… 1 CommentAt some point, you'll probably be tempted to chuck all the sensible investing advice you've heard out the window and bet on a hot stock with questionable prospects. Are you made of stone?
Go ahead and take that flier, says Morningstar, but create a "mad money" account—and limit its size. This way, you won't jeopardize any long-term financial goals:
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Calculating Your Net Worth
Continue reading… 2 CommentsYou may want to check out this nifty yet puzzling CNNMoney calculator, which ranks your net worth by age and income. Apparently, the median net worth for those between the ages of 25 and 34 is $2,125. But once you turn 35 (and on up to age 44), it jumps to $44,875. For someone with a $50,000 annual salary, the calculator spits out $109,975 for median net worth. Perhaps it's assuming that you're saving every cent.
Blogger Blueprint for Financial Prosperity also finds the calculator frustrating—"meaningless," in fact. "There are simply too many variables," he writes. "What if you're 25, married, and have two kids? What if you're 25, not married, don't have kids...is it even fair to compare the financial situation of the two 25-year-olds? No way."
The technical definition of net worth is the value of all of your assets (such as savings, investments, and home), minus your liabilities (such as credit card balances, student loans, and mortgage debt). Although you probably have a rough idea in your head, this net worth calculator will give you an actual number. It also estimates how your net worth could grow or shrink over the next 10 years.
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10 Top Investing Podcasts
Continue reading… 5 CommentsCorrected on 6/20/08: An earlier version of this post incorrectly reported the name of Wallstrip's host. She is Julie Alexandria.
Whether your work commute involves driving, riding the bus, biking, or running (like me), it's a great chance to improve your investing know-how through podcasts. You're a captive audience, after all. Below are podcasts that cover investing from 10 unique perspectives:
Money Girl: Part of the Quick & Dirty Tips series (which also includes Mighty Mommy and Make-it-Green Girl), this podcast consists of short, informative segments filled with tips and explainers.
- Frequency: Weekly
- Recent topics: Common investing mistakes, investment scams, and shorting stock. Money Girl also covers general personal finance topics, such as how to adjust your withholding and tips for improving your credit score.
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Target-Date Funds Are Not Created Equal
Continue reading… 1 CommentAlthough target-date funds all pitch the same idea—set it and forget it—their composition varies greatly, depending on the sponsor. These seemingly small differences can translate to big differences in risk and return, reports the Motley Fool. The site recently published a handy guide to the stock and bond breakdowns of target-date funds from three major fund companies: Fidelity, T. Rowe Price, and Vanguard. It also estimated what a $10,000 investment in each of these funds might return over a 40-year time period, based on historical averages for stocks and bonds.
The results were interesting. Vanguard, which has the lowest expenses and the most aggressive allocation, would turn a $10,000 investment into $446,645 in 40 years, according to Motley Fool. Meanwhile, Fidelity would return $358,170, and T. Rowe Price would yield $263,513.
Of course, investors should look at more than 40-year simulations before choosing a target-date fund. The Fool's analysis doesn't mention what types of stock funds (for example, foreign versus domestic) or bond funds make up each target-date fund, or whether they include any alternative investment classes. As it turns out, target-date funds aren't totally hands-off investments: They require a little legwork in the research department.
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How Investing Locally Could Backfire
Continue reading… 0 CommentsIt's no secret that investors tend to favor their home country. Now, new research shows that they also tip their portfolios in favor of companies based in their home states.
In the study "Long Georgia, Short Colorado? The Geography of Return Predictability," researchers examined the holdings of more than 75,000 individual investors between 1991 and 1996 and found that investors put an overabundant amount of their money in their home states. For example, investors in New York bought stocks of companies headquartered 750 miles from home, on average (had they randomly picked stocks, that distance would have been an average of 1,055 miles).
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A Big Investing Mistake Couples Make
Continue reading… 0 CommentsMen and women just aren't on the same page when it comes to investing, says SmartMoney magazine. According to their survey, husbands are more willing to take financial risk when investing than their wives (62 percent for men versus 19 percent for women).
If you and your partner have completely opposite investing philosophies, it pays to (surprise!) sit down and talk about your goals and time frames. Christine Larson, coauthor of The Family CFO, tells SmartMoney: "You could be completely risk averse with money you need for next year, but you can be a huge risk-taker with money you're saving for retirement."
In other words, distinguish between short-term, midterm, and long-term goals and invest accordingly. Or, as the story suggests, you could go your separate investing ways and just review your portfolios once a year to make sure they balance each other out.
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5 Ways to Whip Your 401(k) into Shape
Continue reading… 1 CommentIf you're one of those investors who chooses funds for your 401(k) based on the "add a little bit of everything and stir" approach, listen up. Kelly Kratz, a Lawrence, Kan.-based field consultant for TIAA-CREF, has five pointers that could make thousands of dollars' worth of difference in your returns down the road:
• Just save something. Delaying 401(k) contributions by just one year can cost you thousands of dollars in the long run, says Kratz. "Since time is on your side, it doesn't matter how much you're saving. Just save something." For inspiration, use a simple savings calculator to see how much a few thousand dollars invested this year will be worth in 10 years.
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How to Spice Up a Stodgy Index Portfolio
Continue reading… 0 CommentsYour portfolio is not a place to take crazy risks, writes Selena Maranjian of the Motley Fool, who suggests socking most of it away in a broad-market index fund, such as the Vanguard 500 Index (or an ETF equivalent). But, as many of us know, index funds are boring.
That's why you might want to consider spicing up your portfolio with a few growth stocks. "That's what I'm doing in my own investment account," Maranjian writes. "I don't want all of my money in an index fund because I'd like my portfolio to grow faster than average, so a chunk of my nest egg sits in a variety of individual stocks." She's had a few successes, including turning a $3,000 investment into $210,000.
But which stocks? "The kinds of companies I'm talking about are tomorrow's Lowe's, Best Buy, and United Parcel Service.... These companies broke their industries' molds and introduced newer, better systems," she says. Before you rush out and buy the next UPS, remember that individual stock investing isn't for the lazy.
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Three Secrets of ETFs' Success
Continue reading… 2 CommentsThe exchange-traded fund industry has grown from less than $100 billion in assets in 2000 to nearly $800 billion today. Here are three secrets of their success, courtesy of ETFtrends:
• Academic ties. Theories born in academia are being put to use in ETFs, author Tom Lydon says. Some good examples, I think, are in Claymore's exotic lineup of ETFs. It includes the Claymore/Ocean Tomo Patent ETF, which includes companies that hold promising patents, and the Claymore/Sabrient Stealth ETF, which tracks "neglected" stocks that are followed by fewer than two analysts.
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Coming Soon: Green 401(k)'s
Continue reading… 2 CommentsGood news for socially conscious investors: Greener 401(k) investment options are on the way. Currently, only one fifth of employees have access to socially responsible investing funds, according to this story. But survey data from the Social Investment Forum revealed that 60 percent of all plan sponsors anticipate adding SRI funds by 2010. (Currently, healthcare and government agencies are the most likely to offer SRI options, and most are funds from Calvert or Domini.)
What is SRI exactly? Funds that tout this philosophy typically invest according to social and environmental guidelines. For example, they may invest only in companies with sustainable business practices or with good environmental track records. But lumping all "green" or SRI funds together would be like ignoring the difference between vegetarians and vegans. As Morningstar points out, some green funds will own companies with human rights, labor, or environmental issues that might fail the screens of others.
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Of Diehards and Bogleheads
Continue reading… 20 CommentsIt's official: The Bogleheads—proud disciples of Vanguard founder and index-fund pioneer Jack Bogle—have cut ties with the Vanguard Diehards message board, which has long been the most active discussion group on Morningstar.
In fact, the Bogleheads have dropped the "Diehards" moniker altogether, reports IndexUniverse. The group's new Web address is www.bogleheads.org. Apparently, the breakup was a long time coming: A group of volunteers originally built the new site to serve as a complement to Morningstar's forum, adding an archiving system and search engine superior to Morningstar's "paltry and glitch-riddled offering," according to this back story. Last year, the group added a new discussion site called the Bogleheads forum. "To make a long story short, the new forum has far surpassed the old one, raising the question of whether Morningstar's name is really much of a draw to indexers anymore," writes Murray Coleman of IndexUniverse.
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Stock Tips From a Millionaire Clique
Continue reading… 11 CommentsSome investors, frustrated by the rants, sales pitches, and absurd posts that muck up popular stock boards, have turned to more exclusive online forums to swap tips and analysis. One such is ValueForum, a fee-based investing community that keeps out the riff-raff with a $220 annual membership fee and monitored discussion boards. The site's focus is value and income investing, and the average member portfolio hovers around $1 million. But ValueForum doesn't track members' investment accounts; it's more of a place to socialize and kick around stock ideas with a group of serious investors, says David White, a 34-year-old member from Kennesaw, Ga., who manages investments for a few family members. I asked White to talk about life inside the forum. Excerpts:
What's the vibe of ValueForum, and who uses it?
It's like any other message board where like-minded individuals get together and bounce ideas off of each other. While there are some professionals on the board, most of the investors are retirees from nonfinancial backgrounds that want to avoid the usual BS. Since there's no one trying to sell products or services, you don't feel like you have to be on guard. We generally get along (although we can also be as cliquish as any high school) enough to hold national meetings once a year, which we call "InvestFest." About 300 people will show up, some from overseas. Members will frequently post, "I'll be traveling to XXX if anyone wants to meet and get together." Can you imagine wanting to meet people in person that you talk with on the Internet? -
A Young Investor's Cheat Sheet
Continue reading… 3 CommentsThere's tons of financial advice floating around on the Web for novice investors. The problem is, many of the suggestions have already been drilled into your head by parents, professors, and other random advisers: Start saving ASAP. Avoid debt. Contribute enough to your 401(k) to get the company match. And so on.
After scrolling through several stories and sites for gems (specific or eyebrow-raising advice), I've rounded up tips and resources you can bookmark for future reference:
• Young investors should be stashing at least 7 percent of their gross pay in a 401(k), according to a financial planner in this TheStreet.com story. He also suggests you build up $15,000 to $20,000 in a balanced retirement fund (note: It's not clear if he's talking about a target-date fund, or a true balanced fund, which is a static mix of stocks and bonds), then think about adding funds with international or emerging-markets exposure.
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How to Finance a Mini Retirement
Continue reading… 3 CommentsRecently, a friend told me her goal for the year was to quit her job: take some time off, travel, visit family, and think about what she'd like to do next. (She's been at her current job for seven years now.) Maybe she should consider a mini retirement. According to Tim Ferriss, author of The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich, and blogger, a mini retirement is similar to a sabbatical or a vacation, except that it lasts one to six months and involves immersion into a nontouristy, new way of life.
Blogger Get Rich Slowly recently interviewed Ferriss about the logistics of the mini retirement—specifically, how to approach it financially. Here are a few highlights:
