Sunday, December 4, 2011

Index Funds: The Best Investment Advice Is Not Always The Most Popular

Mutual fundImage via WikipediaOne of the worst problems an investor has is figuring out how to ride the highs and lows of your portfolios performance. The highs can be exhilarating and the lows are always gut wrenching. There has to be a way to invest that allows you to not worry so much. 


What is the key for staying the course?

At the nytimes.com an article describing  the research of Janet M. Brown, president of DAL Investments, revealed the returns of 306 mutual funds over a 20 year period.  She wanted to see if active management was actually the best way. Brown said, “The overall challenge of mutual fund investing is selecting funds in advance that people think will do well in the future,” Ms. Brown continues. “The easiest thing would be to buy and hold or to select a manager with a good long-term track record and buy it and forget it. That was not an effective way of selecting funds.”

Find more information at The Best Investing Advice? Maybe Not the Conventional Method

Performance.
Mutual funds usually compare their returns to the returns of the S.& P. 500 or the Vanguard S.& P. 500 Index Fund. Strategies that use mutual funds in different combinations to build portfolio's can't produce superior results. But Browns research indicated, over the last two decades, no non-index fund investment strategy dominated. At best, some strategies were only successful for a four to five year period on average. Not one fund beat the benchmark every year.

Investment Management.
You will always find the hot manager of the year making tons of money for their clients. Eventually, all managers under perform the benchmark S&P. No particular investment strategy was successful for the entire period of this research.

Expenses.
All investors usually can agree on the idea that high expenses wear away performance. You can always find some funds with high expenses that have outperformed the index. But you will find they have, on average, returned only 1 percent more than the benchmark S&P 500.

Brown's Best Non-Index Fund Strategy. Brown's best non index fund strategy for using mutual funds surpassed the benchmark S&P 500 with a 12.19 percent return. Yet it underperformed the benchmark 9 out of 20 times. 


Takeaway.
Brown admits that the benchmark S&P 500 index has returned 7.65 percent over the last 20 years. I think most investors would be quite happy with that. There are mutual funds that produce a higher return but they don"t do it consistently. The trouble is finding these great performers on a consistent basis. The bottom line is index funds make the most sense for the average investor.

I have found the best implementation of an index fund centered portfolio is Paul Merrimans "Ultimate Buy and Hold Strategy". It has 11 different asset classes giving a broad, diversified group of index funds that will provide a good return over time. The days of tracking down the so called best funds will be over. You will be able to sit back and know you have done all you can to properly invest your money.


Check out Paul Merriman's Ultimate Buy and Hold Strategy here.

Find all Paul Merriman's great strategy and sample portfolios here.


Friday, December 2, 2011

"Super Committee's" Failure Shows, We're On Our Own

English: President Barack Obama speaks to a jo...Image via WikipediaOnly in Washington D.C. can you meet for half a year and return with no results. If Congress were employees of a company they would be immediately fired. Their failure sets in motion automatic budgets cuts that take place in 2013.

It doesn't matter who's at fault, the people will have to pay the price to clean up the mess. The automatic cuts will total 1.2 trillion dollars over 10 years. It sounds like a lot of money but over ten years it amounts to only 120 billion per year. That is about 10 percent of the $1 trillion dollar yearly deficit. What happens to the other 90 percent of the deficit. The politicians failure to make needed spending cuts frees them from the burden of taking the blame in the next election. With the election one year away who wants to take the blame for budget cuts.

I remember only a few years ago when a committee was assigned a task to come up with recommendations concerning the deficit. After a year deliberating the committee came up with recommendations for the president. The president didn't take action on any of them. From now on whenever I hear the word committee coming out of Washington, I will think big waste of time. I wonder why politicians don't understand how people have lost faith in their government.

Related: The Deficit Commission Comes In DOA


What's the average person do now?

The problem with all this is the people have become all to dependent on their government for all their needs. The government can't get out of its own way. We believe Washington can fix anything. It can't fix itself, how can it fix your problems?

It only makes me wonder when I am living in retirement, what I will be doing. I don't want to be living under the hopeful good intentions of a government led by men who have to do things not for my benefit but to get themselves elected again. We have finally pushed the limits on the nanny-state. Cradle to grave care by the government is a dismal failure. Trusting in a government that can give a retirement check, can also be a government that can take one away from you.

The most important lesson learned from all this is that you are responsible for your own welfare. It's your job to take care of you. Only you can take care of yourself. Preparing for your health care and retirement is your job. Remember the old saying, "If you want it done right, you have to do it yourself."

With the new year coming, make a resolution to prepare for your future. Save and invest to take care of yourself before it's to late. Start that Roth Ira and get that health care arranged. Start that emergency fund. Quit buying everything in site. Invest the money into your future.

Wednesday, November 30, 2011

Bloggers Vs. Financial Gurus - Who Helps More?

I am Meeting Robert Kiyosaki Next Week!Image by Casey Serin via FlickrYou know their names Suze Orman, Dave Ramsey, Robert Kiyosaki, Liz Pullman, and David Bach. They are today's financial gurus. We hang on their every word and gage all our actions by their wise advice. 

Online we have thousands of personal finance bloggers relating their own advice and experiences. Which group is better suited to address your situation?

Both sources have much to give to financial education and advice. The Guru's advice does help many people and by the numbers, help many more than bloggers in general. They have access to an audience through TV or by books they have written. The Guru has access to millions of followers and can reach more everyday. The blogger has limited followers and limited access to promotional services. Their audience is smaller but they can help people as well. 

Check out Businessinsider.com "Who are You Listening to?"

If both are able to help people with financial advice and education, which one is more effective.

The Guru has more followers but is limited because they have to spread their wisdom to a mass audience. Why limited? Their books and television appearances have to appeal to a mass audience. This limits them to a general message or plan. It has to be a one size fits all. They have to appeal to the most people to maximize their message so they can sell books and merchandise. Their advice is correct in general. But what if their advice doesn't cover your specific problems?

There are as many different financial situations, as there are people. This is where the financial blogger is better than the financial Guru. Many bloggers write about their own specific situation and experiences. They relate to their readers how they overcame a financial problem in their life. What could be a better way to help someone with a problem, when you already had the problem and overcame it. That's what makes the financial bloggers better than the Gurus.

With all the financial bloggers out there, you should be able to find one that speaks to your situation. Your average blogger doesn't have a manager or book to peddle. They are able to get real with their audience. The hype is very low and the experience is very personal. Many bloggers write about their financial journey from being broke to getting out of debt. Their stories are personal and inspiring. They make you actually believe you can overcome your financial problems.

Tuesday, November 29, 2011

A Different Reason For Refinancing Your Home

Sign of a mortgage centre in East LondonImage via WikipediaWith interest rates at historical lows, refinancing is on the minds of many homeowners. Weighing the benefits against the costs is the only way to determine if it makes sense. We all are looking for that lower mortgage payment so we can use the savings for other things, it's the usually the only reason that someone refinances their home. But maybe there is another way to think about it?

When thinking about refinancing, a better way to weigh the decision is to evaluate the "net benefit". Net benefit represents the overall impact on your personal wealth from refinancing your home mortgage. With that in mind, CreditSesame.com has an infographic spotlighting a new way to think about refinancing your mortgage.

The infographic explains net benefit and an example case study of a proposed refinance. In the infographic, the proposed mortgage refinance has the homeowners making a larger payment over a shorter term. Raising your mortgage payment sounds counter productive but for the example, it actually doubled the net benefit and equity of the home for the home owners.

Should I Refinance My Mortgage? Here’s a New Way to Think About It [Credit Sesame]



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