Investing

At the annual meeting of Berkshire Hathaway, Warren Buffett advised about the danger of using hedge-fund managers for investment. According to Buffett, money spent on plumbers or dentists adds more value than on hedge-fund managers. In aggregate, investment professionals aren’t worth their fees. Investors would be better off sticking their money in a low-cost index fund.

“If you go to a dentist, if you hire a plumber, in all the professions, there is value added by the professionals as a group compared to doing it yourself or just randomly picking laymen,” Buffett, 86, said. “In the investment world it isn’t true. The active group, the people that are professionals in aggregate, are not, cannot, do better than the aggregate of the people who just sit tight.”

Vice Chairman Charles Munger, 93, said “it’s even worse than that” because some hedge fund managers with a long career in the industry — known for charging 2 percent management fees and taking 20 percent of profits — do well, attract money and then lose it.

“The investing world is just a morass of wrong incentives, crazy reporting and, I’d say, a fair amount of delusion,” Munger said.

Buffett also challenged, as he has in previous shareholder meetings, the 2-and-20 compensation model for hedge fund managers.

“If you even have a billion dollar fund and get two percent of it, for terrible performance, that’s $20 million,” Buffett said. “In any other field, it would just blow your mind.”

When you are young, your human capital (wage-earning) should be integrating into the overall financial plan. When developing the asset allocation, young investors should invest more into stocks due to the fact that human capital is at its highest point. Larry Swedroe explained is his new article, Understanding Different Types of Risk:

We can define human capital as the present value of future income derived from labor. It’s an asset that doesn’t appear on any balance sheet. It’s also an asset that is not tradable like a stock or a bond. Thus, it’s often ignored, at potentially great risk to the individual’s financial goals. How should human capital impact investment decisions?

The first point to consider is that, when we are young, human capital is at its highest point. It’s also often the largest asset young individuals have. As we age and accumulate financial assets, and our time remaining in the labor force decreases, the amount of human capital relative to financial assets shrinks. This shift over time should be considered in terms of the asset allocation decision.

When young investors develop the investment portfolios, you should consider having more into stocks with high human capital and longer time in the labor force. As you age, you should gradually shift your asset allocation more into bonds as your time remaining in the labor force decreases.

With the triumph of index fund investing, Vanguard is growing faster than everybody else combined as investors everywhere are pouring money into Vanguards. The $4.2 trillion mutual fund giant is indisputably the king of mutual fund industry. The New York Times reported:

In the last three calendar years, investors sank $823 billion into Vanguard funds, the company says. The scale of that inflow becomes clear when it is compared with the rest of the mutual fund industry — more than 4,000 firms in total. All of them combined took in just a net $97 billion during that period, Morningstar data shows. Vanguard, in other words, scooped up about 8.5 times as much money as all of its competitors…

The effect within Vanguard has been no less profound. For decades, the firm has made the case that cheaper index funds will, over time, outperform more-expensive mutual funds that rely on brainy portfolio managers to pick stocks.

The main advocate of this doctrine was the founder, John C. Bogle, who retired in 1999 but runs a research operation on the Vanguard campus. For years, the firm has relied more on his simple message and the passion of his devotees than on fancy advertising campaigns to spread the word.

Unlike its peers, Vanguard is owned by its funds — and ultimately its investors — so as money rushes in, expenses are persistently reduced, resulting in perpetual savings for the legions of Vanguard clients.

If you would like to get your fair share out of Wall Street while avoiding high fees, transfer your money into Vanguard funds. Average fees on Vanguard funds have fallen to about 0.12 percent. In investing, you get what you don’t pay for.

 

If you’re young, preparing for retirement may seem premature, but start saving smartly now and you could be a millionaire before you retire. If you’re one of those with 401(k) that has far less than $1 million in it, Roger Wohlner, The Chicago Financial Planner, has 7 tips to become a 401(k) millionaire:

1. Be consistent and persistent
2. Contribute enough
3. Take appropriate risks
4. Don’t assume Target Date Funds are the answer
5. Invest during a long bull market
6. Don’t fumble the ball before crossing the goal line
7. Pay attention to those old 401(k) accounts

How To Become A 401(K) Millionaire In 3 Simple Steps

Becoming a 401(k) millionaire is within reach to many young savers. Here are three simple steps to achieve your goal of a million dollars in your 401(k).

1. Save a Lot

You should try to save at least 15 percent of your pay to your 401(k) every year. If you’re not there yet, at least contribute enough to meet your employer match. Every pay raise, try to increase your contribution.

2. Start Early

The best time to start saving in your 401(k) is now. Time is on your side. When you start saving at a young age, your money has a longer period to compound. According to Fidelity, 401(k) millionaires generally started saving at age 25 and plan to retire at 67. The earlier you start investing the more time your money will grow.

3. Invest with Discipline

Create a plan and stick with it. Since you are young, don’t shy away from stocks, both domestic and international, in your investment portfolio.

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Do you want to know does the market timing concept work? Is there any empirical evidence that proves mutual funds have historically performed better on some days of the week than others? Read on to learn which day of the week is the best day to buy mutual funds.

This topic of when to buy stocks or mutual funds came up when I have a discussion with a friend whom I successfully introduced to the world of passive investing via index funds. He wanted to know what is the best day of the week to buy mutual funds? Obviously, the best day to buy mutual funds is when the price is low. But which day of the week? [Read more…]

If you think that investing is only for the rich and for those who are well off, you’re wrong. Investing is for everyone. Of course, if you have a lot of cash, there are more investment options available for you. However, with as little as $1,000 you can start your own investment portfolio.

This article will show you how to start your investment and where to put your money to maximize your returns while minimizing costs. A journey to financial independence begins with a single investing step. Start your investment today. Don’t wait!

Should You Start Investing Now?

You want to invest in the stock market to build wealth for your future. Investing is relatively simple and painless. If you don’t plan to live paycheck to paycheck for the rest of your life, you want to start saving and investing now. Over time you will have a lot more money to fulfill your financial dream such as retirement, education and entertainment.

But before you create your first investment portfolio, there are a few things you should consider.
Make sure you tackle any high-interest debts first. Start paying off all those credit card debts before putting any of your money to work in an investment portfolio. Paying off high-interest debt first also makes sense because you’ll earn more than the stock market by getting a guaranteed return from eliminating your interest payments.

You should also take advantage of your employer’s matching contributions before starting outside investments. The match contribution is like free money, your best possible investment. No other investment can offer that. [Read more…]

Investing in any IPO is always a risky bet. That’s a big learning lesson for many millennial investors trying to cash in on Snapchat’s IPO. Recent Snap’s stock drop has left a bunch of millennial investors under water since the company went public on March 1.

Snap Inc pulled off the hottest technology offering in three years, but its stock has steadily retreated after the inital two days of explosive gains as investors worry about Snap’s high valuation and lack of profitability. So far Snap Inc shares have tumbled below $20 on Thursday for the first time since the company’s $3.4 billion public listing

“I bought it even when I was pretty positive I would not make a profit in the short run, but just because I am a fan of the product,” said Chris Roh, a 25-year-old software engineer in San Francisco, who has only been trading stocks for about a month on Robinhood, a mobile trading app popular among millennials. Trading activity on Robinhood jumped by 50 percent on the day of Snap’s debut, with more than 40 percent of those who traded that day buying Snap shares. The median age of Snap shareholders on the platform was 26, the same age as Snap Chief Executive Evan Spiegel, according to Robinhood.

New York Post reported: “The stock of Snapchat’s parent company has been on a roller-coaster ride since its market debut last week, surging more than 70 percent from the initial public offering price in the first two days of trading and plunging back down by a quarter since… On StockTwits, a Twitter-like platform for sharing trading ideas, where 40 percent of users are between the ages of 18 and 34, Snap has been the most talked-about stock for days.”

In contrast with long-term investments, putting your money in an initial public offering (IPO) is a huge gamble. Most of the upside return from IPO has gone to the well connected insiders and wealthy clients. Plus you cannot predict when the party is over to cash in on the profit. The game is stacked against small investors who often lose money betting on hyped IPO. Hopefully, these millennial investors learn well from Snap IPO.

Howard Silverblatt of Standard and Poor, using data through the end of 2016, calculated that if you’d invested $1,000 in these 3 stocks in the 1980s, you’d be a millionaire today. That calculation is as follow:

• If you put $1,000 in Apple in 1980, you would have $228,113
• If you put $1,000 in Microsoft in 1987, you would have $546,996
• If you put $1,000 in M&T in 1980, you would have $640,948

By only invested $3,000, you would have accumulated a grand total of $1,485,853. So, what are 3 stocks to invest $1000 in nowadays that will earn you a million dollars when you retire? Don’t bother. No one can predict the future stock market’s performance. Your best bet to retire as a millionaire is to save early and consistently throughout your career while investing in low-cost mutual funds. You can learn these five habits of the millionaires today.

Vanguard cut fees again, marking the third time in three months, to save investors a cumulative $143 million in savings across 124 mutual fund and ETF shares. This reduction is a big win for investors like you and me. “While Vanguard is lowering — and will continue to lower — the cost of investing, the so-called fee war is essentially over on the beta battleground. Investors have won,” said Vanguard CEO Bill McNabb. “The demand for low-cost funds and ETFs, along with intense competition, have made investing far more affordable today than ever before,” added McNabb. “With the broad availability of low-cost options, investors – whether on their own or with the help of a financial advisor or employer – need to focus on the other factors that can lead to investing success, including saving more, developing a suitable asset allocation, using broadly diversified funds, and maintaining discipline through market ups and down.”