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Wise Bread Wants to Know: What Money Advice Are You Sick of?
By JLP | September 8, 2010
Wise Bread is running a little contest to find out from readers what money advice they are sick of. Find out more here.
If it’s good advice, I don’t understand how people can be sick of it. The only piece of advice, which I consider not good in all situations, is Dave Ramsey’s advice to ONLY use 15-year mortgages. There are several factors to consider so making a blanket statement of only using a 15-year mortgage is bad advice, in my opinion. The other bad advice—also from Mr. Ramsey—is his assuming a 12% return on mutual fund investments. That’s HORRIBLE advice.
Okay, now it’s your turn to head over to Wise Bread and enter the contest.
Topics: Announcements | 10 Comments »
September 8th, 2010 at 4:07 pm
How to get a credit card and how to improve your credit score.
September 8th, 2010 at 5:39 pm
First of all, howdy JLP. I don’t much get a chance to write in a comment these days (seeing as how I’m blocked from such things at work).
To the question now… what I am sick of seeing is one size fits all advice. Because the truth of the matter is that no “expert” really knows exactly how any narrowly defined financial strategy will pan out in the end. The one thing they do know for sure is how to get rich themselves selling you their books, tapes, and whatever.
Personally, I take a very fluid approach. I don’t know exactly which trail is going to get me to my destination. I used to do a lot of Outward Bound type wilderness stuff and I like the analogy.
I didn’t start any hiking trip without state of the art equipment, maps, spares, 1st aid supplies, etc. Out on the trail, there will be some dead ends along the way – but I would have the means to recalculate and adjust as I learned more about the terrain.
So it is with handling one’s financial life. Preparedness is everything. Training and practice are also very important. And so is flexibility – diversification is probably somewhat overblown, but if you got al your eggs in only one or two baskets, you also better have some cash around for flexibility.
September 8th, 2010 at 9:09 pm
Miguel,
It’s good to see you! You’ve been missed.
I agree with your dislike of the one-size-fits-all approach (reminds me of Dave Ramsey). Like you mention, some “gurus” do it in order to sell books. Others do it in order to stay on message and keep things uncomplicated. Neither is justified.
Please feel free to offer your thoughts from time-to-time. Your views are always appreciated.
Take care.
September 8th, 2010 at 10:25 pm
Hi Miguel. I second that you’ve been missed. How’s life in the Big Apple?!! I hope you and your family are well…
September 9th, 2010 at 7:03 am
JLP, Stacey,
Thanks for the shout-out. JLP I will email you soon.
We’re hangin in there here in the Big Apple. The rumors of our demise were greatly exaggerated.
- Miguel
September 9th, 2010 at 9:34 am
Sick of hearing that indexing is still the way to go. Such a 90′s argument when the stock market was soaring 20 or 30% per year.
The last decade has shown that indexes are very poor investments and can easily be beaten over the long-haul. In addition, the “flash crash” absolutely destroyed a lot of ETF’s.
Don’t believe me? Look at this: All 15 active fund offerings from American Funds beat the S&P 500 index in the 2000′s. Granted, not every fund is being benchmarked against the S&P, but it still is very impressive.
https://www.americanfunds.com/pdf/mfgefl-320_10yrss.pdf
September 9th, 2010 at 9:46 am
Travis,
I mentioned American Funds’ ICA a couple of months ago (here, here, and here) . American Funds is a solid company. Even Vanguard, the indexer that it is, has actively-managed funds.
I don’t think anyone is claiming that there aren’t actively-managed funds that can’t beat the index. Rather, it’s that those funds are difficult to find and when you do, there’s no guarantee that they will continue to outperform in the future. If a person wants to pursue active management, then so be it as long as they know the odds.
September 9th, 2010 at 10:16 am
I agree with JLP: finding a ‘good’ actively-managed index fund is just as hard has picking the right stock. Actually, it is probably harder since there are more actively-managed funds than there are publicly traded companies..
I second #1: sick of hearing how advice on improving a credit score.
September 9th, 2010 at 10:24 am
JLP,
I very much disagree that odds favor the indexer. If one has any financial sense and avoids junk fund offerings that skew the numbers, the odds definitely favor the investor in active management. Not too mention those numbers you hear all the time about underperforming mutual funds don’t take into account that 50-75% of active funds are also taking on LESS RISK than their benchmarks. So it makes no financial sense to expect them to beat their index.
We’ve already shown a monkey could blindly pick ANY American Fund offering and beat an S&P 500 indexer.
Now, here’s a comprehensive study showing that Vanguard’s active funds have trumped their index funds on a risk-adjusted basis over a 25+ year period. This study was done in 2004, and the active numbers have only improved since then.
http://econ.duke.edu/Papers/Other/Tower/Index.pdf
Off the top of my head, similar studies could be (and have been) done on Royce Funds, First Eagle Funds, Davis Funds, etc showing their broad offerings have generally all outperformed the indexes.
And the same holds for bonds, even if you knew nothing and “followed the herd.” By far, the most popular actively managed bond fund is PIMCO Total Return. This fund outperformed the Agg Bond Index by almost 1% per year over the last decade, alone. The most popular international bond fund is Templeton Global Bond. This fund has outperformed the World Bond Index by an average of 4.32% per year over the last 10 years.
All in all, it’s not hard to see that if you do a little research before you invest the odds are definitely stacked against the indexer.
September 10th, 2010 at 11:25 am
From your paper: “On the question of indexing versus managed funds, the data provides conflicting results.”
And if you think about it, that is the way it should be (and always will be). If one type appears to be superior over the other (for everyone), then everyone would switch, hence killing the returns for the winning side. Everyone can’t be a winner.
I’m an indexer, but I don’t want everyone to be one — we need the active trading (and short-sellers) to keep the prices fair/honest.
Good read, thanks for the link.