Interesting article about index funds vs concentration

Recently, Vanguard released a research study discussing about index funds vs buying few stocks concentrating on the performance side:

https://personal.vanguard.com/pdf/ISGITO.pdf

It is interesting how the blogosphere gave further arguments on index funds vs focusing on timing vs looking at few stocks. Easily said than done. If we see in 2019 who is good and were we able to predict that say in 2009, even in hindsight it is a tough ask. There is index funds on one side and there is retail companies like Costco or Walmart, utilities sector, healthcare sector, pharma, finance ( which was coming off the recession ), tech sector and so on. Nothing shined particularly bright sector wise. Company wise there is an Apple which actually did well post 2009 when the talk of the town was it was past its prime. Which is also correct since Apple did not have any blockbuster product since then and it is just running off the iPhone launched in 2007! A google could be argued as having a sound strategy but then they did so-so overall. A facebook or twitter? New ones like Uber or airbnb which still have to go to IPO stage as of this writing? Even a fast paced tech sector has lots of delays.

Granted, there are others who went the whole nine yards and maybe performed well. But in the grand scheme of things that is just looking for performers or non performers in a stack of hay. Rather just purchase the whole hay ? One strategy that I found useful was to diversify to real estate as well as put the money in some sort of bonds or safe harbor. That atleast gave me lots of good sleep. Diversification is key and very important. Market timing in stages is also important. Getting some sectors and owning whole market is also key. Then focusing some money on few top performers is also not that bad strategy. That said, be ready to lose some money or focus on duo-polies and multi-polies. But that is again a tough ask in tech sector.

If I had 100 bucks to invest, I would still maybe put 20 in safe like bonds, 80 in stocks, which further would be 50 in index funds, 20 in sector funds, 10 maybe in individual stocks. Maybe. I would still keep it at 5 or so. And then break this 5 to 50 cents * 10 each and distribute across various sectors. Forget about the timing. There is no way to predict right now which company would perform good, would hold on to market, would buy or get bought, would compete or just be upstaged by a rival. And if they do hold ground, in wall street speak that is just losing ground. Market does not care for hold and stability and what not. That is what the Utilties are for or holding companies are for. Or big dividend paying stocks are for. They want growth like an Amazon.

Does it even make to have a strategy with so much change and volatility ? After all, I guess, one might be able to play this game for a 2-3 decades at max. As a fund manager ,same time frame or maybe more if you survive. As a common man, that is the time to invest and maybe preserve capital for a 5-6 decades long. Not to mention, the main focus on career and to buy home and maybe a rental property or bootstrap a startup or two. As rightly said by wise men a many, index funds is the way to go for most people, most institutional investors and most any other people. A fund manager with lot of clout and money can maybe play a bit. Just like a warren buffet. Maybe one works for a pre-ipo company or in a public company which gives these stocks and options for less. Say an amazon exec banking amazon stocks. But that is again part of earning and said exec might start a new company or work hard to get there at the top of amazon which merits such huge payout. All said and done, that is a function of your earning potential and not investing potential. As said earlier, diversify and also have realistic expectations. Some stock is doing well, own a piece of it, keep it for long, bank some profit and wait for long time if it is a good stock. And if you lose money on that, dont dwelve on it since you will have a fallback of index funds to cry yourself on!

Updates in October

The market has been steady since July. Went up and came down and went up and came down but overall the monthly returns have been good. It broke lots of records and there is a certain volatility these days in the run up to the elections due to uncertainity. This is expected but the 100-200 points are becoming rather normal - ideal for the swing traders. Fedex keeps going up for no reason. There is no major revenues posted or profits had. But wall street keeps putting them very low thresholds to cross and obviously they beat that expectations and the result is $10 pop up in shares in last two years now. For such a large company, it is rather behaving as if it is Berkshire Hathaway on steroids. Tech companies continue their upward swings are prime suited for bubble territory. Who would have thought FB going to 130 from 40 ( to 20 ) ?? Google or Apple or rest are all in good stead. Same with bio and utility stocks. Rather than following any individual ones, better to stick with the indexes though everything is pricey for now. I think the best bet would be to keep piling cash and putting the money in high interest savings or money market accounts or CD or really anything that the cash will make money on. Post elections, there are going to be downswings. The data seems to be on the bad side. Employment figures are a bit all over and there is legit concern that automation and not outsourcing or offshoring or immigrants are going to be a challenge for the employees. But that is just general part of the cycle. 

With elections around the corner, there is a lot of unpredictability. With two unpopular candidates this is rather a very different election than anything in recent memory or in the past 30-40 years. But by all account, the world has changed a lot and with the penetration of technology and internet, this is an election with different rules. It would be interesting to see how this all plays out. 

June 2016 roundup of stocks and online savings and CDs

So the markets has been doing the usual jig saw. It is clearly in swing mode .. from the start of this year it has fallen down by more than 5% points and back up few times now .. It has been doing that for a while now. The general feel is new highs are being tested and likely the only way to go up from here is down. But we all have seen that being told multiple times. So what to do ? I guess maybe buy some and hold. Only in safe stocks such as utility etc. All of them are high at the moment. Speaking of highs, Apple did fall quite a bit and lost its most valuable company tag for a bit. But overall, still it is high. The market analysts started clammering around the 10 p/e statistical measure as if that alone determines the worth of a company and market. Not us. We do not recommend Apple as of now even if berkshire h buys a position in it. Just hold off for the moment. These things have a way of working yourself out.

Meanwhile, one suggestion that no one seems to be giving is about the role of safe instruments such as CDs and MMAs and online savings. There is Discover, Amex, Barclays, credit unions such as Air force, Nasa, Navy FEDCU, Penfed, Alliant, Ally Bank and really any local credit unions, big yet stingy banks such as Bank of America, Citi and Chase; online only banks such as Capital one among others. A simple query to bankrate.com and similar sites such as smart asset gives you an idea of what all banks and rates are out there. And it is easy to check out the local banks - takes about an hour in an afternoon to check them out and put them in an excel based on which banks are near you and you comfortable with the site/technology and people among other things. I for one, really like the big banks such as Chase and have good experience with their call centers in India. Ditto with the Citi bank and Bank of America. There have been some US based banks and local call centers who tried to give some attitude and have promptly shafted them and severed relationship with them. So do not discount the human aspect in this banking relationship and go beyond just a simple app to what the wide array of features are out there with the various banks. Given that there is no super flash crash expected in coming few months, I thought it will be good to move some money to the online savings or CD accounts. Not only will they earn full 1% instead of the 0.1% currently but there is a good chance that with increasing interest rates, this will go up and set up the portfolio quite well for an eventual fall of the stock market.

Avenues

Fortune and luck favors the brave!

Nowhere that statement is more apt than the stock markets. As seen before, timing does have a pretty sizeable impact. And if there is a way to automate those thought process or maybe even put an algorithm that could help in managing swings. Now, this is not a novel thought and there are plenty of algorithms and strategies out there which run in an automated fashion where +/- 15% or 20% is something that triggers a rebalancing or buy/sell decision. That is pretty solid move for sure. 

But for those that are safe and want to time the market a bit or just wait till the opportunity presents itself, the way to go is to have some squirreled away in a CD or an online savings account. Here will go thru which ones are some of the good ones.

Of course, you can go to the bankrate.com or similar websites and plug in your city and get the list and you can also go to the list of your local credit unions for better rates since they often almost come at top. However the drawback of the CU is that the website is often not that great and transfers etc take time. Be prepared for additional paperwork such as faxes and scans etc. With online national banks etc those can be saved. The rates are good at online banks as well as CUs while the national banks unilaterally suck. As for 2016, for about 7-8 years now, all the big banks give about 0.1-0.5% max. There are few of the online versions that are coming up and many of them are simply bad. 

Some standouts are American Express online savings but they have only general savings and no IRA. Barclays is also the same. 

Standout here is Discover Savings. They are really good.

So is Ally Bank. Nationwide Bank. Synchrony Bank. 

Credit Unions affiliated with Govt or military are good with rates such as PenFED CU, Navy FED CU, NASA CU, Airforce CU among others. Alliant CU is one of those which are really good with rates and worth a checkout.

Here are the rates in no particular order:

http://www.alliantcreditunion.org/bank/credit-union-certificate#rates

https://www.depositaccounts.com/banks/air-force-fcu.html

https://www.discover.com/online-banking/ira-cd/

https://www.penfed.org/IRAs-Overview/#tabs-2

https://www.navyfederal.org/assets/rates/view-all.php and https://www.navyfederal.org/products-services/checking-savings/iras.php

https://www.nationwide.com/bank-IRA.jsp

https://www.ally.com/bank/savings-account-rates/

A big shout out to Ally bank since they offer the 1% as online savings which is very nice since a lot of banks carry penalty when you have to withdraw the money or transfer over to your brokerage account. If you see an opportunity, such as the oil crisis in early 2016, when you feel to transfer a portion over to a brokerage account, with CUs and other places there are penalties while the online savings such as Ally, there is none. Discover also excels in this department. And honestly, one wants minimum number of hoops to jump before making any transfers. It is fine if it takes about 2-3 standard days to transfer over. But it is altogether different mental block if there is a CD break and issue a new CD, think about penalty and all that. Maybe you might come out ahead or whatever, but in the long run, from a psychological perspective, it is better to keep things simple and straightforward. And predictable.

Notes on timings

Popular notion fueled by advisors and written material in finance literature points to a strict NO when it comes to timing the market. But then if you run the portfolio simulator and backtest various allocations and performance models, it clearly points to the impact on timings. Of course, we live in the present and have some benefits of past and immediate past and the pressures of the future as well as that of the immediate present. Put all this, and you have very limited time to analyze or react to what is going on currently in a dynamic medium like a market. Add to that, for most of us, the finance stock market is not the place of employment. We could be in something related like technology or something a bit more  farther off which will further skew your views on the materials that you read and absorb in real time. Then there is often well crafted and formatted views which can manipulate you without you even realizing that you are being cooked! Hence it is better to be slow in such environments and take time to find that needle in the haystack. By that I dont mean finding a gem of the stock or anything like that. Rather, on the defensive side, not to be burned by any one particular philosophy. Diversification is the mantra for that though there might be others who will say not. First diversify. And by that I mean not only assets but also your thoughts. So apart from long term static investments, have some that is in short term or medium term, some in auto pilot mode for the new money while some in the cash only or CD mode for a rather lengthy period of time. Why ? Well because if you run various asset allocation porfolio between 2006 and 2016 you will see that for $10,000 investment, you get about $15,000. And with or without rebalancing at various levels of frequency - annual or semi annual or quarterly or what not, you end up with a $1,000 differential here and there. 

So assume you do all this, still there is no enough thought diversification. The one related to timings say that leave them alone, determine a time horizon and do not touch. Yet in the above example, if you had contributed in lower amounts thru 2008 and racked up during 2009 then you have a $20,000 balance at the minimum without the other variables. Meaning, no rebalancing or anything but during the gloom days when everyone is pulling off the market, had you just put even about $5000 in it, you are still nearing $18,000. Hence, we will never discount the aspect of timing. That definitely does make a lot of difference.

Shoutouts

There are few blogs and sites which catch our attention and we subscribe  to it and visit it daily to get the view points or rather monitor the trends in a particular space - say credit cards for this site, or finance for other sites or travel.

So some of the recommended sites in credit cards space are:

http://creditcardsteroids.blogspot.com/

https://creditcardsteroids.wordpress.com/

Mr Money Moustache Blog

My Money Finance blog

For auto deals: There was only place that is worth recommending which is www.autoslash.com

There are multitudes of other apps in both Apple iOS and Android where you can download them and try for their features. They might not be really great and simply an extension of what your text. word or excel files does but it good to have them handy but to tune off the noise you are better off just putting them in a document and then transferring over to a calendar or task manager and execute them from there.

Buy low sell high!

This one is a big topic and deserves its own post.

And that is the ultimate mantra of the market world. There is really nothing else. I mean just do this one thing and you are all set. Just like for fitness just do the stretching/lifting routine and some physical activity and you are all fine and dandy till 90 and also eat well etc. Just like in computer world have html/js/big data/free db/java and you are all set for any application, it is the same way with this idea or concept. Have it at its core and you tide along the financial advisors, however persuasive they are. Really at its core, markets are nothing but test of patience, perseverance, honesty to the ideals, application of calmness, ability to tune out noise and false data among other things. So this blog  and the private blogs in my home computer, the tools that I have created is all I need for not only my portfolio but also for the startups that might get created by me in future. Might be. And the rest is just have this algorithm in the core and present format differently.

Time frames

What are the short terms? Medium terms? Long terms? Does just looking at time frames a valid strategy ? Does it lead to automatic rebalancing?

Well, these are some questions that any investor will have thru out lifetime. Now, there is of course terms - short terms are good for trends and medium to long terms are better for things like ETFs or mutual funds. 

Rebalancing in this context is something like you buy some/sell some/ buy some more/sell some more and live it at that. Dont go by any particular formula or date .. just go by gut feeling and randomness. There is a site for simulation where it can be seen that rebalancing is not that it is touted out to be. Rather , just leave the portfolio as it is and you are better off in many times.

Asset Allocation models

There are different asset allocation models that gets recommended by various folks. 60-40/50-50/70/30/80/20/x-(100-x) and so on. Now there is no one out there who will say just do not allot to stocks or bonds:). I think that is important to have at least some that is away from both stocks and bonds. Preferably you can put them in a high interest safe savings instrument. CDs or High Yield MMAs or High Yield online savings account - lot of options are there. 

First off, there is no getting around the fact that there has to be earnings in huge magnitude .  There is difference in earning a 100k vs a million vs a billion. Those are very very different. And then the savings part. Rather than percentages and sticking to budgets, I have been more of a free bird and take care of basics of life and savings and the rest will follow. I would not say that that was bad or worked very bad for me. But then again I did not have a budget so maybe there is no real way to know. The savings rates and balances are not that bad. So, I would say that let us just continue with the basic things,  a bit of big picture as well as small picture guy. Now, back to the asset allocation, early the savings the better. 

This vanguard paper is good: https://personal.vanguard.com/pdf/s285.pdf

And: https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

This site is something that I like for testing out various allocation models: 

https://www.portfoliovisualizer.com/

They largely give the stock bond split. Which is good. But dont ignore the safe - govt employee pension secured guy model where all is in treasury or rather CD and you get better rates thru them. Though since 2008 it was in 0s, as of the time of this writing, the bankrate.com websites shows banks such as Alliant CU, Ally Bank, Discover Online savings, PenFED CU, Synchrony Bank?, NavyFED CU, Nationwide bank, Airforce CU etc among others who are giving between 0.8 - 1.1 or something similar. Not too bad. I would say better than the prime money market rates and flat line rates. A disadvantage is that rather than having all in at one place in Vanguard and giving you a big picture and maybe a voyager client account etc., it really does not have major benefits in the sense that it can work to your disadvantage by you being lax about big trades. While having it in different locations and moving only few amount of money at a time will get some discipline. The downside is of course too many accounts to manage. What is the ideal number? I would say something like 3-4 .. So if you have savings with Discover and HSA with Alliant CU, opening IRA with these two is no brainer. The rest - open as needed. Maybe have a minimum of $100 or so in it all the times. Till one reaches say 60 and then liquidate and maybe have only few. Till then, run riot with it:)

Back to asset allocation, the 50-50 seems to be as good as 80-20 but will less risks. But earn more and save more. Then put some in CDs, put some in global countries like India or Singapore. Then put in local USA stocks and bonds. And then use the bilo sellhi technique to have it in a state of flux.

Here is the excerpt that I got from MyMoneyBlog:

Vanguard did a similar study called Penny saved, Penny earned back in 2011 that compared three levers: savings rate, portfolio asset allocation, and also starting to save earlier. Take the following baseline scenario:

• Investor begins working at 25, but starts saving at age 35.
• 12% savings rate
• Moderate asset allocation (50% stocks and 50% bonds)
• Salary starts at $30,000 but increases with age

Now, here are three ways in which a worker could increase their final savings balance at retirement (age 65).

• Option #1. Invest more aggressively with an asset allocation of 80% stocks and 20% bonds, while keeping your 12% savings rate and starting age of 35.
• Option #2. Raise your savings rate to 15%, while keeping your starting age of 35 and 50/50 asset allocation.
• Option #3. Start saving at age 25 instead of 35. while keeping your 12% savings rate and and 50/50 asset allocation.

Which single option do you think has the most impact? The results are based the median balance found after running Monte Carlo computer simulations based on 10,000 possible future scenarios for each option.

Scenario	Median Balance at age 65	% Increase vs. Baseline
Baseline	$474,461	–
Option #1 (Aggressive asset allocation)	$577,133	22%
Option #2 (Raise savings rate)	$593,077	25%
Option #3 (Start saving earlier)	$718,437	51%

Between the three “levers” you could pull, starting to save earlier wins by a significant margin, which is an important truth but minus a time machine today is the earliest we can start saving more. After that, a higher savings rate is a more reliable path to improving your odds for success. Investing with significantly more risk performs somewhat similarly on a median basis, but actual results will vary the most widely.

As you can see, start early and save a lot. Then diversify with less risk to you. So even 50-50 is not that bad and gives you less swings. So all in all concepts like Asset allocation or Rebalancing will not provide that much variance. They are more like toppings and as long as you dont over do these things, you should be fine. So no too much rebalancing or too much obsessed about asset allocation. Rebalancing, btw is another tool in which there is periodic shifts but back testing show, again in the same website above, that there is little difference as such and you could be fine without it. So do some rebalancing and live the rest as is. When there is a winner stock or ETF, leave it as it is. When there is a loser that might rebound, leave it as it is. Other times, maybe sell a few or buy a few more. Really dont over think these things. 

Blog points

Every concept, blog, story, religious texts, constitutions, ideas, code has some key points. You know, like the blog key points, document summary, executive summary and so on. These are the core key points, key actionable items and these statements of truth or axioms are the key guiding factor. Wise men then apply these axioms with various levels or intensity for various problems .. essentially a mix of these key ingredients to create up solutions for different problems. Pretty much similar to the cooking analogue. Though new ingredients might surface, still at its very core, the key ingredients of salt, pepper, turmeric, chilli powder, masalas and veggies are the same. Then you saute or steam or do different things with veggies for different seasons or to get various types of cuisines. In this post, we will try to summarize some key points after reading this blog and see how that is stacking up against the reality of the finance markets. Some of these tenets come up with wisdom, time, after ruminating over key points over and over again - thus losing or graying your hair!, experience, what the stock markets such as the ones from 2008 teaches you.

1. Buy Low sell hi! Really there is no other way around it. It is as simple as this. Either start your company and get the RSUs or stock units at 0 or near 0 or just be a top executive and get them for free or cheap for the time that you put.
2. Diversify - seriously, just diversify to all that is there. Forget about just stocks or bonds, also diversify to online savings and CDs.
3. Index funds rule - seriously, again they are self balancing and self allocating automated funds with low expenses. So just go with those and apply rule 1. I have backtested a theory where over a large set of big stocks, there is minimal difference between trading in stocks vs index etfs or funds and index comes out ahead with lower trading costs and expenses with less risks.
4. Simplicity - if something is complex in structure and understanding, it is definitely bad. Just like physics or math, people that are statisticians love to bring up complex model and the result is 2008. Stay away from that.
5. Own business - yes there is no way around it. And better to have one's own business in product sector where something of tangible and intangible (mainly) value is set. This also gives more freedom than the routine job which is essentially the bread and butter. And one's own outlet of dreaming big during the weekends.
6. Health - that is really the biggest wealth out there! Always be fit enough to live a 100 years .. not necessarily muscles but good and disease free body and  mind and soul. Do yoga, kirtans, prayers and go to nature a lot. Travel! Eat healthy!
7. Family - is very important for emotional and mental well being. Very important.
8. Yet to be determined.

Notice how the actual stock or bond market itself is very low points while the most is about human - that is the truth! Ultimately this all is just a tool to get you towards your life which should be led well. No point in all stocks or bonds since no company is worth that and hence you should follow the govt employee model of saving on ultra safe treasury and live off the interests. No tensions or stress. Health and well being is important. Family is important. Spirituality is important. Reading and other things etc. are all important. Art is important - and maybe can make serious money too. A good singer / artist/ actor/ writer/ author/ and really anything that has a solid customer base is very lucrative. Leaving the philosophical track aside, the basic of money world is to earn more. There is simply no way around earning more. Earn more and save more. Also spend and have fun. And then relax and bring happiness to others. Then they will say "What a guy!". 

Recent ups and downs

The lessons to be learned from the recent ups and downs in early 2016 - basically January saw a downswing and fears of a -20% drop followed by a huge surge up at the time of this writing as of March 10 2016. Let us see what future unfolds but for now, we can reflect on this period and the current thought process on what I would have done with the current tools and strategy matrices etc and what would that resulted in:

The overall fluctuations across market did not catch up to the heights of many of the stocks. The core of the rally is powered by fundamentally strong and big volume stocks such as Walmart, AT&T among others. So really this rally is a rather locale or isolated rally than across the sector rally which would have more legs in it. So, I think things are going to go down in the coming weeks again. If there is any uncertainty coming from any part of the world, this froth is going to go down big time. So I would rather wait and watch. But the truth is maybe there was some buy and sell opportunity in the broader ETF and select stocks such as Walmart. But all in all, I would say if you had say 10,000 then maybe about 500 of this could be something that you could put into stocks or etfs and maybe swing it a bit. But anything more than that is a risk. Honestly even this 500 is a risk .. more conservatively I would say between 100 to 400 on the liberal side. So that is pretty much it. Some of them did well and some did not. So again monkey business as usual. And if you did not buy or sell and simply hold on to what you have .. then you have not really missed any big action here.

March newsletter and no longer supporting bank of america/Merill edge platform

So what is the best word to describe the going ons in the stock market in the past couple months ? 

SEE-SAW

It went up and then went down and then went further down and then came back up and then went down  .. same thing is going on ... yeah, some people might think of this as a swing situation and do swing trading. As shown in the previous posts here: 

http://millenialfinanceblog.blogspot.com/2016/01/jan-2016-newsletter.html

that hardly makes any difference. I did a swing post back testing for the last 10 years when there was a good downswing followed by considerable upswing. That period gives us a refreshing course of how it works and not generally fall into what pundits say about stocks always performing better. In a way, it is a good test of risk tolerance and balance and understanding of stocks and economy as well as general human behavior. Without boring you with the data, there is hardly a correlation between faster trading - whether daily or over a few months or quarterly to periodic rebalancing to any concrete return in profits. In other words, too much of reliance in timing never works. At the same time, we know that those who did buy during early 2009 are sitting in some pretty good gains so of course, some timings does work.

Hence, in this blog we advocate doing a balance when it comes to different approaches. Never take any statement in absolute way. Only sith deals in absolute. So there will lots of gurus who will tell about do this or dont do this, dont do options, do options for hedging, invest only in index or vanguard or dont do that and invest only in invesco or american funds or active funds and so on .. the thing is in the finance world, there is no true point. Rather it is a big picture about possible true or better positions for your hard earned money. One works hard and essentially puts in some time early on to accumulate some money which is supposed to help oneself as well as one's family in future. Usual investment vehicles aside, diversification is the very first key. After that manage risk, do periodic rebalancing, maybe do some aflacku the duck style or any monkey/baboon style throwing in some money and holding it on for a period of time and using just plain common sense, selling it off after a time when you have made some decent returns. 

As for investment vehicles, choose the ones that you are comfortable with like stocks or bond or CDs or options ( though we dont advocate that or betting or derivatives or anything akin to gambling ) or just cash holdings ( yeah! that is fine too. Cash came out ahead in 2015). Choose your avenues - ira or taxable etc. wisely. Once you have some sizeable holdings, over 100k+, is when there is at least some strategy to play with. Now in one of the previous blogs, I had mentioned about the benefits of $0 trade fees for stocks and how merill edge and bank of america is a good case study on how to implement this. Well, I am rolling back my position on that after some experience. First of all, the data point that index trading is much better and effecient compared to individual stock trading. Secondly, there are players like Loyal3 or Robinhood which are way better than the Merril edge / bank of america combo with way less balance requirements. And most importantly, the rise in CD rates which I had sort of lost sight off. 

A little backstory: long time ago, there was a company called Zecco and they had a $0 commission fee in exchange for ads. Many other companies before and after tried that and eventually got acquired. The current roster of loyal3/robinhood is pretty much the continuation of the same strategy of acquiring user base and then selling off to bigger rivals. Banks like Wells fargo with their wellstrade program or Bank of amerca with their merill edge platform are rich enough to absorb some of these fees if there is volume. But most importantly they want some balance with them which will generate margin fees. No free lunch there. So back in the day, I had calculated this in the back of a napkin and justified that online banks ( like discover or amex ) will come out ahead with their better interest rates coupled with low cost stock brokers such as Tradeking or really anything under 10 bucks per trade if you do limited trade per year which is what is recommended in general whether it is a swing market, up or down one. Now with merill, I justified to keep 25k on the side or put it low interest cd or just periodically put that in an account and maybe do periodic trading. That does make sense but honestly it is more of a hustle  than a strategy. It is more something  that will be a distraction and hence given that and more importantly the fact that if you have stock trading in say a basket of 10 stocks vs you trade for free in an etf with Fidelity, you are likely coming out ahead with less stress and less costs and almost equivalent or even better performance with effecient risk management in the case of ETFs.  The current list of banks with IRA CDs worth considering are again mostly in online space or credit unions - such as Alliant credit union or Penfed credit union among others; Ally bank or Discover bank among others .. Nyat sure if barclays or Amex offer similar products but that would be worth a look. The point is, an online savings bank or credit union for your IRA cd with ETF from the providers and a low cost brokerage ( under 5 bucks ) comes out still ahead of the bank of america merrill edge program. Muh math on the latter was a bit off given that there is a 25k requirement in the bank of america deposit which currently yields about $5 if I were to generously round it off. The same with ally to discover will yield about $375 to $300 at the minimum. Those are safe and more convenient to bank of america. Not to mention, you are getting $300/5 = 60 trades for an year.  Now do you really that many trades in a given year? With a corpus of 100k+ to about 500k or so, it is doubtful that you are going to find that many quality trades. With a good financial advisor by the side, you are looking at about 10-40 trades at the maximum for that kind of amount per year. If someone advises more than that, fire them regardless of market conditions. So in a nutshell, I am going back on my last lesson that merill edge/bank of america is a good program and essentially dont recommend it all. On the contrary, stick to less trading and more thinking. Use etfs. They are free. Use better and cheaper platforms. Trade less. Park some on CD. That is something that I definitely stand by from my previous post.

What Tires to buy ?

So 2016 just started and we thought that we should take a different direction on this blog and not just write about finance and investments but also other things that are intricately linked with finance. Now, the top things that are non monetary but yet related to financial well being are a) Health b) Sleep quality c) Driving quality if you drive d) work quality.

Of these, the points a, b and d are for some other day. Here we focus more on c. Which is the quality of your drive. Now, the car one owns by most accounts should be rather minimal unless you are into cars. So that translates to getting a basic Toyota or a Honda or a Ford. If you are into electric then again Toyota or Tesla seems to be the top options. Once you get a car, it depends on how  comfortable you are with new vs used cars. For most parts, a used car is pretty good especially if you are relatively new driver or does not have much experience. A good car dealership or mechanic can vet your car and assure you of any internal rumblings. Then periodic oil changes and maintenance is all you need to make sure that the car easily tops the 200k mileage range that most cars post 1995 are capable of doing. But one thing that will require some annual check is the tire. If you do tire pressure check and constant air fill up, it should be good but there is also the whole tire rotation, re-balancing, winteriz-ation and summeri-zation and all seasons for the rest of the seasons. Now most people either go with all seasons tires or those with extreme weather take precaution to winterize the tires. That is entirely upto your local environment and it is not a bad idea to invest in these extra set of specialized tires to help you navigate the roads well. As a general thumb rule, if you are buying a set of tires or rather a pair or 2 pairs - go with something from different name brands and ideally go with 2 at a time. This gives some much needed diversification to the tires for your cars. However, there are also often advertised specials which cleverly give you 1 free tire if you purchase 3. I was always against such deals .. why not just distribute it evenly amongst the tires. Which is why I tended to stay away from brands which do such sneaky advertising practices. The top brands or rather their dealers do this very often. Of course the margin is very well built in:) . 

Now the top of the heap is the Michellin, Goodyear etc which are pretty good and also expensive. But if you are going to drive in a bumpy road with nails, it really does not matter much as to which brands you go for nor does the bumpiness get any smoother due to some extra quality rubber padded on the wheels. Next up there are the Fuzion and Sumohito - both from same companies and a myraid of other brands in this segment. More or less they are all same. Just like computers in similar 250-500 range, they are just slightly different specs with not much variations so to speak. Then there are newer entrants such as Lexani or Veento and many others who price in the 40s-70s because they are new and want to capture market. I would not overlook them just because. I had used Fuzion in the past with mixed results. Twice my cars got nails on them and the tires had to be replaced. The best process would be just call up local tires and get quotes from them for 2 or 4 and keep them all ready. And go with what ever makes sense but in the tire business cheap does not mean less quality nor does expensive brands like Michellin automatically guarantee better ride experience. Of course for the extra money you pay the thread guarantee is there for 90,000 or 70,000 miles instead of 40,000 miles. But choose wisely. Either way does not matter much. There is a lament here that the tire dealers do not give a test drive for different drive experience which would have given the consumers a better chance to experience before making a decision just like cars or electronics or anything else these days.

An adjunct factor for this decision is also install. Now with mount, balance, environmental disposal fee and this and that .. usually the per tire cost is about double the initial quote. Now most of these are standard and mandatory. Except installation fee. Here Walmart quotes are way better compared to others. Here is a quick comparison per tire installation across various places:

Walmart: $12 

Costco: $16

Sams Club: $15 with emergency assistance thrown in for free which is pretty valuable.

Average dealership: $12-$18 but these can be good and the quality and speed is often better than the above warehouses and you also get to know the mechanic better for oil changes and other work in future. With Walmart and Costcos do not expect a friendly service .. it is just assumed that you know what you are getting into.

The tires cost higher in Walmart and more so in Costco where they start in the 60s and 70s. Walmart and Sams carry from 50s. The others such as Sears typically fall in between. The install is higher with Sears at about 20 bucks but the quality is pretty good. I have had 4 tires brought and installed there in a specials promotions which Sears runs often. With that it is easier for Sears to beat its competition rather well. And in general they are very friendly and knowledgeable. 

Some better online tools help you compare such as Yelp, Google Maps or really any online maps, bbb or better business bureaus, auto repair shops which do not change tires also have good info on reliable stores. Then it is just cold calling them and getting quotes in advance and then just getting it fixed.

Jan 2016 newsletter

So 2016 came in swinging! Late 2015 had all the set ups with volatility, the late august downswings and then continued volatility thru last quarter. But 2016 just surprised everyone with no analysts out there predicting anything remotely close. Led by oil, global fears about various things etc. the first three weeks of Jan 2016 saw about 1500+ points downsizing of the DOW. Similar losses across the board in various sectors and indices followed. Now this blog had mentioned about some quality stocks, all American ones, like Fedex or MCD or WMT etc as core holding in the stock portfolio. These very stocks got burned just like the rest. XOM or AAPL or utility stocks-all of them had suffered. No fundamental, no CEO reassuring similar to what happened in 2008, no sector really performing well above expectations. 

A study done internally for the last 5 years showed that ETFs and low cost funds were better performers compared to individual basket of stocks - big or small .. we focussed on the big and blue ones but they fell short. A mix was a debatable option and overall some stocks are okay to hold in your portfolio but by and large, there is no point in holding too much of them or trading frequently. The study was done to also determine the usefulness of Bank of America Meril Lynch Edge brokerage program which gives $0 commission fee if you have more than 25,000 USD in assets with them. Basically, the idea was to stash 25k as solid winnings or core from so long and keep them on the side. But it fell short too and there are other CDs out there which give better interest rates, negates the need to have 30 free stocks per month. At max, I think one needs to cap free trades to about 10-20 or so per year. Anything more than that and likely you are wading into hedge fund territory from individual investor territory. Again these are numbers and different people have different strategies and limits and numbers so nothing wrong if you trade more than that and turn in a good return. But keeping in the basic philosophy of the blog about Vanguard/Bogle/Buffet and others from similar background, we would limit trading in stocks or etfs or mutual funds. Holding in Buy and hold has a reason and it is better to hold off for a longer terms and then sell in higher ranges and buy in lower ranges with new money flowing into cash positions. I think fundamentally the buy low sell high algorithm is the only sound strategy. Rest everything are just additional tools in the toolkits and salts on your algorithms which also test your resolve and patience. 

Oil is at multi year low and it could go lower than this or bounce back but certainly this qualifies as lower ranges and hence it is better to buy oil commodities or services. VDE from vanguard or XOM/COP etc are all good buys. XOM is still a tinge higher at 70s and could go lower to 60s at which point it would be a decent bargain. 

Interest rate hike

As anyone following the market must have seen by now, that the interest rates have been hiked by the Feds by about 25 basis points. Not bad for savers who were used to 0-0.25% to get that extra 0.25% likely in future. Expect to see some good hikes in the online savings bank world. The days of brick and mortar bank, just like radio shack or blockbuster or circuit city, are pretty much on the wane. Many of them, small and big, have right fully identified customer service as the key differentiator and one can see that only a handful are really surviving and rest are going to need a bailout in future if at all they make it. Anyhow, I think this will have broader impact on stock market. First off, today was a day of rally. Maybe the star wars: force awakens or whatever else is this temporary excitement, I think this is short lived. (Typical celebration in wall street maybe? ) Dont know what will be there in the long run but the indexes have pretty much tapered off and leveled off with the same ranges being breached repeatedly. If the sucker had to go up, it would have gone by now. Which means only one direction to go from here. Or maybe not. Who knows? :D.

Back to investment avenues, recently I had posted on having fixed set of investment avenues, bellweather pulses which help you identify them and create or augment them on the fly and maybe you can stick a range in which you are comfortable to buy, hold and sell them. I think that is a pretty good strategy for your ancillary holdings. Assuming your core holdings in index, this ancillary will be real turbo charge or not, and help you get some extra cushion. Various strategies here like dividend paying, growth stocks and so on, dual stocks, swingers etc can be employed for this space. But be very clear about the goals of this stocks set and how and when to convert them back to cash or index positions.

Avenues

It makes sense to go about in the market with limited avenues of investments. These tools are generally tied to the preferred mutual fund company such as American funds or vanguard or fidelity or t.rowe.price and so on. There are many small yet well performing companies too. Similarly, there are various aspects of these vehicles such as index funds or active funds or a balanced fund or target fund which are usually a mix of index and active funds. This post will try to give you a general sense of these tools.
Fidelity for instance is led by FCNTX and co. The rest of the funds are selected based on the prevailing factors. Similarly, Vanguard has VWELX, Wellesley and Wellington funds and general balanced funds on top of index funds. Note that many times, the vanguard funds do under perform active funds such as FCNTX but in the interest of diversification you never would want to stick to any one in particular. Similarly in stocks world, the pulse basket is good but you may want to whittle down that to just few stocks. Now, do not get attached to any one of them and hence it is good to blog in general. For instance, you may look at Pepsi vs coke but look deeper and you may be comfortable with Dr. Pepper. A home depot vs lowe might give you ideas about something else in this sector. Or just stick with REIT. Same with dual stocks such as CVS/WAG or AXP/COF or the famous, or rather the preferred one of this blog which is the FDX/UPS. They might give you a general sense of things. Most importantly, they will give you a sense of how to go about with these investments in the long run. That is very important. This gives you idea about how much to invest, when to get in and when to get out and when to stay put are the three most crucial decisions in the investment landscape. Now, most of us or many of us do not do this on a day to day basis for a living. We just want to safeguard and expand our nest eggs. So most important of all, this should be something that is very very low stress and low maintenance. Think of this as iphone or i* .. so your own iFund. That you are designing this iFund to take care of everything else. Some model is needed to better understand this. The upside of having this iFund would be you would become detached from it and look at it in whole as well as look at it in pieces. As with everything else in life this is a continous learning process. Finance as a whole is not as important as say health, or life, or relationships but they are all interconnected and better to have a stable one in all aspects rather than something that drags the rest down.

Case for Overheated market

The low market of August 24 is long gone. The market of November 2015 seems to be rallying back to dizzying heights though it is obvious that it is getting overheated in most parts.

Just take a look at the rallying components - for instance some of the bellweather stocks which measure the pulse of the market and it is obvious again that they are having greed written all over it. There is euphoria which reflects in the high and insane P/E for these stocks. Are these really justified at this point ? All the indicators - statistical ones seem to be pointing to an ok economy and ok numbers and revenues but certain companies seem to be simply going up for no particular reason.

Take Fedex for instance. It zoomed from 140 to 164 at the time of this writing. Why? Is there any really good news that came out from this sector or company? Oil got shellacked and yet XOM and Chevron and Conoco are doing rather decently well. Home Depot and Lowes are simply disconnected from the real estate market reports. Walmart got beaten up badly and compounded with Buffet selling stake on Walmart. Usually there are a bunch of followers who mimic what Buffet seems to do - hedge funds, individual investors etc. Does not make sense though. Target and Costco are up too though Target is closing stores. Apple is swinging and acting like a volatile startup rather than the biggest capped player in the market. Which probably explains the wild gyration of the market indexes. Same with Google and other tech stocks such as Facebook. MCD breakfast took it to the highest point it has witnessed in decades - which makes it even weirder. And some predictable news are bolstering some sectors and companies more than it needs to be.

Bottom line: stay put, hold on buying any new stocks or indexes or any kind of funds. Unless you are into swinging as the core strategy. But even then if for some reason the market were to turn suddenly downwards, you would held with the bag of stocks like the way folks were in 2007 upturn. The market is in heated to overheated mode - a widely held belief - and likely going to be in this mode until there is an anticipated change in interest rates.

Ting referrals

Ting is a pay as you go data and voice plan that is pretty popular these days with millenials and getting traction amongst masses. It is just ala carta menu instead of the buffet that the big carriers serve. It is a neat service, neat website and the cost seems less for folks who rely on wifi for most part but want the odd directions when then venture out. If you consistently go overage - which is industry term to denote that you go over 1 GB, then you are better off using a fixed plan such as AT&T which gives 2GB for $25 and there are myraid number of MVNOs - another industry term for secondary data providers .. which means these are private operators who offer the plans which run on the Sprint or AT&T or Verizon networks. Boost Mobile or Cricket or Metro PCS give $30 plan. There are a bunch more for $20 or so. These are better than the bigger ones such as T-Mobile.

My referral if you choose to use is https://zfhaib4h08c.ting.com/

This will give us both $25 each and now for a limited period of time, till September end, you can get a ting sim card for $5 with free shipping. The phone selections that they have is not half bad either!

Review of robo advisors

In this post, we will look at some automated rebalancers and robo advisors. These have exploded in the recent few years from 2011 till 2015, slowly picking up steam and investments. Many manage in the tune of billions. If you read my last post about tax loss harvesting, you will see that it is just a tool. A strategy which should be the side one and not the main or core one. It can be used to capture some value. But I would personally not pay a dime to get this in ETF. For stocks, I would stick to my algorithms and core values and beliefs and change them. The tax loss harvesting gives some money back from IRS to soften this blow and maybe serves as a reminder from them to diversify and not take this to heart. Instead, Uncle IRS is telling you to take a chill and maybe get a sandwich with that money and play it cool.

So here let us review all the available or leading players in the tax effeciency business and the final recommendations regarding it.

1) Wealthfront: free upto first $10,000

2) Betterment: 

It has dynamic pricing.

3) hedgeable: same as above, 0.35% - 0.75%

4) https://www.sigfig.com/site/#/home/am

First $10k is free. After that is 0.25%.

5) Wisebanyan seems free but I am not sure about their sign up process or investment strategy

6) Future Advisor: The most impressive in this list apart from Wealthfront. https://www.futureadvisor.com/content/pricing/retirement-advice .. their fees are free.

7) Charles Schwab Intelligent portfolios: Free. This looks good too.

8) Vanguard: New kid in the block and since most of the above funds leverage on Vanguard ETFs  anyway, it makes sense for Vanguard to look at their voyager clients, anyone with more than $50k in assets to use this service for 0.3% fee. I think this is an overkill and  might not be needed.

9) A whole remaining bunch: Personal Capital, Moneyfront?, RebalanceIRA, Liftoff, tradeking, motif?, what-have-you and so on. Even TD Ameritrade pitched me this about 8 years ago for some x% fee. 

Recommendations:

Split the amount between Future Advisor and Wealthfront. This is not a terrible investment to have and even might make you money. But make sure you put the taxable money in here since your IRAs are anyways tax -deferred and hence you might not really need to save the taxes there or take advantage of tax loss harvesting strategy. Second, in view of the tax loss harvesting do not lose sight of the fundamental strategy of buy low sell high. In 2015 the market is high and volatile. Be ready to sell quickly. It is fine to enter into the index funds in some way now and maybe exit if there is a popup. But still overall individual stocks or etfs, invest conservatively and in drops for now. Third, go all out 100% risk in such accounts. I mean, if you want to invest conservatively, you have your own bond funds or CDs where you can hold your money. There is also balanced funds which will do this for you. Vanguard Wellington and Wellesley funds come to the top. Apart from their balanced funds. So with this robo advisors - go 100% stock funds .. which basically is 100% stock etfs with Domestic and Emerging markets mainly.

Apart from the above two, go with the Charles schwab (https://intelligent.schwab.com/) if you want more assurance on the security front. In terms of loss harvesting strategy, basic rebalancing, I would not venture beyond the above three recommended ones. Maybe I will start with something small and gradually build up from there.

One cant fail to notice the way Schwab or Vanguard have structured their funds with minimum requirements of $5000 or $50,000 in their respective accounts. I think they might do a basic rebalancing along the lines of fixed time based or portfolio allocation based rebalancing. It is low fees to nothing for them. So just like at the outset of this research, I am not too sold on robo advisors. It is good to have some in your portfolio to optimize the tax loss harvesting in taxable account. But beyond that there are simply too many avenues out there to make this the core or central piece of your overall investment strategy.