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.