Posted: June 17th, 2009 | Author: Joe | Filed under: spending | Tags: Saving Money, spending | 4 Comments »
This is a companion piece to 4 Things worth the money.
1. Changing your car’s oil every 3,000 miles.
Really? Doesn’t everyone know you should change the oil in your car every 3,000 miles? It’s common knowledge that’s become so common few even question it. But chances are, if you own car that’s as much as 8 years old you’re changing your oil up to twice as often as you need to. Consult your owner’s manual, but many manufacturer recommend 5,000 – 7,500 mile in between oil changes.
2. Taking the brand-name prescription drug instead of the generic.
This is true for most things in consumer life: the generic product is often just as good as the name brand. In many cases the generic is even made by the same manufacturer, just without the flashy labeling. It’s true with many drugs too.
3. Investing in a loaded mutual fund.
Investing in no-load mutual funds can save you up to 5% in sales fees. Why wouldn’t you want an easy 5% better return on your money? There are a lot of things in investing you cannot control, fees and commission are one of the few things you can control.
4. Extended warranties.
Very few extended warranties are ever worth the money. More often than not, you’re better off putting the money you would have spent on the warranty in a high yield savings account. This is especially true of auto warranties – even if they’re not a scam.
5. Accidental death insurance.
This only covers you in the event you die in an accident. Statistically speaking, only 5% of deaths occur due to accidents. You’re better off buying term life insurance, since it will pay regardless of the cause of your death (except some slight limitations like suicide, etc..)
6. Premium gasoline.
Very few cars actually require premium gasoline, and most modern cars deliver little or no benefit when using premium gas. It’s just another thing to drain money from your pocket. Besides, regular grade gasoline is expensive enough, why pay more?
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Posted: June 15th, 2009 | Author: Joe | Filed under: Saving | Tags: Saving Money | 2 Comments »
The folks at Kiplinger recently published a list of things people spend money on that are actually worth the cost. Here are the highlights.
1. Getting an annual furnace checkup.
Besides saving on energy costs, having a clean furnace will keep you safe. Faulty equipment is a leading cause of home fired and carbon monoxide poisoning. Isn’t some insurance against such calamity worth the price? Kiplinger thinks so (and so do I).
2. Hiring a lawyer to draw up your will.
The point of having a will in the first place is to protect your assets and ensure they are handled the way you want upon your death. Why take chances that your wishes will be circumvented by going the DIY route on your will? Besides, the $300 or so that a good lawyer will charge is far less than the potential cost of a botched will.
3. Being a member of a “warehouse club”.
I think warehouse clubs are obvious money savers for families of 3 or more who have the storage space often required for bulk items. But for the single person or young couple, they’re probably not worth the annual fee.
4. Renter’s insurance for your apartment.
This seems like an obvious one. For around $20 a month, you can cover all your worldly possessions in case of fire or theft. Still, I must confess that throughout my renting life (10+ years) I never had renter’s insurance. I just never got around to getting it, and didn’t think I owned anything of real value, quite frankly. Looking back on it, I was pretty lucky I didn’t need it because even the mundane, every day items like clothing can add up quickly when you have to replace them.
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Posted: June 11th, 2009 | Author: Joe | Filed under: Investing | Tags: Investing, mutual funds, Stock Market | No Comments »
The last 8 months or so have been undeniably painful for anyone investing in stock market, but the market crash has produced some new opportunities for investors. One of these opportunities is the chance to invest in mutual funds that have been closed to new investors for some time.
Money Magazine recently spotlighted 3 no-load mutual funds that have out performed their peers over the past 12 months and have a solid long-term track record of strong performance. These funds were previously closed to new investors, but have now reopened.
Artisan Mid-Cap Value Fund(ARTQX)
This Mid-Cap value fund sports a -31.8% (!) return for the past 12 months. Yikes! That gives you some idea of just how poorly mid-cap stock funds have performed. The expense ratio is 1.21%. Money likes this fund because the 3 person management team invests in medium sized companies with strong balance sheets that have been knocked down in price because of short term factors, and sell when the stock becomes overvalued.
This legendary Large-cap blend fund has (only!) taken a -29.9% hit over the past year, and follows the Buffett style of investing. The fund only holds about 25 stocks, and most are high quality companies, trading at a discount. The Sequoia expense ratio is 1%.
T. Rowe Price Mid-Cap Growth (RPMGX)
This Mid-Cap growth fund lost 33.2 % last over the past year but sports a low 0.82% expense ratio. The fund manager, Brian Berghuis, invests in companies with rapid earnings growth, but avoids excess risk. What does this mean? Well, Berghuis avoids stocks trading at a premium and holds about 130 stocks for diversification.
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Posted: June 9th, 2009 | Author: Joe | Filed under: Investing | Tags: index funds, Investing, Stock Market, Stocks | 4 Comments »
I just saw an interesting article on Investopedia.com titled, “5 Reasons To Avoid Index Funds” Well, I thought it was interesting because of the title. Much of the blogosphere and many professional investors recommend index funds for the average investor, so why avoid index funds?
Here’s a break down of the list of why you should avoid index funds and along with my problem with each item.
5 reasons to avoid index funds
1. Lack of Downside Protection
“Investing in an index fund, such as one that tracks the S&P 500, will give you the upside when the market is doing well, but also leaves you completely vulnerable to the downside. You can choose to hedge your exposure to the index by shorting the index, or buying a put against the index“
I can’t really argue too much with the first part, but is that a reason to avoid index funds?
It’s the second part (in bold) that goes off the rails for me. If you’re hedging with an index fund using puts and calls, then you’re not really using the index fund for what it was designed for anyway. The point is that index investing is simple, and doesn’t require some esoteric wall street mumbo jumbo.
Besides, there’s an easier way to limit the downside. Using stop loss and market orders you could buy index fund ETF’s and avoid much of the carnage caused in wall street last fall.
2. Lack of Reactive Ability
“[a] sector may be a compelling value, but in a broad market value weighted index, exposure to that sector will actually be reduced instead of increased. Active management can take advantage of this misguided behavior in the market.”
This sounds a lot like “index investing doesn’t let you actively manage the fund”. I mean, that’s true, but it’s also the point of an index fund! Again, not really a reason to avoid index funds.
3. No Control Over Holdings
“If an investor buys an index fund, he or she has no control over the individual holdings in the portfolio.”
Yup. That’s the point. This is a lot like saying people should avoid index funds because they aren’t individual stocks. ANd what about mutual funds in general? Investors have no control over their individual holding either. Should people avoid mutual funds too?
4. Limited Exposure to Different Strategies
“If you conduct research, you may be able to find the best value stocks, the best growth stocks and the best stocks for other strategies. After you’ve done the research, you can combine them into a smaller, more targeted portfolio. You may be able to provide yourself with a better-positioned portfolio than the overall market,”
Again, index investing doesn’t allow you to actively manage the index. If you’re looking to run your own portfolio, then do it. This isn’t a reason to avoid index funds if you’re looking for a simple, passive portfolio.
5. Dampened Personal Satisfaction
“…you will lose the satisfaction and excitement of making good investments and being successful with your money”
If you’re an investor and you’re looking for the thrill of trading stocks, you’re not going to be investing in an index fund.
The problem here seems to be a misunderstanding of index investing. Maybe the writer is too close to wall street and caught up in that atmosphere. I dunno. The point of the article should be why you might want to invest in an index fund, and when you wouldn’t. Instead, the article seems to imply that all investors should avoid index funds, regardless of their goals and style.
Index investing should not and cannot replace active investing as many have implied. Index investing is a passive method for people who either can’t fathom stock investing or choose not to expend the time and effort required to take part in the stock market actively. This is the same position espoused by the likes of Warren Buffet and Jim Cramer – leave active investing to the pros, and don’t avoid index funds.
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