Index Funds

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Ways To Make Investing Simpler

I have been thinking a lot about this issue of how to make investing simpler. I hear from teachers that this is a real pain point for them. I can see in the NGPF podcast stats that the most popular guests tend to be conversations about investing (Mike Finley, Jonathan Clements and Vanguard’s Jim Rowley to name a few). Then this weekend the lightbulb went off. I was heading to the coast listening to Charlie Ellis on the Masters In Business podcast (kinda dorky I know). Those of you not familiar with Charlie Ellis, he is probably the best investment management thinker you have never heard of. Charlie has played a role in two of the juggernauts of modern day investing, the Yale endowment and Vanguard Investments (the king of indexers just crossed $4 billion (I mean TRILLION!)). Oh, and he was an early investor in Berkshire Hathaway too (Warren Buffett’s company)!

Question: How Much Should You Save For Retirement?

I heard this on Marketplace.org last night and thought it was worth sharing. It seems the old “rule of thumb” of  saving 10% for retirement needs to be updated:

By |February 7th, 2017|Current Events, Index Funds, Investing, Question of the Day, Research, Stocks|

Activity Idea (with Spreadsheets): Let’s Make An Index Fund

I awoke this morning thinking “how can you make index funds more tangible for students?” Why do I care about this? Anyone who has heard my rantings before either in this blog or on the NGPF podcast knows that I abhor the Stock Market Game. It teaches all the wrong lessons about investing: the short term nature of it, the “luck” factor, the highest risk strategy wins and so on. At some point, I will create a game to counter these lessons that is focused on index funds. The trick is how to make it appealing to a risk-seeking teen audience who loves the “action” of buying and selling stocks. Unfortunately good investing isn’t really about “action”, my buddy Allan Roth has it right when he says, as investors we should “dare to be dull.”

So, here’s the kernel of the idea: Have students take on the role of an investment manager hired to do the following:

Videos: 4 Simple Rules of Investing From Marginal Revolution University

I have been meaning to check out these videos since I met a representative from Marginal Revolution University (MRU) at the RI JumpStart conference in December (yes, my to-do list is TOO LONG!). Tyler Cowen, a well-known economist out of George Mason and blogger, is the intellectual force behind this endeavor. Since I know investing tends to be the “achilles heel” for many teachers, I thought I would focus first on the MRU videos on this topic.

What do I like about these videos?

  • The simple “four rule” approach to investing and the recommendations he provides on how people should invest
  • Real-life examples to demonstrate key points
  • Charts and graphs are used effectively to provide evidence
  • Duration of videos is 4-6 minutes and just focus on 1 rule at a time
  • Five practice questions at conclusion of each video

I provided some notes on their key points and some ideas on NGPF activities that you can pair with these videos, so students can apply their learning.

  • How Expert Are Expert Stock Pickers (6:28)
    • Rule #1 for Smart Investing: Ignore the expert stock pickers
      • Burton Malkiel’s book A Random Walk Down Wall Street and the “Blindfolded dart-throwing monkey” story
      • Mutual funds: Difference between active and passive funds, most years S&P500 beats the actively managed funds, past performance doesn’t predict future performance
      • Hard to differentiate luck from skill: Coin flip example and laws of probability
      • Don’t pay big bucks for professional money managers
  • Can You Beat the Market? (6:07)
    • Rule #2: It’s hard to beat the market
      • Example of thematic investing about aging of U.S. population
      • Efficient Market Hypothesis: won’t be able to systematically outperform the market; both buyers and sellers have information for their decisions
      • What about hot stock tips? Space Shuttle Challenger example and stock price reactions; what happened six months later?
      • Random walk with a positive upward drift: what does that mean?

NGPF Podcast: Tim Talks to Author, Columnist and Personal Finance Advocate Beth Kobliner

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I had a great conversation with Beth Kobliner recently. Beth has an incredible personal finance focused CV. She’s been a columnist at Money Magazine, authored one (and soon to be two) New York Times Bestsellers (Get a Financial Life: Personal Finance in Your Twenties and Thirties), served on the President’s Advisory Council on Financial Capability, and gave financial advice to Elmo on Sesame Street (and a whole lot more too)! In this NGPF podcast, Beth shares the money lessons she learned growing up in Queens, New York as well as the motivation for her latest book, Make Your Kid a Money Genius, to be released in February. You will benefit from Beth’s insights on how to invest, use credit cards wisely and a simple test to control those impulsive purchases. Parents will find Beth’s new book a godsend in describing developmentally appropriate actions to build that financial decision-making muscle that your children need to thrive in this financially complex world. Enjoy!

Details:

Question: Do Active Investment Managers Buy Their Own Funds?

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Incentives matter when it comes to financial products. Hat tip to Meb Faber whose podcast I was listening to earlier today and reminded me about this 2008 research report titled “Do Managers Eat Their Own Cooking?” from Russ Kinnel at Morningstar. As the title suggests, Kinnel analyzed whether mutual fund managers actually invest their money in their own funds. Recall that the promise of active management, and the reason that investors pay fees of around 1%, is that they can beat the market (but, alas, almost none do!). Recall also that getting the market return through an S&P500 index fund costs about 0.10-0.15%. Ok, so active managers charge high fees which makes it difficult for them to beat the market. Guess what, someone has figured this out, and it’s not who you might expect…it’s the actual managers running the funds. How do I know? Well, Kinnel found the following:

“At U.S.- stock funds, 47% report no manager ownership. And it gets worse from there. Fully 61% of foreign-stock funds have no ownership, 66% of taxable bond funds have no ownership, 71% of balanced funds put up goose eggs, and

By |January 11th, 2017|Index Funds, Investing, Mutual Funds, Research, Stocks|

What’s Changed in Personal Finance Since 2001?

I received an email from a personal finance curriculum in my inbox this morning (nothing unusual here, I get a lot of them:). The provider was encouraging their educators to update their curriculum since they had heard some were still using their 2001 edition (Remember Friends? That was the top TV show in 2001). Yikes! Quick digression, ok, let’s call it a commercial: Since NGPF makes all of its content available online, we make real-time updates when circumstances change, such as when the FAFSA becomes available three months earlier.

I thought it would be interesting to think about how the financial services industry has changed since 2001. In other words, what are students missing if they are being taught from a 2001 edition?

NGPF Podcast: Tim Talks to Jonathan Clements About His Latest Book “How To Think About Money”

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I enjoyed catching up with Jonathan Clements recently on the NGPF podcast. Since our conversation a year ago, Jonathan has been busy on a number of projects including teaching a college course in personal finance and writing a book “How To Think About Money” (good choice for a stocking stuffer this holiday season:). His goal with the book is to provide “a coherent way to think about their finances, so they worry less about money, make smarter financial choices and squeeze more happiness out of the dollars that they have.” I always come away from a conversation with Jonathan thinking more deeply about my relationship with money along with some ideas that I can implement in my life. I hope that you will too! Enjoy!