Thanks for stopping by the only investing website on the 'net designed by working folks for working folks. As more and more companies dump their old guaranteed pension plans and move their employees into 401(k) retirement plans, it's more important now than ever to learn how to manage your own investments. Come on in and get started!
We'll show you how to get a better understanding of the markets and become a confident, competent investor. And we lay it all out for you in plain English (well, a Southern variety of English, anyway). Hey, you work hard for your money - learn how to make your money work hard for you!
Rasslin' With the Big Boys
Two of the biggest state-run pension plans (CalPERS of California and TRST of Texas) have decided to cut out the portions of their portfolios that they have invested with hedge funds. In both cases they cited poor performance and high costs as reasons for dumping them. Looking at the numbers, it’s easy to see why. According to Preqin, a supplier of market data and analysis for the hedge fund industry, the S&P 500 has out-gained most hedge funds by at least 5%. In the past 12 months not one of the 19 major hedge fund strategies that Preqin monitors has beaten the S&P Index!
Should small-time, everyday investors like us be scratching our heads? If these hedge fund managers - supposedly the “smartest guys in the room” - can’t make money in the market, how can we expect to? Do we have any advantages over the big boys when it comes to winning in this zero sum game? Well, as a matter of fact, it turns out we do; quite a few, actually! Let’s break ‘em down:
> TIME: Big money managers have to perform under certain time restraints (monthly, quarterly, etc.). Us little guys are under no such pressure; we’ve got all the time in the world! Don’t underestimate this advantage!!
> SIZE: Big money managers have a much harder time adjusting their positions than us little guys. For them, getting into or out of a stock position can take days - they have to buy/sell in blocks over a period of time. For us, a couple of clicks of the mouse is all we need to make any adjustments to our portfolios. In times of changing markets and trends, that agility is a big plus for us!
> PORTFOLIO MAKE-UP: Many funds out there are sector or industry specific, meaning that they can only be invested in the stocks of a particular sector. For example, the manager of a big fund that focuses on financials can only be invested in financial stocks - no matter if that sector is performing well or not; big gold fund managers can only invest in gold related assets, even if gold prices are in a down trend. Us small time guys and gals aren’t under those restrictions - we can invest in anything we find that’s making money! Now, 401(k) investors are somewhat limited by the available investment choices their plans offer, but those choices are expanding as 401(k) plans continue to improve.
> COST CONTROL: Thanks in part to online brokers, fees, commissions and other investment costs are lower than they have ever been. That’s not to say we don’t have to keep an eye on them (especially some of those evil 401(k) fees), but for the most part, costs associated with buying/selling stocks or funds are pretty reasonable for us little guys!
There is one other advantage we have over the big boys and it’s a huge one: we don’t have to be in the stock market all of the time! Most mutual funds and ETFs out there are “long only,” meaning that they remain invested in their associated stock positions even during market downturns. While they may sell some stock to increase their cash positions during bad times, their fund rules mandate that they stay in the stock market at all times.
Screw that! As trend followers, we’re not going to stay in stocks/stock funds during bear markets - when the trend is down, we’re going to sit safely in our bond funds and cash accounts and wait for the next bull market to come along. We’ll gladly let the big boys fight it out during the bear markets - we’re not gonna play!
Investing can often seem a daunting challenge for us little folks, but we do have some advantages. Learn them, understand them, then put them to use! Hey, it’s your money!!
NEWS YOU CAN USE:
"IRS Changes the 401(k) Rules for 2015"
"Pension Fund Exit from Hedge Funds Sparks Debate" from USA Today
"Big U.S. Firms Boost Equity Weightings
in 401(k) Target-Date Funds"
"What is a Target-Date Fund?"
"Low Cost Investing Gets Even Cheaper:
Vanguard Cuts Fund Charges"
from This is Money
VIEWS YOU CAN USE:
"The Illusion of Diversification"
"Anatomy of a Market Top"
from Charlie Bilello on Tumblr
"Mutual Funds vs. ETFs: Which Should You Choose?"
from The Motley Fool
"The 3-Fund 'Lazy' Portfolio"
from Investor Place
"S&P 500: A Great 2nd Place Index Fund"
The days are already getting shorter! We hate to see the summer end, but at least it will give us a bit more time to catch up on our reading...
Now, these books won't make you "get rich quick," but they'll definitely help build the foundation you'll need to "get rich slow!"
<<<<<<<< Clicking on these book images takes you to Amazon.com via our affiliate link. You won't pay a penny more for what you buy, but we do get a little moolah for sending you there - and that helps us cover the costs of keeping our website running free!
Here are a couple of very simple retirement calculators courtesy of our friends over at Calculator Pro.
Here are the figures we used:
> Required Annual Income: we put in what we're making now (we don't buy into that "plan to spend 70% of your working income in retirement" idea!)
> Years until Retirement: we shot for age 65, but who really knows, right?
> Years after Retirement: we sure hope to have 20 good years of doing what we want to do!
> Annual Inflation: we used 3.5% (maybe go a tad higher to be safe?)
> Annual Return on Balance: we used 7% (maybe go a tad lower to be safe?)