Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

Are there really no “pure” index investors?

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A Reuters article I tweeted this morning bears the intriguing title (and assertion) that “There are no pure index investors.”

The key passage is this one:

The big lie about being an index investor, however, is that it is possible to be one in a pure sense, as opposed to an investor who uses indexing as a tool. There are no pure indexers: everyone, like it or not, is an asset allocator, or asset picker if you prefer.

As I noted here last week in Core & Expore Redux, I certainly agree there are very few “pure” indexing investors, whether they use index mutual funds or ETFs (exchange-traded funds). Even if average retail investors “get” the idea of low-cost passive asset-class investing, most of them still tend to mix it up with both indexing and individual securities. This is a strategy called “Core and Explore.” Preet Banerjee wrote an excellent story on this last year in MoneySense magazine.

There are pure indexing purists and pundits

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Spot the indexer: Dan Solin or Jim Cramer (Huffington Post)

However, as I also said at the Motley Fool — Is it Possible to Successfully Blend Stock-Picking and Indexing? — I think there are many indexing “purists” among some financial advisers who “get it.”  These tend to be authors and/or pundits who are committed to indexing as a consistent philosophy.  Here I’m thinking of authors like Dan Solin or Andrew Hallam, who articulate their philosophies in such books as Solin’s The Smartest Money Book You’ll Ever Read (and others in his “Smartest” series) or Hallam’s Millionaire Teacher. In his book and articles, including one at MoneySense, Hallam memorably describes how he weaned himself off such futile activities as market timing and stock-picking.

Even Jim Cramer says some should index

I find it amusing that even Jim Cramer in his daily Mad Money TV show — he’s the epitome of the belief in stock-picking and the antithesis of Solin — tells viewers who have neither the time nor the energy to pick stocks that they should just stick with an S&P 500 index fund or ETF.

The Reuters piece also touches on a point that has long intrigued me: a global one-stop portfolio, which it describes “only as an idea.” I have long asked the question why the mutual fund industry’s much-ballyhooed “Global Balanced Funds” would not be the only fund you’d need?

Will robo-advisers succeed where global balanced funds did not?

In theory, such one-stop-shopping funds should do what the newer robo-advisers are doing: provide access to all asset classes and securities around the world, with the fund managers (likely co-managers entrusted with equity and fixed income responsibilities) making all the asset allocation decisions and rebalancing.

But show me just one investor anywhere in the world whose only investment is a single global balanced fund. Never mind that their fees are typically going to be high for investors, I’ve seldom seen even the fund companies with big marketing budgets spend even a fraction on advertising the alleged benefits of such one-stop solutions.

Talk about a black swan, finding an individual who puts 100% of their wealth in a single global balanced fund would be a rarer event than locating a pure indexer. If you do know of one, by all means email me at jonathan@findependenceday.com and I will definitely highlight the fact here at the Financial Independence Hub.

It’s still early innings for the robo advisers but I do think we will soon find investors who hand over all their wealth to one of these firms and that these will be the first instances of (the equivalent of) a global balanced fund.

 

 

Meltup? The Coming Global Boom

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global warming and meltingInteresting piece from Reuters a few days ago titled Time for a ‘Melt-up’: The Coming global boom.  The writer, Anatole Kaletsky, says this:

There are many fundamental reasons for believing that stock markets may have embarked on a long-term bull market comparable to those in the 1950s and 1960s, or the 1980s and 1990s, and that this process is nearer its beginning that its end.

He presents four arguments for a “structural bull market.”

1.) The worst financial and economic crisis in recent memory has ended and most of the world economy is enjoying “decent, if unspectacular, growth.”

2.) While not perfect, economic and financial policies around the world are predictable and so “unlikely to cause further market disruptions.”

3.) Technology continues to advance and innovation should stimulate investment and consumer demand.

4.) Inflation is “almost nonexistent” in the advanced economies, so “interest rates are guaranteed to stay low for a very long time.”

Tony Robbins on how to invest like a billionaire

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tonyrobbins
TonyRobbins.com

Via Fred Kirby’s Permanent Alert comes this morning’s piece on Marketwatch written by Tony Robbins (yes, the financial guru with the cameo spot on the movie, Shallow Hal) on how to invest like a billionaire. Fred, by the way, is one of the true fee-for-service advisers listed in our “Getting Help” section.

But back to the Robbins piece. He starts with the premise that the key to gaining financial freedom (aka Findependence?) is to control your money mistakes. The money masters share four traits:

1.) Don’t lose. (remember Warren Buffett’s two rules, the second of which is “Don’t forget Rule 1: Don’t lose money.”)

2.) Risk a little to make a lot.

3.) Anticipate and diversify.

4.) You’re Never Done.

P.S. After this was posted, a few financial advisors griped about whether we should be helping to publicize Robbins’ new book, his first in a long while. But check out this article about ten things one influential writer learned from Robbins.

A decade of stagnation scarier than rising rates?

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Ian McGugan/Twitter.com/

Good piece in the Globe by Ian McGugan posted Monday night. When I tweeted it out this morning, it was retweeted by some prominent Tweeters. McGugan — back to writing after years of being an editor at MoneySense and the Globe — suggests a major threat for investors is “the possibility that nothing happens … nothing as in a stagnant market, not just for a year or two, but for a decade or more to come.”

Citing the work of Boston-based Ben Inker (of GMO), McGugan says that if interest rates and bond yields remain stubbornly low, it may be hard for institutional investors (pension funds) to generate a return of inflation plus 5%. Stock investors need to be more cautious because the expected reward for taking on risk is getting muted. Long-term returns from both stocks and bonds may disappoint and investors may be lucky to get a 3.5% real return: net of inflation but before taxes and fees.

Scary indeed! But Inker doesn’t suggest parking in cash, seeing some value in the less obvious emerging markets, European value stocks and high-quality American companies.

Momentum not slowing for “Light Advice” model, (aka Robo-advisers)

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A few days ago here at the Hub, we spoke on behalf of the new “Light Advice” startups in Canada and declared “Don’t call us Robo-Advisers.” That’s because most of them have plentiful access to real humans if clients so desire it.

I’ve updated that blog and noted that so far I’ve heard from clients of Wealth Simple, but not yet the other major players. Those willing to tell us about their experience (with or without your real name, as you wish) can email me at jonathan@findependenceday.com.

Just today, I wrote an update on this for the Investor Education Fund’s Getting Smarter About Money blog. The thrust of the piece is to describe what this model is all about and whether it’s appropriate for you.