A day hiking around a local state park sounds like a great one to me.
I still don't like Ramsey's debt snowball idea.
Fantasy Football - Footballguys Forums
This is a sample guest message. Register a free account today to become a member! Once signed in, you'll be able to participate on this site by adding your own topics and posts, as well as connect with other members through your own private inbox!
PBS Frontline : The Retirement Gamble, sorta Must See (2 Viewers)
- Thread starter Smack Tripper
- Start date
I still don't like Ramsey's debt snowball idea.
NewlyRetired
Footballguy
I have thought about this topic a lot over the years. when I was younger I 100% would have agreed with you. But as the years have gone on, I can kind of see the other point of view.
Not that I agree with it but it is kind of understandable to me when I think of it this way:
For the examples you listed above (coupons, self oil changes etc), their mind set could be that what they are doing is 100% effective, in much smaller doses, since the variables are 100% in their control. Where as you could study for ever on investing and still make a bad investment due to variables outside of your control.
In a related note, this is one of the reasons I think just like Tiger Fan does in that I enjoy the expense control side of personal finance more than the investing side since I have so much more control over it.
Dentist
***Official FBG Dentist***
i don't get a "win" 100% of the time.. or even 75% of the time.
i realize that when i change my own oil or clip a coupon, I do win.. 100% of the time.
The expense side is just much "easier". when i called ADT to get my bill reduced and they said "yes" I won.. and that bill is reduced and i now have a $20/mo lower bill.
But there's only so much you can cut before you're cooking 100% of your meals, growing your own food, stitching your own clothes, doing all your own home repairs, etc.
Unless you want to be Amish there's a limit. I'm conscious of the spend side.. i work on it.. but after awhile there's not much more to do without going to some extreme.
But there's no limit to the investing side.. I'm always earning more money.. i'm never spending 100% of that money.. that money needs a new home to grow and multiply. I can either add to existing investments. or maybe i need a new idea.
Either way i have to do something or i'm just losing money to inflation.. 0.85% isn't going to cut it for savings. So i either need to spend it for good and/or services that I probably don't really need or want, or i have to find a way to make that money work.
The Real estate guys that want investment property do just that.. they find another property and make that money work. I suck at real estate but i don't suck at reading a prospectus on an IPO for a preferred stock and finding out if the X% they are paying me is worth the risk.. so there's something for everyone.
Sand
Footballguy
Not to drag this into another direction too much, but I found the treatment of HSBC to be particularly telling. They got caught laundering for the drug cartels on a grand scale. All that was done was a fine. No criminal prosecutions - for laundering billions.
There's definitely a balance..and I think you and I have gone back and forth about it over the years (in a positive way)....my personal finance strategy has been to:
1. Gain completely control of your costs (eliminate waste)
2. Eliminate/pay off CC debt
3. Max ROTH IRA (weighted average of contributions each month to the S&P 500 index)
4. If over Roth limits - Max 401K
5. Pay off all other debt ASAP (including mortgage)
I'll have paid off my mortgage by the end of next year...at that point, I really need to start looking into other investment vehicles b/c I'll have a ton of excess cash...but Eliminating monthly costs by paying off all debt was very important to me for a multitude of reasons. But note I think having a balance in there is important (hence the Roth/401k contributions)
NajehHejan
Footballguy
What do folks think of this article? I know its purpose is to strike fear, but is there anything to really be worried about?
http://www.forbes.com/sites/brendancoffey/2011/10/26/the-four-companies-that-control-the-147-companies-that-own-everything/
The Four Companies That Control the 147 Companies That Own Everything
There may be 147 companies in the world that own everything, as colleague Bruce Upbin points out and they are dominated by investment companies asEric Savitz rightly points out. But it’s not you and I who really control those companies, even though much of our money is in them. Given the nature of how money is invested, there are four companies in the shadows that reallycontrol those companies that own everything.
Before I reveal them, some light math:
According to the 2011 annual factbook from the Investment Company Institute, there is $24.7 trillion in all the mutual funds in the world (a little less than half from the US). Based on data from the ICI, $1.24 trillion of this is directly invested in index funds, plus another $992 billion in assets beyond that $24.7 trillion in Exchange Traded Funds, which aren’t mutual funds but are index funds. That means the bulk of that money is in “active” managed funds or fund of funds.
But then consider this: the chief of hedge funds at a very large asset manager told me last week (alas, I cannot identify either) that an internal study his firm recently performed found that the vast majority of mutual funds defined as actively managed see 95% of the assets they hold determined by an index. That means just 5% of actively managed funds really are driven by the active manager’s judgment.
This less-than-active management is for two reasons: one is to maintain the fund in a style box (i.e. large value stock, medium value stocks) and comply with the reality all mutual funds are required to have a benchmark index they compare their relative performance to. The other reason is to adhere to risk metrics to which most of the fund industry is beholden. This second point is partly due to Modern Portfolio Theory (a complex topic we won’t debate here) and to the human nature that active managers tend to build portfolios close to the indexes they benchmark against to avoid really awful downward relative performance years that ends up costing them their jobs.
So of the $25.69 trillion in worldwide assets we’ve identified, $2.23 trillion are directly in indexes (ETFs and index mutual funds) with another $22.3 trillion indirectly beholden to indexes (that 95% of actively managed fund holdings said to be determined by an index).
You can see where I’m headed here. That means the real power to control the world lies with four companies: McGraw-Hill, which owns Standard & Poor’s, Northwestern Mutual, which owns Russell Investments, the index arm of which runs the benchmark Russell 1,000 and Russell 3,000, CME Groupwhich owns 90% of Dow Jones Indexes, and Barclay’s, which took over Lehman Brothers and its Lehman Aggregate Bond Index, the dominant world bond fund index. Together, these four firms dominate the world of indexing. And in turn, that means they hold real sway over the world’s money.
While that may seem benign – they are indexers after all you may say – a financial index isn’t cut and dried like the index of a book. It’s a misperception indexers merely do some simple math like identifying the 500 largest US companies and voila! you have the S&P 500. Every indexer has a fudge factor that allows them to say one company is more “economically significant” for the index at hand than another company. To again take the S&P 500 as an example, the 502-largest company by market cap could get the nod over number 500 by size if S&P decides it wants to.
The power is even more obvious in bonds. The now-Barclays Aggregate Bond Index attempts to mirror volume of bond issuance in a region or the world, but it can’t include even a sizable percentage of all the bonds issued. Essentially, there’s a big judgment call in there in what bonds it adds to its index. A judgment that influences bond fund flows worldwide.
What does all this mean? Researchers at a desk in midtown Manhattan are the butterflies that cause the hurricanes in the markets. For instance, 37% of all index funds in stocks are in a S&P 500 index fund. That’s $370 billion directly buying and selling stocks based on when the S&P analysts decide to drop ITT from the S&P500 and replace it with just one of three ITT spin-off, Xylem, as announced on Monday. Then add on top of that all of the so-called active mutual funds aiming to beat the S&P 500 (but still reflect 95% of the S&P in their funds) who react to the change and then all of the hedge funds who trade ahead of time trying to guess what S&P may drop or add.
I don’t have a grudge against any indexer (and full disclosure, I’ve done work for some of them). And the folks at McGraw-Hill don’t seem to spook people the way George Soros manages to. But when you discuss power in the world markets, the answer isn’t what you think it is.
http://www.forbes.com/sites/brendancoffey/2011/10/26/the-four-companies-that-control-the-147-companies-that-own-everything/
The Four Companies That Control the 147 Companies That Own Everything
There may be 147 companies in the world that own everything, as colleague Bruce Upbin points out and they are dominated by investment companies asEric Savitz rightly points out. But it’s not you and I who really control those companies, even though much of our money is in them. Given the nature of how money is invested, there are four companies in the shadows that reallycontrol those companies that own everything.
Before I reveal them, some light math:
According to the 2011 annual factbook from the Investment Company Institute, there is $24.7 trillion in all the mutual funds in the world (a little less than half from the US). Based on data from the ICI, $1.24 trillion of this is directly invested in index funds, plus another $992 billion in assets beyond that $24.7 trillion in Exchange Traded Funds, which aren’t mutual funds but are index funds. That means the bulk of that money is in “active” managed funds or fund of funds.
But then consider this: the chief of hedge funds at a very large asset manager told me last week (alas, I cannot identify either) that an internal study his firm recently performed found that the vast majority of mutual funds defined as actively managed see 95% of the assets they hold determined by an index. That means just 5% of actively managed funds really are driven by the active manager’s judgment.
This less-than-active management is for two reasons: one is to maintain the fund in a style box (i.e. large value stock, medium value stocks) and comply with the reality all mutual funds are required to have a benchmark index they compare their relative performance to. The other reason is to adhere to risk metrics to which most of the fund industry is beholden. This second point is partly due to Modern Portfolio Theory (a complex topic we won’t debate here) and to the human nature that active managers tend to build portfolios close to the indexes they benchmark against to avoid really awful downward relative performance years that ends up costing them their jobs.
So of the $25.69 trillion in worldwide assets we’ve identified, $2.23 trillion are directly in indexes (ETFs and index mutual funds) with another $22.3 trillion indirectly beholden to indexes (that 95% of actively managed fund holdings said to be determined by an index).
You can see where I’m headed here. That means the real power to control the world lies with four companies: McGraw-Hill, which owns Standard & Poor’s, Northwestern Mutual, which owns Russell Investments, the index arm of which runs the benchmark Russell 1,000 and Russell 3,000, CME Groupwhich owns 90% of Dow Jones Indexes, and Barclay’s, which took over Lehman Brothers and its Lehman Aggregate Bond Index, the dominant world bond fund index. Together, these four firms dominate the world of indexing. And in turn, that means they hold real sway over the world’s money.
While that may seem benign – they are indexers after all you may say – a financial index isn’t cut and dried like the index of a book. It’s a misperception indexers merely do some simple math like identifying the 500 largest US companies and voila! you have the S&P 500. Every indexer has a fudge factor that allows them to say one company is more “economically significant” for the index at hand than another company. To again take the S&P 500 as an example, the 502-largest company by market cap could get the nod over number 500 by size if S&P decides it wants to.
The power is even more obvious in bonds. The now-Barclays Aggregate Bond Index attempts to mirror volume of bond issuance in a region or the world, but it can’t include even a sizable percentage of all the bonds issued. Essentially, there’s a big judgment call in there in what bonds it adds to its index. A judgment that influences bond fund flows worldwide.
What does all this mean? Researchers at a desk in midtown Manhattan are the butterflies that cause the hurricanes in the markets. For instance, 37% of all index funds in stocks are in a S&P 500 index fund. That’s $370 billion directly buying and selling stocks based on when the S&P analysts decide to drop ITT from the S&P500 and replace it with just one of three ITT spin-off, Xylem, as announced on Monday. Then add on top of that all of the so-called active mutual funds aiming to beat the S&P 500 (but still reflect 95% of the S&P in their funds) who react to the change and then all of the hedge funds who trade ahead of time trying to guess what S&P may drop or add.
I don’t have a grudge against any indexer (and full disclosure, I’ve done work for some of them). And the folks at McGraw-Hill don’t seem to spook people the way George Soros manages to. But when you discuss power in the world markets, the answer isn’t what you think it is.
Last edited by a moderator:
Britney Spears
guest speaker
Maybe your book idea can outline the two different sides of building towards independence? Seems like most focus on one or the other. I'm reading the bogleheads book (~1/2 way through) and it sure seems like they are not talking about a sound financial lifestyle. I think I'm roughly in a good place, but it would be nice to have both in one book. This one is also a little repetitive. They really beat you over the head with the index fund concept at every possible opportunity, which I understood really in the first chapter.
Dentist
***Official FBG Dentist***
that's a taxable event unless you are doing it within the confines of a tax sheltered account.
and don't think you can sell one fund and then buy a similar fund the next day.. then you'd be subject to the 30 day wash rule (google it)
NewlyRetired
Footballguy
Comments:
The very first section in the outline should be a short basic explanation of how people can actively get a hold of exactly what they are spending. Too many people try and guess and that more times than not tends to come out on the low side. (unless this is what "Know Thy Spend" section is for)
Add in a subsection under marriage called divorce. One of my buddies got taken to the cleaners by his cow of a wife and is basically behind the 8 ball for a long time.
Add in a section for the pro's and cons of paying off mortgage.
Sand
Footballguy
If it is a different ETF it isn't a wash rule transaction.
There are two scenarios to watch out for here though - in a tax sheltered account you can't do margin (at least I can't) so if you don't have cash on hand you won't be able to buy the new ETF for three days until it settles. In a cash account with margin if you don't have ready cash you will be hit with some margin charges (which should be pretty small).
Dentist
***Official FBG Dentist***
my experience has been:
if you see an S&P 500 fund like IVV and then buy another S&P 500 fund like SPY to skirt some rules, you may get by with it.. but you're setting yourself up to be in trouble if you were audited.
I have no experienced any issues with my Roth IRA with selling something and then immediately deploying the funds to buy something new even in the event that it takes 3 days to settle the transaction and i certainly didn't use margin since that's illegal. It's possible different brokerages handle this in different ways. I can only speak to Merrill Edge
BeTheMatch
Footballguy
I just ran into this for the first time in my USAA Roth. I bought SSYS and sold it about 2 or 3 days later - before it "settled." So because the original purchase hadn't settled yet, it isn't letting me use the funds I got when I sold to buy something else. They're unavailable. I called, and they said that's what it was. Because I sold too fast. Meanwhile, what I was going to buy in the meantime is up 7% since I've been forced to sit on the sidelines.
fatguyinalittlecoat
Footballguy
I'd be interested in reading your stuff TigerFan. For what it's worth, I think the "marriage and kids" stuff is huge. If spouses aren't on the same page about finances it's a big problem. I'm not sure that there are simple tips to fix any of it though. A lot has to do with other issues in a relationship.
Sand
Footballguy
BeTheMatch
Footballguy
Thx.
I literally just got this email from Mrs. TF:
"I’m sitting here talking to _____ listening to her talk about how she doesn’t know where her money goes and how they have no budget and how she couldn’t go out last night because of it. I know I give you a hard time sometimes about the budget, but I want you to know that I appreciate you what you do for us and I know it comes from a good place to take care of us. I’m sorry if I have a hard time with it sometimes, but always know that I love you and appreciate everything you do."
Mind you, the person that she's talking about is late 30s, parent of 4...both husband and wife are professionals, etc. It's just a general feeling of mine that a majority of people (including very smart people) just don't know anything about how to manage money.
Now off to parlay that last quoted sentence into a brown dot
NewlyRetired
Footballguy
Slapdash, you have an excellent attitude to succeed in early retirement!
If you can enjoy the simple pleasures in life, you are going to be golden.
Dentist
***Official FBG Dentist***
oh, no question, it's a good day!
My point was.. I'm trying to design my retirement so that that type of day is like a mediocre or average day for me.. and that i have enough to enjoy some truly elitist world class days.
What I don't want is for those types of days to be my ceiling... and that's what i see a lot of retirees doing on a regular basis.
I'm all for many good low cost hobbies like reading, video games, lake fishing, etc.. But I'm not saving this hard to not be a international baller someday.
Fruitbat
Footballguy
Well, 2 months in (contributing once per month) and I am net positive! Not too bad considering I started on 5/17 at pretty much the 12-month high of the S&P.
2 months is too short of time to really evaluate longer-term investment money, but its nice to be in the black (even if it is just $11)
2 months is too short of time to really evaluate longer-term investment money, but its nice to be in the black (even if it is just $11)
saintfool
Dead sexy
Question for the wise folks in the thread: how active a hand to you have with your 401k? i have a couple of index funds that are doing well right now. both up 20+% and have been trending well with the markets upturn of late. i'm thinking it might be time to re-balance the portfolio.
Dentist
***Official FBG Dentist***
no one ever got hurt taking a profit.
the point of re-balancing is to sell certain asset classes when they have gotten high.
definitely not a bad choice.
I'm 34, and I literally just put it on auto pilot and invest in an index fund each month that mirrors the S&P. Obviously that's worked great as of late. I'm willing ot take the peaks with the valleys to get about 8% or so over time, compounding interest and stuff.
401k is one of my retirement components
Last edited by a moderator:
Last edited by a moderator:
Sorry, I was mistaken:
Roth IRA & Rollover IRA
S&P 500 index fund
Legacy Large Caps
401K
50% Lifepath fund (geared at retirement in 2040) - this fund has a variety of holdings
50% S&P 500 index fund
I really don't have the time, energy, or knowledge to "play the market". I prefer to get full control over my current spend, live way below my means, and make sure I have enough $ for retirement at very conservative returns...anything above that is gravy.
Last edited by a moderator:
IvanKaramazov
Footballguy
That's just as well. Most people who "play the market" professionally are unable to beat the S&P 500 on a regular basis. You'll do better just by sticking with low-cost index funds.
Speaking of which, there's no reason to have a large cap fund in addition to your S&P index fund. The S&P 500 is itself a large cap fund, and it's almost surely cheaper than the other one.
The large caps weren't a fund...just some individual stock that I still had from my earlier days.
cstu
Footballguy
saintfool
Dead sexy
I've got an IRA that is sitting while I wait for my divorce to be completed. The 401k is 50-50 between a target mutual fund and some sector index funds (midcap, smallcap, europacific and recently a real estate). The small and mid have done well for me to this point.
Dentist
***Official FBG Dentist***
Fruitbat
Footballguy
Almost 4 months in now -- and still treading water. I'm basically dead even. been contributing monthly, and its becoming routine. feeling a little more confident in stashing some money in this manner.Well, 2 months in (contributing once per month) and I am net positive! Not too bad considering I started on 5/17 at pretty much the 12-month high of the S&P.
2 months is too short of time to really evaluate longer-term investment money, but its nice to be in the black (even if it is just $11)
Fruitbat
Footballguy
Almost 6 months in now. And my account at TD Ameritrade has the best ROI of all the vehicles I have right now over that timeframe. My other vehicles are a mix of 401k, 403b, 457, and accounts managed by a financial planner.Almost 4 months in now -- and still treading water. I'm basically dead even. been contributing monthly, and its becoming routine. feeling a little more confident in stashing some money in this manner.Well, 2 months in (contributing once per month) and I am net positive! Not too bad considering I started on 5/17 at pretty much the 12-month high of the S&P.
2 months is too short of time to really evaluate longer-term investment money, but its nice to be in the black (even if it is just $11)
Oh, actually I take that back. I have an old ESA at Invesco that is sitting in a couple of utility-based funds. That is slightly better than my TD account.
Unfortunately, my TD account also has the smallest balance. But I'm contributing a little bit each month.
I am self-employed and have an individual 401(k) with my financial planner that I consistently contribute to.....I'm tempted to rip that away from them and start one up on TD myself.
Probably just leave things as is until spring (post-tax season), reevaluate, then have a come to Jesus meeting with the financial planner if things havent changed.
Doctor Detroit
Please remove your headgear
One thing that has likely been mentioned but is worth reiterating is, when you have a change is financial situation remember to pay yourself first.
If you win $10k at bingo, allot some of that money to an emergency fund or use the difference to max out your Roth IRA for the calendar year if you aren't doing so. Got a 5% raise at work? Put another 2% towards your 401k. It's amazing to me how little people want to save. Those not even getting the company match on their 401k accounts are numerous, they are essentially giving away the best kind of money: free money.
If you win $10k at bingo, allot some of that money to an emergency fund or use the difference to max out your Roth IRA for the calendar year if you aren't doing so. Got a 5% raise at work? Put another 2% towards your 401k. It's amazing to me how little people want to save. Those not even getting the company match on their 401k accounts are numerous, they are essentially giving away the best kind of money: free money.
Dentist
***Official FBG Dentist***
live for today bro! gotta seize the moment and get those new pair of $200 jeans 2nite! Tomorrow is promised to no one and you can't take it with you!
Savings is 4 suckaz
Brony
Footballguy
FUBAR
Footballguy
My only rebalancing lately has been deciding what fund to add extra $ into.
I automatically put 10% into the TSP (+$500 into the Roth TSP) which is split up 10% bonds, 20% international, 30% small cap, 40% large cap
Every month or two, I'll add $1-2k into either my wife's Roth or our kids' ESAs.
At the end of the year, I'll usually have some leftover after all those are maxed to put into our housing fund.
It's the extra $1-2k where I usually slightly adjust our allotment. For example, if small cap falls under 30% of our portfolio, I add it to a small cap fund. I'll probably have to make some more adjustments towards the end of the year but I intentionally don't sell to rebalance more than twice a year.
mquinnjr
Footballguy
Morningstar just released it's 2013 Best US ETF's and ETF providers awards. Great read for anyone that likes ETF investing for their portfolio, or is interested in finding out more about ETF's and who they might want to choose as their broker. The article takes many factors, including total cost of ownership, liquidity, and tracking error as factors to produce its winners, by ETF category/style and "investor" vs. "trader." PDF's explaining methodology and complete winner listings are contained within the article link itself.
Note: You are required to login to read on the website, and a free Morning star account is all that is required to access the content.
Link: http://news.morningstar.com/articlenet/article.aspx?id=613399
Note: You are required to login to read on the website, and a free Morning star account is all that is required to access the content.
Link: http://news.morningstar.com/articlenet/article.aspx?id=613399
Morningstar Announces 2013 Awards for Best U.S. ETFs and ETF Providers
By Michael Rawson, CFA | 10-03-13 | 12:00 AM | Email Article
Morningstar is pleased to announce the winners of its second-annual Morningstar Awards for ETFs. These awards recognize fund families for providing low-cost, index-based investments and are based on the number of winners in each category group. This year, iShares won three ETF Provider awards while Vanguard won one. At the category level, iShares had 31 category winners, Vanguard had 23, and SPDR had 10. PowerShares, Schwab, WisdomTree, First Trust, and Guggenheim also had category winners.
One of the key drivers underpinning the continued growth of exchange-traded funds is their low costs. However, the true cost of owning an ETF includes more than just the headline expense ratio. And the total cost of ownership can vary depending on investors’ holding period and their need for liquidity. These awards recognize that not all investors are created equal. They distinguish between two classes of investor: those with a longer-term investment horizon--the “Investor” class--and those more concerned about the need for immediate liquidity--the “Trader” class. From each eligible Morningstar category, a category winner is chosen for both the Investor class and the Trader class. The ETF Provider with the most category winners in an eligible category group wins the Morningstar Award at that category group level. These awards are completely quantitatively driven, taking into account total cost of ownership as well as risk-adjusted performance. But unlike the Morningstar Rating, which awards stars based solely on past risk-adjusted performance within a fund’s category, the Morningstar Awards lean heavily on total cost of ownership. A complete list of winners can be found here, and the complete methodology can be found here.
iShares Wins Big
IShares had the most category winners, with 10 for the Investor class and 21 for the Trader class for a total of 31 winners. As one of the oldest and the largest ETF providers, iShares had by far the most eligible ETFs. IShares ETFs typically have among the best liquidity in their respective categories, so it is not surprising to see them win so many awards for the trader class. But they also won a large number of Investor class awards. Last year, iShares reaffirmed its commitment to providing low-cost ETFs through the launch of the iShares Core suite, which consisted of expense ratio reductions for several ETFs and the launch of new ETFs with low expense ratios. While the new ETFs are not yet eligible for awards, three ETFs in the iShares Core suite won their respective categories.
While iShares had 10 category winners in the Investor class, Vanguard had the most category winners in the Investor class with 15. Vanguard also won eight at the Trader level for a total of 23 category winners. It is important to note that 18 Vanguard ETFs changed indexes during the year, including nine that won awards last year. The index changes reduced the number of eligible Vanguard ETFs, because the award methodology requires that an ETF track the same index for at least 13 months to verify that an ETF is tracking its index well. Vanguard’s stated objective in making the index changes is in keeping with the spirit of the awards, which is to provide low-cost access to index funds.
State Street Global Advisors, which issues the SPDR ETFs, had 10 category winners, three at the Investor class level and seven at the Trader class level. Both PowerShares and WisdomTree increased the number of categories they won over last year, when they each had one category winner. This year PowerShares had six category winners, three in the Investor class and three in the Trader class while WisdomTree won four, all in the investor class.
In its first year of eligibility for the Awards, Schwab ETFs had category winners in the Investor class for the large-blend, large-growth, foreign large-blend, and diversified emerging-markets equity categories. Last year, Schwab announced expense ratio reductions for several of its ETFs. As a result of these fee cuts, the Schwab ETF lineup now has the lowest asset-weighted expense ratio of all ETF providers. However, some of the categories in which Schwab won awards were categories in which Vanguard funds won last year but were ineligible to win this year. For example, in the large-blend category,Schwab U.S. Broad Market ETF(SCHB) won the award in the Investor class due to its low cost. The fund charges just 0.04% and returned 21.47% in the year ended June 30, 2013, compared with 21.43% for the index. Last year,
Vanguard Total Stock Market ETF (VTI) won the Investor award in that category. VTI has a stated expense ratio of 0.05%, just 1 basis point more than the Schwab fund and its portfolio delves deeper into small-cap territory.
While Schwab U.S. Broad Market ETF was the Investor class winner in the large-blend category, the Trader class winner was a race between three liquid ETFs,SPDR S&P 500 ETF (SPY),iShares Core S&P 500 ETF (IVV), andiShares Russell 1000 Index (IWB). SPY won the award last year due to its abundant liquidity, as the ETF trades nearly $20 billion a day. The large trading volume and tight tracking to NAV result in the lowest estimated market impact cost of any ETF, meaning that large blocks of shares could be easily traded without a significant impact on the fund’s market price from NAV. However, market impact costs is only one of two components in the total cost of ownership, the other being estimated holding costs. The difference in returns between an ETF and its benchmark index is captured by the estimated holding cost. SPY’s estimated holding cost is actually higher than its expense ratio, meaning it lagged the index by more than one would expect—assuming otherwise perfect tracking. For the year ended June 30, 2013, the S&P 500 Index returned 20.60% while SPY returned 20.44%, lagging its index by 16 basis points, more than its 9 basis point expense ratio. Meanwhile, iShares Core S&P 500 ETF returned 20.52%, lagging the index by only 8 basis points. IVV is typically able to hew more tightly to the index through the reinvestment of dividends and contributions from securities lending income, two techniques prohibited by SPY’s unit investment trust structure. So while IVV has a slightly higher market impact cost than SPY, its lower estimated holding cost can result in a lower total cost of ownership for an assumed $1,000,000 trade--the trade size that is assumed in calculating Trader class winners.
After SPY and IVV, the ETF in the large-blend category with the next lowest total cost of ownership was iShares Russell 1000 Index. Due to the strong performance of mid-caps over the past several years, IWB has offered a better return than SPY or IVV, even on a risk-adjusted basis. That performance difference was enough to make IWB the large blend category winner for the Trader class. It offers a good combination of liquidity, index tracking, and index performance.
The results in the commodities precious-metals category illustrate the distinction between the Investor and Trader classes.SPDR Gold Shares (GLD) was the category winner for the Trader class whileiShares Gold Trust (IAU) won honors in the Investor class. As the most liquid exchange-traded product in the category, we estimate the market impact of a large trade in GLD to be one fourth as that of a similar-sized trade in IAU. Traders place a premium on liquidity. However, GLD’s 0.40% expense ratio is higher than the 0.25% charged by IAU. Long-term investors will benefit from the lower cost of IAU. A further sign that traders prefer GLD could be seen during the heavy outflows from gold exchange-traded products this past spring. Selling disproportionately affected GLD and its shares outstanding fell by a greater percentage than IAU’s did, suggesting that more traders were using GLD and that longer-term investors were more apt to hold IAU.
Provider awards are given at the category group level for the ETF provider with the most category winners at both the Investor and Trading class level. Four category groups were eligible for Provider level awards. IShares won the provider awards for the U.S-equity, international-equity, and taxable-bond category groups. Vanguard won the Provider Award for the sector equity category group. The only change from last year is that iShares was able to wrest the award for the U.S. equity category group from Vanguard. Last year, iShares won six out of 18 awards in the U.S. equity category group while Vanguard won eight. This year, iShares won 11 out of 18 awards while Vanguard won three. However, seven Vanguard ETFs that won awards in the U.S. equity category group last year were ineligible this year. Next year, it will be interesting to see if Vanguard can reclaim categories it won last year despite the increased competition from Schwab’s low cost lineup and iShares Core suite.
culdeus
Footballguy
Well, I finally crossed the threshold where I can't do a Roth IRA anymore.
I'm probably just going to convert all my 401k contributions to Roth 401k contributions and move forward.
It's a good problem to have, I realize.
Is there some reason where I would not shuffle over to the roth 401k that I'm not considering?
I'm probably just going to convert all my 401k contributions to Roth 401k contributions and move forward.
It's a good problem to have, I realize.
Is there some reason where I would not shuffle over to the roth 401k that I'm not considering?
fatguyinalittlecoat
Footballguy
I feel like this NY Times blog post describes a pretty brilliant idea. Not sure how we could execute it, and states would scream bloody murder before giving up all that revenue, but the idea of playing the lottery as putting money away for retirement just strikes me as perfect.
I think the federal government should just ban lotteries anyways. They are abhorrent.
fatguyinalittlecoat
Footballguy
Would you still feel that way if 50% of the money spent on lotteries was put into a savings fund for the person who bought the ticket?
fatguyinalittlecoat
Footballguy
mquinnjr
Footballguy
Congrats, GB! Pop a bottle, that's a life milestone.
I'm not there yet, but I've looked into it because I'm curious. At my work, you can contribute to either Traditional 401k (tax savings now, taxed later) or Roth 401k (no tax savings now, tax savings later) up to the IRS limit, which is somewhere around 16,500-ish off the top of my head in any combination that you'd like. Plus, if you get a company match, that doesn't go against the 16.5k total and gets plopped into a traditional IRA bucket, no matter how you've configured your traditional vs. Roth 401k buckets.
Main thing you're losing is accessability with the Roth 401k, since you get nailed for touching it before retirement, unlike the Roth IRA (principle only). Just figure out what mix of tax savings now (Traditional 401k) vs. tax savings later (Roth 401k) works best for you and your family, and you're set.
Like you said, good problem to have!
