Investing Archives - Lazy Man and Money

Stop Comparing Investment Performance to the S&P 500

April 30, 2018 by Lazy Man 2 Comments

One of the great pastimes of investing is comparing performance. The standard comparison is usually with S&P 500, or worse, the Dow Jones Industrial Average.

For example, I signed up with SigFig years ago. Now that I use Personal Capital, I rarely look at SigFig, but they do send me weekly emails. Here’s part of this weekend’s email:

I’d like you to take two things away from this chart:

I’m clearly a superb stock picker… even if most of my investing is in Lazy-approved index funds.
This shows the typical DJIA and S&P 500 comparisons that I’m referring to

What’s wrong with comparisons to the DJIA and the S&P 500? The DJIA consists of 30 of the largest stocks in the United States. The S&P 500 consists of 500 of the largest stocks in the United States. That means that the DJIA is a subset of the S&P 500. There’s 100% overlap in that very small data sample. The S&P 500 is better, but again, it only covers stocks of large US companies.

Here are my performance results from Personal Capital:

(I’m going ignore this week’s performance and pretend that didn’t happen. I’m more interested in long term averages in general.)

I like Personal Capital’s update better. They decided that one large US stock index is enough and kicked the DJIA to the curb. Good choice in picking the more diversified index.

They make another wise decision and provide two new index comparisons, foreign stocks and bonds. This is particularly useful because every diversified portfolio I’ve seen recommended includes at least one, but usually both of those. Maybe there is someone out there who advocates to just put your money in the S&P 500, but I haven’t come across him/her yet.

That’s the problem with all these comparisons: A well-constructed, diversified portfolio shouldn’t be compared to any single index.

Let’s look at the Personal Capital chart again. Did you notice the words at the bottom? My “holdings fell… underperforming the S&P 500.” That feels like shaming to me. It seems to imply that I should have just put all my money in the S&P 500 and done better. (Am I alone in feel this way?)

I’ll let you in on a secret: I don’t invest in the S&P 500. I prefer to invest in the the Wilshire 5000 because it includes midsize and small companies. The market tends to move together so it isn’t a big difference, but I don’t see a compelling reason to avoid around 4500 companies just because they are smaller. I choose index funds because they are diverse. More diversity is better.

In other words, if you are going to use US stocks as a comparison, why not choose the most inclusive index?

Let’s move on from the US stock indexes. My portfolio consists of so many things. Here are just a few examples: Europe/Asia companies, emerging markets, frontier markets, oil, monkey butlers, bonds, REITS, and cash. (We hold real estate, P2P lending, and other things as well, but those don’t fit in a normal brokerage account framework).

[Note: I’m considering selling my monkey butler holdings as Amazon ramps up their home robot business.]

Comparing my holdings to the S&P 500 is nonsensical. I’m not looking to perform like the S&P 500. If I was, I’d just invest in the S&P 500. Instead, I’d like my investments to grow over time, while not losing as much money if/when the US market goes south.

Sometimes when I’m critical of something, people ask, “So how do you suggest we change and do better?” I think an easy stopgap measure is for companies to switch to the Wilshire 5000 instead of the DJIA or the S&P 500. I’m hopeful that’s just a few lines of code for the software engineers at the company.

Longer term, I’d like to see companies ask about people’s risk tolerance and create a blend based on those preferences. One simple example could be the common 60/40 stock/bond portfolio. Imagine the Personal Capital chart above with a “Target” that gives the YTD performance of a portfolio with a 60% Wilshire 5000 index and a 40% broad bond index. In this case, the “Target” would be down around 1% for the year. (This can be more complex to include foreign stocks and monkey butler investment performance if necessary.)

That seems like an improvement, right? Let me know what you think in the comments.

We have an affiliate relationship with one or more of the companies linked in this article.

Rize Review: Saving and Investing Made Easy

May 7, 2018 by Lazy Man Leave a Comment

I’ve been a very big fan of applications that squirrel away small bits of money a few times a month. Why? It builds an emergency fund without me thinking about it. It is out-of-sight, out-of-mind when I look at most of our other money (at USAA). However, I still know in the back of my mind that I have this cash available.

Also, it really is the “Lazy” way… and I mean that in the best possible sense of the word (a great thing!)

If this sounds familiar to you, it might be because you are regular reader. I’ve written about a few of these companies over the years. You might remember me mentioning Dobot and Digit. Those are two companies that work the same as Rize.

So why did I kick Dobot and Digit to the curb? They used to be free, but now they are not. Dobot charges $1.99 a month. Digit is $2.99 a month. That means you can expect to pay around $24-$36 a year. I didn’t see Dobot paying any interest. Dobot seems to give a 1% “savings bonus” every 3 months that worked out to a small amount of interest in my experience.

I think a lot of people can find some value with those services, but some of my readers have said, “But I can set up an account at another bank and do an automatic withdrawal of $25-50 and simulate the same thing with no fees.” That’s mostly true, but Dobot has some nice categorization features and they both do a good job of taking variable amounts out of your account. This means that if you are a little low on funds, they might not move much, but if you have a good month, they’ll move more.

At the end of the day, I have to concede that you can set up something reasonably close for free. That’s why I’d look for more value than what Digit and Dobot were offering.

For me Rize provides enough of that extra value.

Here are two quick differences that change the math:

Rize pays a good interest rate. Currently, it is 1.43% interest, which I think is very competitive.
Rize lets you choose what you pay. You can give them whatever you think is fair.

So rather than losing $25-30 a year like Digit and Dobot, I donate $1/mo. and get a little more than that back in interest. I understand that these companies need to make money, but at the same time, this gives me some value for something that I could otherwise do for free.

It’s not a lot of value, but I set it up in about 3-5 minutes. It is extremely easy with only a couple of things to set. I set my “Boost” to put aside $50 a week. That’s how I build my emergency fund.

I should also add that if you sign up for Rize from any of the links here, they should start you off with $5. They’ll give me $5 for referring you. You can refer your own friends get $5 for each one yourself.

Rize Invest: Investing Made Easy

Rize created something called Rize Invest. Rather than putting money in a savings account and earning that competitive interest rate, you can earn something closer to the markets. They’ll invest money in an ETF mix of stocks and bonds. It works like many of the robo-advisors that have become popular. It costs a minimum monthly donation of $2 (at the time of this writing), plus 0.25% annually on the assets. They mention investing in Vanguard ETFs, so I imagine that’s 0.25% on top of Vanguard’s low fees. From the image below, it seems like it might be a 20% cash, 50% bonds, and 30% stocks. I’m guessing those would be Vanguard’s BND and VTI ETFs respectively:

For many people, this is probably a very good deal. The ability to automate savings and investing should be very tempting for a lot of people who to avoid actively managing their money. That’s not my typical audience, but there’s a lot more of those kinds of people out there than my kind of readers.

I didn’t choose to have my money invested in this way, so I can’t give you any first-hand experience how it works. I immediately was curious about the tax treatment of if getting my money back counts as “selling stock.” I imagine it would, but I couldn’t find anything in Rize’s documentation to explain how that works. I’m reaching out to their customer support for more information. I’ll update this article if/when they get back to me.

The other thing is that this works less and less as an emergency fund if it is invested in a way that does risk losing money (which is my understanding).

For these reasons, I think of Rize Invest as a nice extra option to an automatic saving service. Some of you might think of Rize Saving as a nice option to robo-advisor. Finally, others will think, “I’ve got both of these tools under one roof almost completely automated for me at a very low fee.”

If all of this sounds good to you at a price of zero (or above), you can get Rize here. And if you do sign up, could you do me a small favor? Rize isn’t sure their tracking is working. Can you contact me and let me know you that did? Then we’ll know that their code is working.

What If The Stock Market Drops 50% Tomorrow?

March 6, 2018 by Lazy Man 4 Comments

I’m not a fan of clickbait titles. This may look like a clickbait title, but it isn’t.

It’s an honest thought I had yesterday based on real analysis of more than 100 years of data. Seriously.

Here’s a current (3/6/2018) chart of the S&P 500:

Go ahead and click Image for larger version in a new tab. We might be using that later (Or click for the latest chart on Yahoo and make sure you select the Max number of years.)

It looks pretty good except for the dot-com collapse around 2000 and the sub-prime mortgage collapse around 2009. If those two events didn’t happen, it might look like a Bitcoin chart, right?

I’ve got another chart to show you. Regular readers might know what’s coming up. It’s:

Yep, the good-old Shiller P/E Ratio chart. (Sometimes it’s better known as the CAPE ratio.)

I’ve argued before that there is a crash any time it gets over 25. It may take a few years, but it seems to happen.

That’s all stuff that I have written about in the past. Here’s another piece of data to consider:

This means that currently the market’s price is nearly 33 times its earnings. Throughout more than a hundred years of history it’s been closer to 16.5 earnings (averaging the very close “mean” and “median” numbers).

If the market drops 50% tomorrow it would be at the historically normal valuation.

See, the title wasn’t clickbait, right?

Where Do We Go From Here?*

You may think from the above that I’m suggesting that you shouldn’t invest. I don’t think that and I still own about 90% of my portfolio in stocks. That portfolio is in retirement accounts, so I won’t be touching them for years and years anyway.

I think there a few things that may make you feel better from the dire math scenario I proposed above:

Since around 1988, a solid sample size of 30 years, the Shiller P/E is 24.95 (using yearly chart data). Maybe advances in globalization, internet, better access to investing markets, etc. means that there is a “new normal” of Shiller P/E being 25? This time includes at least 3 crashes too.
So while 33 is still higher than 25 (my 5-year confirmed this math), maybe the downside isn’t 50%. Maybe it’s 33%. That’s still a big drop, but it’s got to be somewhat comforting, right?
This is the S&P 500, which means they are American companies. You can invest in so many other places. I’ve increased my asset allocation in Europe and emerging markets. Their valuations aren’t as high and they seem to be performing well.
This is the stock market. You can invest in bonds, real estate, commodities, and a bunch more stuff. I’m normally a very, very aggressive investor. I believe a smart plan is to be more conservative in your investing when valuations look high. I’m just going to be a regularly aggressive investor at these valuations.

I’d like to add one more personal note on the last point. I have been buying Twitter stock for quite a few years now. (I’ve written about it many times.) It was a terrible investment for quite awhile. It was really terrible. Overall, I’m up around 60% from what I paid for it. While that may sound great, the general stock market has probably done the same or better over that time.

Today, I pulled the trigger and sold some Twitter shares. I’m moving the money to my favorite bond ETF (Vanguard’s BND fund). It’s a very basic asset allocation shift towards being more conservative in my investing.

What are your thoughts on the market? Let me know in the comments below.

* If you know me at all, this a subtle nod to perhaps one of the best hours in television history:

Will This Stock Bring Good Things to Life for My Portfolio?

January 10, 2018 by Lazy Man 4 Comments

At the end of 2017, I was doing some last minute rebalancing of my retirement accounts. The stock market has been going crazy. By “the stock market”, I mean something different than what you are probably thinking.

The United States stock markets did really well in 2017. Depending on the index, they went up 20% or so. However, Personal Capital seemed to show those markets up 28% for the year.

To quote the Lego movie, everything is awesome. However, things were so awesome that my portfolio needed some minor adjusting. Another good reason to do trades at this time of year is that my stock ETFs paid their dividends. Why not put those dollars to work?

During the process, I decided it was time to invest in a new stock. I had been toying with the idea of investing in it for a couple of weeks. However, I was already logged in and making trades, so what’s one more?

As you may be able to tell from the article’s title, I invested in General Electric. Hopefully, I’m not showing my age too much with the title.

I was fortunate to get a price of $17.4647. (To really show my age, I remember when stock prices were traded in fractions. Now they are trading at four decimal places?)

I wish I could say that I had some great insight into why I bought GE. I can say that I read this Seeking Alpha article
and this one
and this one. There was a lot of compelling information there. Perhaps the most compelling reason was that GE was trading at it’s lowest point in years. There’s certainly some good reason for that, and those Seeking Alpha cover them in better detail than I can.

GE feels like a stock that I could buy and hold for years and years.

It’s been less than two weeks and I’m already wondering if I should sell it. I’m mostly joking, but it’s gone up 9%. If only one could make 9% returns every two weeks, right?

If you read my post about my clicked to look at the spreadsheet, you’ll notice that I have %high and %low in the watchlist tab. That’s so I can see how close a stock is to trading at its 52-week high and how close it is to its 52-week low. I don’t suggest that anyone use these exclusively when picking stocks, but I’ve found them helpful when I’m looking for a bargain stock.

My original plan was to hold GE for a quarter or two to assess how the turnaround of the business is going. My hope is that it has a chance to get to $24 which would be halfway to it’s former high. At around that point, I’d use what new information I have consider whether I should take the profit and move on, or just hold onto it forever.

Goodbye Google Finance… Hello Google Spreadsheets

January 9, 2018 by Lazy Man 5 Comments

A few months ago Google made the unfortunate decision to end their Google Finance portfolio tracker. This was the main way I checked my stocks and the first website I visited every weekday after the markets open at 9:30. They replaced with… something. It’s terrible. Now I can only view 6 of my stocks at a time and only very limited information about them.

Goodbye Google Finance.

Now, I needed to find a replacement portfolio tracker. I reached out to the masses on Twitter. One person suggested using Google Spreadsheets. I love spreadsheets. (Yes, I’m weird. I know.) However, the value of a portfolio tracker is that you get updated data. It’s not helpful if I have to manually put in the price of Vanguard’s Total Market Index (VTI) each day. After a little research, it seems that Google Spreadsheets supports all kinds of (mostly) real time stock data. Yes, the quotes may be delayed 20 minutes, but for my purposes, that isn’t that big of deal.

I decided to “nerd out” and create my own portfolio tracker. Better yet, I can share it with you! Go to this link and select the File –> Make a Copy. Then edit it to suit yourself. You should only have to put your own stock tickers and cost basis in there. You also might want to look up the price of the stock from Jan 1, 2016 if you want to make use of the 2016 YTD column. Unfortunately, I had some difficulty getting Google to import historical price quotes automatically.

I’ve found this tool really helpful. I’ve consolidated information from three brokerage accounts so now I can see everything at once.

However, it’s not perfect. It’s got three disadvantages from what I had before with Google Finance.

No stock charts – It was always great to click in and use Google’s great financial charts. Now, I have to go elsewhere for that information.
No stock news – Whenever a stock moved 5% or more, I could fairly easily look at the news and see if they released earnings or an analyst gave them an upgrade. Now, I have to do separate research in another browser tab.
It is slow – Doing all the calculations really drags down my computer. Of course, the 50 browser tabs that I already have open don’t help. And having only 4GB of memory isn’t making things better. Your experience may be better than mine. Even though it is slow, I can get most of the information very quickly and move on. It’s not something that I leave running for a long time.

The lack of stock news is kind of a killer. I’ve started using Marketwatch, and it’s okay, but not great. What do you use to track your stock portfolio and where do you get your stock news? Let me know in the comments.