Lazy Man and Money

Financial Magazines, Please Stop Splitting Hairs

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I love getting financial magazines like Money and Kiplinger’s Personal Finance. There’s something about holding a physical magazine in my hands. It’s a welcome change from all the personal finance websites I read. (Those are excellent too, though.)

I got this month’s (September, 2015) Kiplinger’s and I didn’t get too far before I was saying to myself, “Really!?!” And yes I mean it in this hilarious way like the SNL skit.

It just wasn’t that I was getting September’s magazine in July. Yes I always take issue (pun intended with that) with that, especially because financial information is timely. Due to production times, I often read about a stock and find out that the magazine quoted the price from the month before before… further exaggerating the timeline.

This month the editor Janet Bodnar opens up with by stating that they going to create a Kiplinger ETF 20, their top 20 exchange traded funds of the 1740 out there. On the face of it, it seems like a great idea. The problem is that choosing a great ETF hasn’t significantly changed in the 9 years I’ve been writing this blog. It hasn’t changed since before that.

It shouldn’t surprise any of my regular readers that Kiplinger’s top 20 includes 6 Vanguard ETFs. It also might not surprise readers to learn that iShares has another 6 spots. Schwab has a spot. The biggest surprise to me is that Fidelity got left out of the party.

You could have mostly picked the ETFs out of a hat from those four companies. There’s almost no difference between iShares Small-Cap (the recommended ETF) and Vanguard’s Small-Cap ETF. If I’m going to split hairs, I’d go with the Vanguard one as it has a hair lower expense ratio.

In the editorial Bodnar seems to admit that most of them are the same stating that many track the same indexes and are look-alike products. She points out that the differentiators are “tracking error” where an ETF differs from the index it tracks and trading volume which helps keep costs low. Almost all (perhaps all?) the ETFs from the above companies would qualify.

Unfortunately, one of the more useful things didn’t make the top 20. Bodnar mentions that a REIT ETF made the top 30, but got left off because “it’s not the best time to buy a REIT fund.” I find it unusual to see a financial magazine advocate market-timing at the expense of diverse asset allocation.

Even more curious, a healthcare ETF made the list. I’m a strong believer in health care with the aging baby boomer population, but the ETF is up 25%+ annually over the last 5 years. History has made it clear that will not continue for any sector. I’d argue that “it’s not the best time to buy a health fund.”

I’m probably being too critical. Financial magazines have to find something to write about. Personal finance doesn’t change month to month. That’s why I say you can be lazy with your money. If you set up a basic system once and develop a few good habits, there’s not much else to it.

In a lot of ways I feel Kiplinger’s pain in keeping personal finance fresh. I have the same issue in writing a blog on personal finance every day. I should thank Kiplinger’s Top 20 ETFs because it gives me articles like this to write about.

If they really wanted to simply the ETF choices for everyone, they could have done so in three simple words: Buy Vanguard ETFs. This isn’t an advertisement for them and I make no money from them, they’ve just been historically the best in the industry with their microscopic expense ratios… and there’s a fund for just about anything you’d want to buy.

The only time you might want to stray is if you care to make risky bets such as whether Greece or Russia are going to pull out its financial hole. If you are considering such investments, you can probably figure out the finer points of ETFs.

What do you think? Do we really need a top 20 ETF list? Was I too critical? Let me know in the comments.

Big Savings on Brokerage Fees

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I recently had the opportunity to meet with a couple of representatives from Motif Investing. Though the company has been around for years, I hadn’t really looked too much at them.

Why? I feel like they aren’t marketing their product to its potential. I had missed one of the MAJOR benefits that I’m going to share with you.

Motif Investing Bull
This company can save you thousands on brokerage fees!

Motif Investing’s big marketing message revolves around investing in ideas not stocks. An example they gave me is that instead of investing in Apple and putting all your hope on the iPad, you can invest in the companies that make the chips and screens. These companies make them for other tablets too, so if everyone bought Android tablets instead of an iPad, your investment would (presumably) still do well.

By investing in a Motif, you hold all the underlying stocks the same way you would as if you made a bunch of small trades.

The iPad example makes sense. However, there are some Motifs that don’t make sense. For example, there is a Motif of stocks that consists of companies that sponsor sport stadiums. Maybe it would be good to give to a kid, but there’s no common sound investing strategy there… except for maybe having a market budget that lends itself to that. The existence of those meaningless Motifs ruined the whole idea for me.

However, when I talked with them, they explained that you can create your own Motif and buy and sell it for $9.99. That means you can buy up to 30 stocks (including ETFs) for a single $9.99 fee. Of course typical spreads and ETF fees (where applicable) of the underlying stocks apply. Think about it for a minute though… you can buy a whole portfolio at once.

As I went through their website, I saw that Motif does market this benefit after all. There’s a whole page showing how you can spend $300 buying 30 stocks elsewhere or under $10 at Motif. That’s powerful stuff.

And if you act soon with that link they’ll even give you up to $150 in free money just for investing through them.

I have to think that somewhere their marketing department has dropped the ball. I simply don’t see how other brokerages compete with that.

The biggest question I had was: How do I rebalance this? The answer is that the owner of the Motif can rebalance the Motif for $9.99. The interesting side effect to this is that if I create a Motif and you invest in it, you are at my mercy. Imagine how you will feel when I rebalance the portfolio to be 99% invested in a Russian ETF. Cue the:

I got word from Motif that my understanding there was completely wrong. Everyone gets an email and has the option whether or not to rebalance with the owner of the Motif. That’s a much better solution. Unfortunately, this makes the maniacal laugh a little anti-climatic. It’s still fun though:

My suggestion would be to be very careful of investing in someone else’s Motif unless you really trust them. Even then it may be better to just copy yourself, so you can be the owner.

Tomorrow we’ll explore how we can use Motif’s tool for fun and profit. In fact, it just might be the solution to a question I asked about a month ago.