Lazy Man and Money

  • Blog
  • Home
  • About
    • What I’m Doing Now
  • Consumer Protection
    • Is Le-vel Thrive a Scam?
    • Is Jusuru a Scam?
    • Is Beachbody’s Shakeology a Scam?
    • Is “It Works” a Scam?
    • Is Neora (Nerium) a Scam?
    • Youngevity Scam?
    • Are DoTERRA Essential Oils a Scam?
    • Is Plexus a Scam?
    • Is Jeunesse a Scam?
    • Is Kangen Water a Scam?
    • ViSalus Scam Exposed!
    • Is AdvoCare a Scam?
  • Contact
  • Archive

ETFs vs. Mutual Funds – Who Ya Got?

October 3, 2017 by Lazy Man Leave a Comment

Happy Tuesday everyone. I was going to write this yesterday, but I woke to a text from my wife saying, “Call me. We need to talk about deployment to Puerto Rico.” In the past 4-6 weeks she has been back and forth between being deployed to Houston, Florida, and now Puerto Rico at least a dozen times. Ross and Rachel had fewer twists and turns.

I listened to all the reasons why this time is different, but I’ll just wait and see.

I hang up the phone and scroll through my alerts. Twitter sent me something about an active shooter. I expand that story and… well you know the rest by now.

Writing an article about ETFs and mutual funds didn’t feel right… not that anything did.

So, let’s try again, today, shall we?

A couple of weeks ago, one of my personal finance blogger friends, Revanche from A Gai Shan Life Tweeted out a pretty innocent question:

Mutual funds or ETFs, and why?

— Revanche (@RevAGSL) September 23, 2017

I answered with, “ETFs. Lots of commission-free index options with Schwab too.”

What I didn’t do is explain “Why?” Why not say “why?” Why, I don’t know why I didn’t say why. Confused? Good, me too!

I had mutual funds in the early 90s, but I moved onto ETFs as soon as they became broadly available. And I never looked back. I think the reason why I went with ETFs is that they have slightly lower expense ratios. However, I could also understand the tax treatment better. It was easy for me to know that selling shares for a long-term capital will be taxed at whatever that rate is. With mutual funds, I’d get tax bills which depended on what the fund manager decided to do that year.

Overall, I never considered the difference between the two to be that big of a deal. As long as you focus on the expenses of the index investment it shouldn’t matter whether it is an ETF or a mutual fund.

Back in those days, the lowest expense ratios belonged to Vanguard and no one else was even close. Times change. Fidelity became very competitive with expense ratios several years ago. I think Schwab became competitive with them soon after that.

Again, back in my day (Cue SNL’s Grumpy Old Man), you’d have to pay a brokerage commission to companies like Datek and E-Trade to buy or sell the ETF. They were usually around $10 for each trade. (And we loved it!)

Today’s kids have it made. Fidelity has 70 index ETFs that trade commission-free, most with those competitive expense ratios. Vanguard is also competitive. However, Schwab seems to edge them out with more commission-free options and expense ratios that are a drop below the others.

Another of my blogger friends, Joe from Joe Taxpayer, chimed in:

Exactly. A few Schwab ETFs are sub .05%/yr expense, one or two are .03%. That's $300 per $1M invested.

— JoeTaxpayer® (@JoeTaxpayerBlog) September 23, 2017

This is exactly what I had been thinking, but didn’t have the data to back it up while in my phone’s Twitter app. The Schwab US Broad Market index covers a lot more than the S&P 500 and with that .03% expense ratio. If you are investing a million dollars, are you really going to be concerned about $300 a year? There used to be time when people paid 1% or more to invest. That’s more than $10,000 a year to invest if you have a million dollars. If you are going to take $9700 of my money, you have give me a lot of value for it. That buys a lot of coke prostitutes Patriots tickets.

What’s particularly great about many of these options is that there aren’t any commissions to trade. That means that you can rebalance your portfolio without being burdened by trade costs. When I went with ETFs years ago, I was concerned about spending the commissions to cash them out. Silly me! With commission-free trading of a bunch of these ETFs you can make some significant asset allocation changes and still end up paying probably an average of .07% in expenses. It makes me wonder why anyone would want to invest a large sum of money any other way.

All three companies are close enough that it probably doesn’t matter too much. If you’ve got your money at any of those three it’s probably more work than it’s worth to move it. However, if you are looking to start fresh or move some money from some expensive option, I’d choose Schwab. (Note: Schwab isn’t paying me to write this. I’m not even putting an affiliate link for you to go sign up with them.)

Isn’t it amazing when competition actually works to make things better for consumers. Don’t you wish your cable and internet providers were the same way? (Sorry, I couldn’t resist the tangent. That’s a rant for another day.)

It’s your turn now. As Revanche wrote, “Mutual funds or ETFs, and why?” Let me know in the comments.

Filed Under: Investing Tagged With: etfs, mutual funds

Create Your Own Pseudo Annuity

March 13, 2014 by Lazy Man 2 Comments

Yesterday, I wrote about how annuities can be confusing, especially with hidden fees. I was wondering if it was possible for me to create something that approaches an annuity without the complexity and hidden fees, using investment vehicles that I know and understand.

I’m going to start with two important disclosures before I dig in:

  1. Annuities give you a guaranteed income stream. This is not going be guaranteed. The investment vehicles in some cases can lose value. The idea is that by diversifying amongst a few different option, you minimize that risk. And while annuities do give you guaranteed income, let’s not forget the case yesterday of the annuity that charged more in fees than it paid out. I’d consider that a risk as well.
  2. At age 37, I’m focused on growth not earning an income off my investments. For those reasons, I haven’t fully researched all the options available. Please be kind and helpful in the comments, okay?

For sake of argument, let’s assume that you had a million dollars burning a hole in your pocket. (Just your typical scenario, right?) You are thinking, “I’d really like to put this money to work to earn me $40,000 a year.” (See what I did there with the Rule of 4%?) How am I going to get there?”

Well, I’ve got three options for you to think about. I would suggesting allocating your money amongst all three.

  • Laddered CDs – That link gives some CDs that are paying around 1.3% interest. If you put your whole million there, you’d only get $13,000 to live off of. That’s not a lot, but at least it is guaranteed.
  • Dividend Paying Mutual Funds and ETFs – I honestly had a little trouble finding documentation of the yield on a lot of mutual funds and ETFs, but I found this ETF tracker that has the top 100 yielding ETFs. I’d stick with something relatively safe that I’ve heard of like Barclays SPDRs which seem to have some options in the 5-6% range. Obviously this is the farthest thing from guaranteed, but at least the ETFs are diversified.
  • Lending Club – I’ve written before that I’m getting a 7% interest rate at Lending Club and it seems like most people are doing better than me. Some people will say that Lending Club is too risky because it hasn’t been around very long. You are relatively protected if they go out of business. Also a significant investment allows you to diversifying amongst thousands of loans, making it fairly protected (though if the entire economy goes Mad Max on us, they probably won’t pay). Finally, there are institutional investors putting big money in Lending Club. It isn’t as absurd as it sounds to do the same.

If you were to mix the three options equally, you could get around a 4.6% return. On that million dollars, you’d have $46,000 in income. As for fees, they are fairly transparent. Most CDs don’t have fees unless you withdraw the money early. The ETF that you choose will have an expense ratio that will disclose the fee. Finally the Lending Club servicing fees are outlined on the website. You aren’t going to get in a situation where some hidden fee is going to sap your million dollars.

Let me know what you think in the comments. What else should/could be included in here? Treasury bonds?

Filed Under: Banking, Investing, Uncategorized Tagged With: CDs, lending club, mutual funds

A Lazy Portfolio

July 29, 2011 by Lazy Man 18 Comments

Investing can seem very complex if you are new to it. There are so many options out there. How is one to choose between stocks, mutual funds, CDs, corporate bonds, treasury bonds, savings accounts, and even more exotic options like lending on Prosper. With all this complexity it may be worth simplifying things dramatically. Here’s my idea of a simplified or lazy portfolio.

The first step to my plan is to get a Zecco account. I choose Zecco simply because they charge no commissions to buy exchange traded funds (ETFs). That means, that’s you can re-balance and add to your portfolio each week without incurring huge costs.

What does this lazy portfolio look like? It splits 100% of your money equally into the following ETFs:

  • 25% – Total Stock Market Index (Ticker: VTI) – This ETF tracks the performance of many US stocks. It’s a great way to diversify yourself in across large and small, growth and value stocks.
  • 25% – Vanguard All-World Ex-US fund (Ticker: VEU) – This invests in the many stocks all outside of the United States. I believe you shouldn’t put your eggs in one basket and I consider the US one basket. This reduces currency risk and mitigates against some of the problems that pop up from time to time, like the sub-prime lending one that we are in now.
  • 25% – First Trust Global Real Estate Index Fund (Ticker: FFR) (Ticker: FFR) – This invests in real estate around the world. While it does hold a fair share of US real estate, over 60% is outside of the US (hat tip to Sun’s Financial Diary for the help on this one.) This is a great hedge when all the stock markets aren’t performing.
  • 25% – Vanguard Total Bond Fund (Ticker BND) – This tracks the performance of a huge number of bonds. Bonds can be a little risky if bought individually, but in a fund such as this, that risk is reduced with the many holdings. Bonds also move independently of stocks and real estate, so if either of those two areas are doing poorly, bonds may stabilize your portfolio.

You won’t get rich overnight investing in this allocation. However, since it covers so many areas, you’ll likely find that you sleep well each night.

[Please note that like all my writing, it does not constitute financial advice. I’m simply sharing ideas that I have. Please check with your financial advisor before following through on these ideas.]

Filed Under: Investing Tagged With: commissions, corporate bonds, exchange traded funds, Money, mutual funds, savings accounts, Stocks, treasury bonds, Vanguard

As Seen In…

Join and Follow

RSS Feed
RSS Feed

Follow Me on Pinterest

Search The Site

Recent Comments

  • Steveark on How Many Days of Financial Freedom do you Have?
  • Wesley on How Many Days of Financial Freedom do you Have?
  • Wesley on Should We Worry About the Debt Ceiling?
  • Lazy Man on Thiel’s Scandalous Roth IRA and What You Can Learn From It
  • Nancy Jones on Thiel’s Scandalous Roth IRA and What You Can Learn From It

Please note that we may have a financial relationship with the companies mentioned on this site. We frequently review products or services that we have been given access to for free. However, we do not accept compensation in any form in exchange for positive reviews, and the reviews found on this site represent the opinions of the author.


© Copyright 2006-2023 · Perfect Plan Publishing, Inc. · All Rights Reserved · Privacy Policy · A Narrow Bridge Media Design