Lazy Man and Money

Stop Comparing Investment Performance to the S&P 500

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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:

SigFig Performance

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

  1. I’m clearly a superb stock picker… even if most of my investing is in Lazy-approved index funds.
  2. 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:

Personal Capital Performance

(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.

Intuit Selling Quicken… Personal Capital to the Rescue?

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Back in November, I heard the news that Intuit plans to sell Quicken. I would have written about it earlier, but I think it deserves more attention than getting lost in the Thanksgiving holiday and Black Friday shopping hysteria. The go-to personal finance software for 30 years has earned that and much more.

There’s probably a lot more we don’t know than what we do know about the potential sale. I haven’t seen any news on a potential buyer yet. I’m fairly sure someone isn’t going to pay a lot of money just to watch it die. I’m not sure if the software engineers come with the sale for a time to get everyone up to speed with the software. Everything is a big question mark.

Personally, I could never get into Quicken. It wasn’t for lack of trying either. If I recall correctly, around 2000, you’d have to pay a fee to get automatic syncing with some banks and brokerages. Typically, I could download the last 30 days an import it for free, but if I didn’t update it, I had a huge mess one my hands. I finally gave it up and went to tracking my net worth with a spreadsheet. I learned to budget by asking the question, “Do I really need to buy that?” and answering myself, “No.” It was just easier.

Over the past few months, I’ve been using Personal Capital and I’m really impressed with it. It is a online personal finance manager similar to Mint that has been around for years. It’s a very good complement to my spreadsheet. While I’ve gotten good at updating my spreadsheet in about an hour, Personal Capital does most of it instantly.

I have to qualify that because it doesn’t do the mortgage from a small local bank (but surprisingly it does do the savings and checking from them.) It’s not perfect, but it’s a lot closer than Quicken ever was for me. (That said, it is extremely unfair of me to compare Quicken 2000 to Personal Capital 2015).

I’m not alone in recommending it as I see almost all personal finance bloggers doing the same. It seems to be particular popular for the early retirement blogs that I’ve really started digging of late such as Root of Good and Retire by 40.

I noticed that Personal Capital seems to be taking advantage of the Quicken uncertainty. Here’s a comparison they created. These comparisons always show the strengths of the product by the company who creating the product, but it is worth noticing that Personal Capital does most of the major things that you’d want. I have found anything that it’s lacking (other than the aforementioned small bank).

There’s something to be said stability and Personal Capital might be worth exploring.

Calculating Net Worth: Personal Capital vs. a Spreadsheet

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A couple of months ago, I joined Personal Capital and started tracking my net worth there. In the past, I had a Mint account, but I always got tied up in categorizing payments to make the budgeting look right. That was a lot of time spent and I’ve found that I’m better off just being generally frugal with a few splurges here and there.

Where Mint struck me as a budgeting tool first and an investment tracker second, Personal Capital is the other way around. It seems to be 90% investment and net worth focused with only a small budgeting component.

Before I get too far into Personal Capital, I need to take a step back. Since I started this blog in 2006, I’ve been tracking my net worth with a spreadsheet. That means I can go back to watch 30% of my net worth disappear in the housing crash in 2007. My net worth was very small back then and it was paper money. And sadly, the price of my condo hasn’t caught up to what it was before the crash.

It’s geeky fun to stroll down financial memory lane.

I still update my net worth with a spreadsheet today. I used to do it on a monthly basis, but now it is typically quarterly. That’s simply a factor of not wanting to bug the wife to get her password for her Thrift Savings Plan, which seems to be quite the chore. (Don’t tell anyone, but sometimes I cheat and do a net worth update and just assume the value of her investments went up or down similarly with mine. I mark these as “estimated net worths.”)

What I like about spreadsheet is that I fill it in quickly. It probably takes me a half hour. I do this by bookmarking the 20+ websites where I have money and using LastPass to login quickly to pull the numbers. I even have links to Edmunds to estimate our car’s value.

The spreadsheet is also particularly good at combining my money with my wife’s money. It simply has infinite flexibility. I can create new categories such as the kid’s money, our liquid cash, our retirement account totals, and our real estate holdings.

So why would I join Personal Capital when I already have a working system? Personal Capital updates my net worth in real time. If my Google, err… Alphabet, stock goes up, it’s reflected immediately. I don’t need to log into 20+ websites and transfer numbers. It’s the ultimate “Lazy Man” tool.

Personal Capital also gives me different information. I have four retirement accounts with different holdings in each. Personal Capital can look at all them and show me how much of my money is invested in emerging markets. This view into my asset allocation is not something I can easily track with my net worth spreadsheet.

Sometimes, I think I’m crazy to use two net worth tools. I wonder if 90% of people even use a single tool or ever do a net worth calculation. However, I think they both have their benefits and I’ll take a bit of each.

Other than starting this personal finance blog, tracking my net worth has probably been the biggest reason for our financial success. I wish I could convince more people to do both.

What’s Hot and What’s Not from Finovate 2012

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On Monday, I mentioned that I was going to Finovate for the fifth time, but for the first time I had reservations as to whether the event would be worth going to. When I started going, most of the companies were creating products that you, the consumer could sign up and use right away. Every year Mint, Credit Karma, Lending Club, Prosper would show up. There were companies like Wesabe that didn’t make it and companies like Money Strands that are technically still around, but whose blog has one post in the past year and a half. In fact there were so many PFMs (that’s personal finance management software applications) that I just started summarizing them as, “another Mint.”

Last year around half of the companies at Finovate were marketing their products to financial institutions. Their pitch was, “That’s our demo. If you represent a bank, please come to our booth and invest and/or partner with us.” It’s disheartening to see something interesting only to find that I can’t write about it because people can’t use it.

Yesterday I went to the show with SVB from The Digerati Life and watched 32 companies present demos of their products. Only five struck me as being of possible interest to people who aren’t bankers looking to invest in other companies. I never would have imagined I’d long for the days of writing “another Mint” in my notes.

Here’s a countdown of those top 5:

5. Expense and Itinerary Tracking – There were two companies that seemed to do the exact same thing: Concur and Expensify. They take the paper receipts and turn them into digital ones, making the reporting much easier. This year each company added itinerary tracking to their platforms. Concur bought TripIt, a company I had heard of before and Expensify developed their own solution in house.

4. iQuantifi – This company is has four employees and it is just getting started. They are another personal finance management software company (like Mint). What caught my attention is their goal engine. The user creates goals such as buy a new car or buy a new house and the software creates a saving plan for you. You can drag the new car up, but you’ll need to save more and/or push the new house back. It looked like a great visualization and budgeting tool. While the company is in its very earliest stages, it has promise.

3. Personal Capital – They were launching an iPhone application that seems to do everything you’d ever want in a personal finance application. They showed off integration of many bank and investing accounts and the ability to move money between them easily. I would have ranked it higher, but an HTML5 mobile website would have been preferred so that everyone with a smartphone can use the product.

2. WattzOn – Their software analyzes your energy use and gives you tips on saving money. I wrote about this on Monday and one commenter made the point that their software wasn’t very helpful for them. I’m still giving them second place, because the concept is good. Their management is smart, and if their software doesn’t work for everyone now, it should evolve and be a good resource for consumers for years.

1. BillGuard – This company allows people to flag questionable charges in their bills. BillGuard uses this input from many people (crowdsourcing at its finest), and lets you know if you have questionable charges on your bill. They were at the show to announce something even more helpful: a transaction resolution center. They’ll dispute the charges for you. Lazy-approved!

Day 2 of Finovate is going on as I post this. However, SVB and I decided not to go today. It simply didn’t make much sense when a vast majority of the companies don’t apply to your audience. After yesterday, I gett the feeling that we’re just missing 15 more companies who help people send money from one person to another via a mobile app.