Rick Van Ness's Blog, page 9
March 13, 2015
Investing Basics: What are Mutual Funds? (video)
Summary of video: Investing Basics: What are Mutual Funds? Mutual funds are the easy way to invest because for a very low cost investors can own a share of an extremely diverse portfolio of stock, or bonds, or both. You pay an annual fee for the fund management (and smart investors find index funds where this is very low). One way that investors make money is if the stocks in the fund appreciate. The second way is through a dividend payment. Transcript of Investing Basics: What are Mutual Funds? A mutual fund is a collective investment that pools together the money of a large number of investors to purchase a variety of securities—like stocks or bonds. When you purchase a share in a mutual fund you have a small stake of all investments included in that fund. Think of a mutual funds like a basket of investments. When you purchase a share in a mutual fund you are buying one share of this basket, and therefore have a stake in one small fraction of all the investments in that fund. Mutual funds can benefit investors in several ways. They are simple way to make a diversified investment. Most are managed by a financial professional. And because of the wide variety of mutual funds, they allow investors to participate in a wide variety of investments. Let’s walk through an example of how a mutual fund works. Suppose there’s an investor who wants to invest some of his retirement portfolio in the stock market, but he doesn’t have time to analyze individual stocks and create a diversified stock portfolio. Instead, he decided he’d rather purchase a mutual fund. This way, the investor can purchase a single investment which will, in effect, be similar to purchasing an entire portfolio of stocks. Which mutual fund is right? But which mutual fund is right for him? To find the right one, he uses online tools such as mutual fund searches and ratings given by independent third party organizations, to find a mutual fund that meet his investing goals. Once he finds a fund that looks like a good fit, he reviews the fund’s prospectus, which is the official summary and explanation of how the fund operates. The prospectus provides a wide variety of information about the fund including its fees and charges, minimum investment amounts, performance history, risks and other useful information. After researching the fund and its prospectus, our investor decides that this fund looks like a good investment so he pays the minimum investment amount and purchases one share of the mutual fund. By owning a share, the investor now participates in the gains and losses of all companies held in the fund. The benefit of this is diversification, which is when an investment or portfolio is spread across several different investments. Doing this helps lower risk. For example, if one company that the fund invests in has a rough year, the impact on the fund’s total assets can be small because that […]
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Vanguard Target Date Funds (video)
Summary of video: Vanguard Target Retirement Funds Three key points make Vanguard’s Target Date Funds stand out from the competition: a very basic, fundamental structure comprised of index funds in this fund-of-funds, without any additional management fee glide path continues through retirement date The low costs are a standard to compare other products against: Vanguard average expense ratio: 0.20% Industry average expense ratio: 1.12% Transcript of Vanguard Target Date Funds Paul: Hi, there, and welcome to Target Date Now. I’m Paul Manion. On today’s episode, I want to address a question we got from a viewer asking about how Vanguard target date investments stand out from the competition. As you may know, target date investments offer a diversified portfolio that will automatically rebalance to become more conservative as an investors gets closer to retirement. That’s the short story. The long story is that not all target date investments are the same, and here at Vanguard, we manage our target date investments according to some very specific principles. To explain what makes our investments unique, I’m pleased to be joined by John Ameriks of Vanguard’s Investment Counseling & Research Group. Welcome back, John. John: It’s nice to be here again, Paul. Thanks. How do Vanguard target date investments compare with their competition? Paul: What do you think, John? What differentiates our target date investments from the rest of the pack? John: I’d say it really comes down to three things. One of those is that we’re using a very basic, fundamental structure for the funds. Makes them a little easier to understand for people. The other thing is the focus on indexing in the portfolios. I would also say one of the things I talked about the last time I was here, that we’re investing the funds through retirement. Our glide path involves a through approach rather than a to approach. Why use index funds in Vanguard’s target retirement funds? Paul: Okay, so those three key things. Let’s talk about the underlying funds for a moment. Why use index funds? John: There are a lot of benefits with index funds. Of course, the big one and what Vanguard’s all about is cost. An indexing fund because of the way that it’s managed, its ability to track a benchmark and buy and hold, tends to have lower cost than other types of funds. I’d also say that that approach has some benefits in terms of the risks. The manager has a very clear benchmark. It’s very predictable in terms of what they need to invest and when, and so it does keep things a little more certain for the investors in terms of what their exposures are. Then lastly, I’d say, indexes are by their very nature very broadly diversified. These market cap indexes have exposure in all segments of the market and that, we think, is a really good thing from an investment point of view as well. Paul: Talk to me a little bit about why it’s important to be […]
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How To Choose Target Date Funds? (video)
Summary of video: How To Choose Target Date Funds? Factors to consider: First, determine when you might want to retire. (You best guess is a fine starting point.) Next, consider the stocks/bonds ratio and whether you feel comfortable with the associated investment risk. (This is very difficult for beginners, but do try to understand how the ratio of stocks to bonds changes over time to gradually reduce risk.) Finally, as always, consider costs! Transcript of How To Choose Target Date Funds? Christine: Hello and welcome to Target-Date Now. I’m Christine Rogers-Raetsch. Vanguard target-date investments can help you stay broadly diversified. They also offer the convinience of automatically adjusting your asset mix of stocks and bonds over time. If you’re considering a Vanguard target-date for your portfolio, you still have some responsibilities, primarily, you have to choose one. For some pointers on how to choose a Vanguard target-date fund, let’s turn to Paul Manion from our Target-Date News Team. Paul, what can you tell us about choosing a target-date investment? Paul: There are a few factors to consider, Christine. Retirement plans at Vanguard tend to offer a variety of target-date investments, each with its own asset mix, which is how your money is divided among stocks and bonds. That ratio of stocks to bonds will self adjust to gradually become more conservative as you approach and enter retirement. Christine: Then, how do you choose the Vanguard target-date option that could be right for you? Paul: There are a lot of ways that you could go about it but a useful starting point could be to determine when you want to retire. You’ll notice that almost all of Vanguard’s target-date investments include a year in their names, Vanguard Target Retirement 2025 fund, Target Retirement 2030 fund, and so on. This year is the investment’s target-date. It represents the approximate time that an investor in that particular target date option would retire and leave the workforce. An investor who expects to retire sometime in the year 2045 might consider investing in the Target Retirement 2045 Fund. Christine: Okay. What if you think you’ll retire in 2031? Paul: Consider the Target Retirement 2030 Fund. Christine: Oh, all right. Determining when you think you’ll retire is a good place to start but that’s the only decision that you have to make or isn’t it? Paul: No, you should also look at the asset mix of the investment over its lifetime, including when it’s most conservative to make sure that it’s still right for you wherever you are in your investing life. Christine: What do you mean by that, Paul? Paul: Each Vanguard target-date investment contains a different mix of stocks and bonds that is designed to be appropriate for someone who will retire sometime around the year in the fund’s name, give or take a couple of years. However, if you plan to retire in 2045 but feel that the allocation of that fund is too aggressive for your risk tolerance, you might want to […]
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February 28, 2015
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February 26, 2015
John Bogle on Vanguard Index Funds (video)
Links to 20 highlights of this video: John Bogle on Vanguard Index Funds What a ride! Vanguard index funds have come from a rocky start as they introduced this new concept to the world, to the industry leaders they are today. This interview takes a close look at the business of investment management, and how Vanguard’s index funds compare to the active trading strategy that so many still choose. Here is a summary of the key topics so you can zero-in on what interests you: Vanguard Index Funds as a Disruptive Technology We are all indexers—even the active traders. What happened to long-term investing? Is there anything good about trading stocks? A paid salesman can always beat the index fund. Good managers are in the business of investment management, and not in the business of marketing. Behind the scenes of Vanguard index funds? Is it 5 robots, 3 monkeys and a bunch of data? Is a cap-weighted index fund bad? Are there better indexing schemes? How many index mutual funds should an individual own? What’s too many? What’s too few? Social Security and how much bonds to own? What about financial advisors for those that don’t want to do it themselves? How much should you pay for financial advice? (some eye-opening arithmetic!) Does capitalism mix with the fiduciary duty of managing other people’s money? We have two guarantees in the financial business. When is it appropriate for an individual to buy stocks? Interestingly enough, there are no behaviorisms in the field of stocks generally. When to abandon stocks because loss of faith in team? Is there ever a situation where investor should be happy in a load fund? Do you believe we will have a unified fiduciary standard or not? The company culture that created Vanguard index funds A number of you have commented that you like when I include a transcript. It took quite a while for me to make one for this video. I tried my best to transcribe accurately, but any errors are mine alone. I hope this transcript will help you spend your viewing time wisely and get the most out of this video production. Here are some links if not mentioned above. Video transcript: John Bogle on Vanguard Index Funds [Tom Gardner, The Motley Fool]: So 39 years ago, almost to the day, a little bit longer than 39 years ago, you started with the Vanguard group—Jack Bogle, one of the heroes at The Motley Fool, for so many different reasons which will come out hopefully in our conversation and it starts with simplicity, clarity, integrity and a solution that is transparent in a financial industry that works so hard against those qualities it seems, many times it seems. So, what was life like for you in 1974? Can you paint a little bit of the picture of what Vanguard was then compared to what it is today? 1. Vanguard Index Funds as a Disruptive Technology [John Bogle, Founder of Vanguard, at 0:32]: Well sure, […]
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February 18, 2015
Passive Investing With Index Funds: The Better Way (video)
Summary of Passive Investing With Index Funds: The Compelling Evidence The Fund Management Industry Would Prefer You Not To See This remarkable 54-minute video is produced by http://sensibleinvesting.tv , an independent voice of passive investing, and features 24 experts from the fund management industry. It is a great honor to include it in our collection of video tutorials about mutual funds. Part 1: The Out-performance Myth About Beating The Stock Market Link down page to transcript about the myth that investment fund managers can produce above-average stock market returns. Regardless the impression they like to give, fund managers regularly produce less than the average market return. Buying and selling shares is little more than a gamble, and strong returns are often down to luck. It’s harder than ever before for a manager to outperform the market consistently. Commercial pressure means fund managers often advertise funds they wouldn’t choose for themselves. And remember, although there are good managers out there, picking the next star manager is almost impossible. Part 2: The Cost of Investing (Watch on video starting at 7:03) Link down page to transcript about the misconception that active fund managers produce returns higher than their costs. Fund managers have large overheads, not the least salaries and bonuses, and you pay the bill. Over time, charges that sound modest can seriously erode your savings. Many of the charges that consumers incur are hidden in the small print. And to add insult to injury fund management charges have been rising year-on-year. Part 3. A Better Alternative To Trying To Beat The Market (Watch on video starting at 13:10) Link down page to transcript about the wealth of evidence that supports passive investing as a better alternative to active investing. Passive investing with index funds is not so much a theory as a massive a mathematical fact. There’s a wealth evidence supporting it including the work Nobel Prize-winning economists. Studies have consistently shown that when costs are factored in passive investing produces better returns than active. Part 4: Ultimate Diversification Also Reduces Your Investment Volatility (Watch on video starting at 20:31) Link down page to transcript of explanation how index funds are the cheapest and most effective way to spread your investment risk. Investing passively with index funds is the cheapest and most effective way to spread your risk. Because their holdings are restricted to a relatively small number of stocks, active equity funds are more volatile than passive ones. Active fund managers charge a premium for funds that invest in more than one asset class. And over the longer term, once charges are taking into account, the passive investor will always fare better the average active investor. Part 5: A Healthier Way To Invest (Watch on video starting at 28:24) Link down page to transcript about how passive investing can also spare you unnecessary stress. Money worries in general, and poor investment decisions in particular, are major causes of stress. Rational analysis produces sensible investment decisions; emotions lead to bad ones. And […]
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January 15, 2015
The ABCs of Common Sense Investing
Hi, I'm Rick Van Ness and here's the essence of common sense investing using the alphabet as a tool to help you remember.
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November 24, 2014
Virtual book tour for new book: Why Bother With Bonds
SPECIAL PROMOTION: The kindle version of my new book Why Bother With Bonds is FREE at Amazon thru Tuesday Nov 25, 2014. Grab a copy while it is FREE! http://www.amazon.com/dp/B00PL7WS16/ Rick is on his virtual book tour and sits down for an interview with Jennifer Howell. Hear how he answers her hardball questions JENNIFER: I’m […]
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October 22, 2014
Why Bother With Bonds (*** NEW BOOK ***)
A practical how-to guide for every investor. For ordinary investors who want to build an all-weather portfolio—even during low interest rates. It is time-proven wisdom, and encourages you to take control of your finances. Learn how to use CDs, bonds, and bond funds to manage risk/reward even during low interest rates. You will learn: How […]
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(*** NEW BOOK ***) appeared first on Why Bother With Bonds
(*** NEW BOOK ***).
