Jonathan Clements's Blog, page 417

Face Plant

UNIVERSITY OF CALIFORNIA FINANCE PROFESSORS Brad Barber and Terrance Odean published a research paper on investor behavior in early 2000. The results weren’t pretty. By their reckoning, individual investors lagged the overall market by an average of almost four percentage points a year. The culprit: the costs involved in trading individual stocks.

It isn’t just individuals who struggle with stock-picking. Professional money managers, on average, also trail behind the overall market. Over the past five years, S&P Global calculates that just 16% of mutual fund managers who attempted to beat the Standard & Poor’s 500-stock index actually succeeded. In other words, you would have had better luck—much better luck—guessing on a coin flip.

It is research like this that provides such strong support for index funds—that is, funds that simply buy and hold large baskets of stocks, instead of attempting to pick and choose and trading in and out.

It’s perhaps understandable that casual investors have a hard time picking winning stocks. But why do professional investors also have such trouble? Why is stock-picking such an uphill battle? Consider the recent sorry history of Facebook’s stock.

The drama began Saturday, March 17, when The New York Times published a damaging story about the company, revealing that well-connected political consultants had improperly acquired personal data on more than 50 million Americans from Facebook. Worse still, they had been using this data to influence our elections, including the 2016 presidential election. And there was evidence that the consultants still had the data, despite pledging years ago that they had deleted it. The fallout from this story has been extensive: Congress has demanded an investigation, investors have filed class action lawsuits and Facebook’s chief information security officer abruptly resigned.

In the wake of all this, the company’s stock suffered a double-digit loss. How does this explain why stock-picking is a losing proposition, even for professional investors? The answer: Despite all of Wall Street’s resources, none of the three major branches of investment analysis could have predicted recent events. Consider how each type of analyst viewed Facebook prior to the Times’s revelation:

Quantitative analysts focus only on a company’s financial metrics. They would have given Facebook high marks. Last year, the company’s revenue increased nearly 50% and profits grew even faster. It’s hard to find a company of any size delivering numbers like that, let alone one that has already achieved $27 billion in annual sales.
Fundamental analysts take a holistic view of companies, considering both quantitative and non-quantitative factors. They, too, would have given the company high marks. Facebook’s user base now stands at 1.4 billion people—about half of all Internet users worldwide—and nearly two-thirds of them log in every day. This has allowed the company to sell more ads, even as it raised advertising prices.
Technical analysts examine the shapes and patterns of stock charts to predict where they think a stock is going. What would they have found? Over the past five years, Facebook’s stock had been moving higher in virtually a straight line, so they also would have predicted good things for the stock.

In other words, Wall Street employs a large and diverse army of analysts, yet none of them predicted the recent price drop. It isn’t their fault; No one could have. No one—save for a few journalists—knew what was coming. And that’s precisely the problem with stock-picking. No matter how much time and energy one devotes to analyzing a stock, there’s just no way to predict these sorts of random and frequently occurring events.

Does this mean no one could possibly succeed at picking stocks? There are indeed stock-pickers with exceptional ability. But it’s also exceptionally difficult to find them, because they’re such a minority—and just because they have picked well in the past doesn’t mean they’ll continue to beat the market. The upshot: As tempting as it is to place a wager on one company or another, I think the best path to wealth is to stick with a set of simple, broad-market index funds in an allocation that fits your stage in life.

To be sure, index funds aren’t perfect either. In fact, they buy as many poorly performing stocks as human stock-pickers. But because they buy a small slice of every stock, and hold them through thick and thin, the impact is muted when any single company falls out of bed—and they always have a stake in the market’s big winners.

Adam M. Grossman’s previous blogs include Eye on the Ball, Pouring Cold Water and  Tax Time Robbery . Adam is the founder of  Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter  @AdamMGrossman .

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Eye on the Ball

ON THE AFTERNOON OF SUNDAY, Sept. 28, 1941, it was cool and damp in Philadelphia. Inside Shibe Park, where the hometown Athletics were suiting up to face the Red Sox, all eyes were on Boston’s 23-year-old slugger, Ted Williams. It was the last day of the regular season, and Williams’s average stood just a hair short of .400, at .39955.

According to baseball’s official rules, this would have rounded up to an even .400 in the record books, putting Williams in elite company with Ty Cobb, Shoeless Joe Jackson and a handful of others. Williams knew this. The fans knew it. And Red Sox management knew it.

In fact, with an eye on his own legacy, team manager Joe Cronin suggested that Williams sit out the last two games of the season to avoid risking his .400 standing. But Williams refused: “I’m going to play. I either make it or I don’t. If I’m going to be a .400 hitter, I want more than my toenails on the line.”

And play he did. Over the course of that day’s doubleheader, Williams hit a remarkable six for eight. As if to punctuate the event, Williams smashed his final hit of the day high into right field, where it crashed into a loudspeaker, causing it to break into pieces.

At the end of the day, Williams’s average stood at .406, ensuring that his .400 season would be recorded by history without any qualification. Writing about Williams’s performance, Stephen Jay Gould called it “a lesson to all who value the best in human possibility.” And Williams’s record still stands today. No other player has hit .400 in the 76 years since.

What does all of this have to do with personal finance? Few of us will play in the major leagues, but I see three universal lessons:

1. Focus, practice and then practice some more. Ted Williams’s teammates noted that he was bored by discussions about defense. He was a hitter, period, and he was a perfectionist. For hours each day, Williams would practice his swing. If a bat wasn’t available, he would use a broomstick or even a hairbrush. He would arrive hours before each game and would stay after, hitting as much as he could. The lesson: Find your area of expertise and then strive for continuous improvement. Do everything you can to read about, learn, practice and deepen your skills.

2. Be strategic with your time. Microsoft founder Bill Gates likes to do the dishes at his house. He does it for a specific reason: It gives him time to think. I suspect Bill Gates never wastes time.

Ditto for Ted Williams. His eye was, literally, always on the ball. The lesson: Structure your work time so that you avoid the mundane, either through delegation or through outsourcing, and instead maximize the time devoted to what’s most important.

3. Be strategic with your education dollars. Williams was a perfectionist, but he was a perfectionist focused on polishing a specific and highly marketable skill. Similarly, when it comes to your—or your children’s—education, remember that it’s workers with specialized skills who have the easiest time in their careers, especially during recessions.

For that reason, try to make education choices that have an obvious associated career path. Yes, the liberal arts are wonderful and contribute to our society in many intangible ways. But when you’re paying close to $70,000 per year for college, you also want to be practical.

Adam M. Grossman’s previous blogs include Pouring Cold Water, Tax Time Robbery and Six Figures, Tiny Taxes . Adam is the founder of  Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter  @AdamMGrossman .

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Right on Schedule

I HAVE ADVISED MANY CLIENTS on divorce and the related tax issues. The vast majority have been women, and they generally fall into three categories.

First, there are those who strive to obtain divorces that will finally end their agony. They ask for advice on things like property transfers, deductibility of legal fees and alimony payments.

Second, there are those who are already divorced. They need guidance on how to compel their former husbands to cough up overdue payments of alimony or child support.

Not infrequently, however, there’s a third category: women going through down-and-dirty divorces that disrupt their lives in all kinds of unpleasant and expensive ways. Invariably, they tell me their husbands are hiding assets.

Lots of them want to know whether it’s worth hiring private investigators to track down the buried bling. My forthright answer: It all depends, because sleuths often charge many thousands of dollars. I then alert them to an alternative: Frequently, the means for unearthing the coveted information is tucked away in their dresser drawers.

They can glean a good part of what they need from the separate schedules submitted with the federal tax returns they filed jointly with their husbands. When they delve into those 1040s, they may discover a treasure trove of names and amounts that could considerably shorten their search for concealed assets. Here’s what I tell them to look for:

Schedule B. This schedule requires listing the names of mutual funds, brokerage companies, banks and other sources of dividends and interest. At the bottom of Schedule B are questions about the existence of foreign financial accounts and trusts.

The IRS doesn’t ask for a Schedule B from individuals who receive less than $1,500 in income from interest and dividends. Instead, the IRS tells them to list their totals for those kinds of income on the first page of Form 1040. Different rules, however, apply to taxpayers with foreign financial accounts and those involved in certain foreign trusts. They must submit Schedule B, regardless of the level of dividends or interest income.

All is not lost if there’s no listing of dividend and interest amounts on Schedule B. True, it becomes harder for a wife to discover her husband’s investments or bank accounts. Still, just listing totals of interest and dividend income on Form 1040 reveals that an ex-husband owns assets that generate interest and dividends, at least during the year covered by the return. This, in turn, gives women endeavoring to find hidden assets a starting point for their quest.

Schedule D. This discloses capital gains and losses from sales of fund shares, individual stocks and other assets. Let’s say his Schedule D reports profits or losses from sales of some stocks. The details of the sales establish that he owned and unloaded those shares. What did he do with the sales proceeds—and what other investments does he own?

Schedule E. Here, taxpayers disclose income or losses from the following sources: rental real estate (including the type and location) and royalties; estates and trusts; and partnerships and S corporations. S corporations are companies—taxed much the same way as partnerships are—that pass profits or losses through to their shareholders, who pay taxes at their own individual rates.

Suppose Schedule E reveals rental income. It might be worthwhile to drop by the property. Ditto when there’s partnership or S corporation income: You might track down the outfit in question and ascertain whether it continues to generate income for the dear ex-spouse in question.

Julian Block writes and practices law in Larchmont, New York, and was formerly with the IRS as a special agent (criminal investigator). His previous blogs include No Substitute, Rendering Unto Caesar and Check Him Out. This article is excerpted from Julian Block’s Tax Tips for Marriage and Divorce, available at JulianBlockTaxExpert.com. Follow Julian on Twitter @BlockJulian.

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Life Lesson

A COLLEGE EDUCATION BOOSTS a graduate’s lifetime earnings by an average $1 million. But at what price? There’s mounting evidence that young adults with hefty student loans put less in retirement accounts, are slower to buy homes and are even postponing marriage. Will your college-bound kids need to take out loans? It’s time to have the talk—about how much debt makes sense, given their likely career earnings. That’s the topic of my latest client letter for Creative Planning, where I sit on the investment committee and advisory board.

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This Week/March 25-31

BUY THE BIG THREE. The global market portfolio consists of four major sectors, roughly equal in size: U.S. stocks, U.S. bonds, foreign shares and foreign bonds. Arguably, foreign bonds are optional, offering modest yields but wild currency swings. The other three sectors, however, are crucial to a diversified portfolio. Do you have enough exposure to all three?

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Pascal’s Retirement

LIFE MAY HAVE BEEN NASTY, brutish and short at one time, but it sure isn’t today. Thinking ahead to retirement? Forget the famous quote by 17th century English philosopher Thomas Hobbes—and ponder the famous wager suggested by 17th century French philosopher Blaise Pascal.

As Pascal saw it, it’s rational to believe in God. If you believe and it turns out God doesn’t exist, the price is modest: an hour lost from every Sunday morning and a little less immorality. But if you don’t believe and God does indeed exist, the price is considerably higher: an eternity roasting in hell. In other words, we should focus less on the odds of something happening and more on the consequences—and, for Pascal, that was a slam-dunk reason to believe in God.

That brings us to retirement. While we can’t calculate the odds of God existing, we can calculate the odds of reaching retirement age—and it’s pretty easy to imagine the dire consequences if we aren’t financially prepared.

According to the National Center for Health Statistics, there’s an 88.7% chance of a newborn reaching age 60, based on 2014 mortality rates. Nothing nasty, brutish and short about that. Meanwhile, a penniless retirement may be less grim than an eternity in hell, but it isn’t exactly a cheery thought.

In short, not only are the odds of reaching retirement age extraordinarily good, but also the consequences of not saving are extraordinarily bad. If Pascal was still kicking around, you have to imagine he’d be a big advocate of fully funding a 401(k).

And yet most Americans are pitifully ill-prepared for retirement. A 2015 government study found that 52% of households age 65 to 74 have no retirement savings. For this group, the median income is $29,000, most of which comes from Social Security.

It’s important to have compassion. Some portion of this 52% will have had lives beset by ill-health, low incomes, frequent bouts of unemployment and just plain old bad luck, and their failure to save for retirement is understandable.

But others surely could have saved. Why didn’t they? At issue is a battle all of us wage every day. We know it’s better for our future self if we eat less, save more, drink less and exercise more, and yet we find ourselves slumped on the couch, chugging beer, eating Cheetos and shopping online.

Think of your worst weaknesses—and, yes, we all have them—and imagine the consequences if you gave into them not just today, but every day for years to come. It isn’t a pretty picture, right? But all too frequently, that’s exactly what happens. We promise we’ll behave better tomorrow, but that better tomorrow often never arrives.

What to do? Somehow, we need to make ourselves care more about our future self, so we’re less tempted to slip today. When it comes to retirement, that means thinking of all the great things we might do with the freedom that retirement offers—and pondering how dreadful it would be to spend those years pinching pennies and dragging our tired bodies to jobs we wish we could quit.

Indeed, there’s evidence we care more about our future self if we’re pushed to imagine the person we will become. For instance, experiments have found that if folks are shown what they might look like at retirement age, they’re inclined to spend less today and save more for tomorrow. Interested in trying this yourself? Check out your future self with a site like ChangeMyFace.com or in20years.com—and remember there’s almost a 90% chance that one day you’ll be that person.

Follow Jonathan on Twitter  @ClementsMoney  and on Facebook .

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ObliviousInvestor.com

IN MY NERDY PERSONAL FINANCE WORLD, there are perhaps two dozen folks I pay close attention to—and one of them is Mike Piper, the blogger behind ObliviousInvestor.com. He’s also written nine books in his “made simple” series, which offer great primers on financial subjects like taxes, Social Security and retirement, all in 100 pages or less.

An accountant by training, Piper brings his analytical mind and detailed knowledge of government rules to the topics he tackles. I recently spent time with him at a conference organized by another website, WhiteCoatInvestor.com, and came away with four intriguing insights:

1. Are you pondering early retirement—but worried what it will mean for Social Security? Your monthly benefit will be based on the 35 years during which you had the highest earnings. In 2018, the maximum earnings subject to the Social Security payroll tax is $128,400.

But Piper says that, to get a healthy benefit, you don’t need 35 years of super-high earnings. Instead, you might aim for 20 to 21 years. “That’s the sweet spot,” he says. “After 20½ years, there’s diminishing returns. If your earnings are less than the maximum, the point of diminishing returns will kick in later. How much later will depend on how much less than the maximum you earn.”

2. Retirees should aim to keep themselves in the same marginal tax bracket throughout retirement, Piper says. That means thinking carefully about which accounts to pull income from each year, because withdrawals might trigger income taxes, capital-gains taxes—or perhaps no taxes at all.

Piper notes that, for those who retire before they’re eligible for Medicare at age 65, there’s an additional consideration: As they ponder their annual tax bill, they should factor in the potential federal tax credit toward insurance purchases through one of the health care exchanges. That credit is available if their income equals 400% or less of the federal poverty level. In most states in 2018, that means household income of $48,560 for single individuals and $65,840 for couples.

3. What’s the best strategy for drawing down a portfolio in retirement? It’s a topic that’s endlessly debated. But Piper offers a simple two-part strategy.

First, delay Social Security until age 70 to get the largest possible benefit, while drawing on other savings to cover your expenses until then. Second, once you reach age 70, find out the percentage of your retirement account that the government requires you to withdraw each year, otherwise known as the RMD, and then apply that percentage withdrawal rate to all your savings, not just retirement accounts. The strategy got a thumbs up in a recent study by three well-respected retirement experts.

For instance, at age 78, the RMD is typically 4.93% of your beginning-of-year retirement account balance. (To find the percentage, divide 100 by the distribution period for your age.) If your investments have had a rough time over the prior year, the required dollar withdrawal would be reduced.

“Something that adjusts for investment performance is a good idea,” Piper argues. “It also adjusts for changing life expectancy,” with the percentage withdrawal rate increasing as you age.

4. Many financial experts fret endlessly over precisely how much to invest in small-cap stocks, real estate investment trusts, emerging markets and other market sectors. But Piper says he worries far less about such things these days, in part because he feels it distracts from more important issues, such as minimizing taxes and proper estate planning.

In fact, Piper’s entire retirement savings are in Vanguard LifeStrategy Growth Fund, which offers a globally diversified index-fund portfolio in a single mutual fund. You can open an account with $3,000 and the fund charges a slim 0.14% of assets per year, equal to 14 cents for every $100 invested.

“Obviously, there are plenty of people who don’t spend enough time on their portfolio,” Piper says. “But there are also plenty of people who get lost in the minutiae. Once you have a decent low-cost diversified portfolio, you should probably spend your financial planning time on other topics.”

Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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Independence Day

WHEN I FIRST ENCOUNTERED the acronym FIRE on Bogleheads.org, I had no idea what it stood for. It didn’t take me long to decipher the wordplay. More problematic: Figuring out what FIRE—Financial Independence/Retire Early—is all about.

Studies show over two-thirds of Americans have left behind fulltime work by the time they’re age 66. But many retirees continue to work part-time because they don’t have the financial resources to avoid working altogether. A 2015 GAO study found that 52% of households age 65 to 74 had no retirement savings—and, for the other 48%, the median amount was just $148,000.

So who exactly are these folks claiming to be financially independent early retirees? From the information I’ve seen, FIRE devotees generally live frugally. They invested a high percentage of their salary during their working years. Many seem to put in at least two decades of fulltime work, often in high-paying technology jobs, before accumulating an investment portfolio large enough to sustain them for the rest of their lives. There’s even an “early retirement extreme” group who aim to quit work after as few as five years of fulltime employment.

There are numerous books dedicated to the concept of FIRE. Your Money or Your Life is frequently referenced in the financial independence movement. It’s a comprehensive guide on the subject, encouraging readers to be more mindful about all aspects of their lives. While significant portions of the book are devoted to financial topics, it’s also filled with exercises designed to get readers to think about how to make their personal lives more fulfilling.

The age and net worth at which folks reach financial independence varies widely. Many FIRE devotees suggest accumulating wealth equal to 25 times annual expenses. MrMoneyMustache.com, one of the most widely read websites devoted to financial independence, suggests a broader rule of thumb: “Take your annual spending, and multiply it by somewhere between 20 and 50. That’s your retirement number.”

But FIRE isn’t just about investing and accumulating large sums of money. Far from it. It’s about fundamentally changing the way people think about money. It’s about achieving a level of financial security that allows a person to choose if he or she wants to work. It’s about having the freedom to pursue a passion, either on a paid or purely voluntary basis. It’s about choosing a life filled with more experiences and fewer material items. It’s about being able to live a second childhood if one so desires.

Kristine Hayes is a departmental manager at a small, liberal arts college in Portland, Oregon. Her previous blogs include My Younger Self, Bogleheads.org and USAFacts.org .

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SoundMindInvesting.com

BACK IN THE EARLY 1990s, Donna and I were raising a young family, buying our first home and running a small business. We didn’t have a dime in any proper investment vehicles, as there weren’t an awful lot of dimes to spare. Somewhere in the fire and smoke, I received a copy of the Sound Mind Investing Handbook by Austin Pryor.

The book was easy to read and put a number of basic investing concepts within my feeble grasp. More important, over time, it made me feel like I could win at the investing game and encouraged me to get started sooner rather than later. Subsequently, I became a fan of SoundMindInvesting.com.

SMI is geared toward people of faith, and you will see references to the value and application of stewardship throughout its material. The investment principles espoused, however, will serve a broader audience. SMI begins its approach to investing with nine principles that, while no doubt unremarkable to some, are foundational in understanding the world of investing in general and mutual funds in particular.

The SMI financial roadmap progresses through four levels of financial growth that begin with the core concepts of budgeting, debt reduction and insurance, and leads investors toward preparing for—and managing—a financially secure retirement. The guidelines offered are very comprehensive and allow users to tailor strategies to their preferred level of effort and risk tolerance.

SMI’s $99.50 annual basic membership offers a print newsletter with articles that address financial topics in each of the four levels. The newsletter provides very precise guidelines for two core investment strategies, one of low complexity and the other of moderate complexity.

“Just the Basics” uses fewer than a handful of index funds to support those just beginning to invest (the former me) and those who are too lazy for more ambitious strategies (the current me). “Fund Upgrading” adds a bit of effort, with funds traded occasionally to follow market momentum. I employed this strategy for a period and, while I will not dispute the occasional value of the effort, it eventually lost me to the simplicity of life-strategy and target-date retirement funds.

SMI’s premium membership costs $169.50 and adds web access to two more complex strategies, “Dynamic Asset Allocation” and “Sector Rotation.” As an additional key benefit, premium members receive access to MoneyGuidePro, financial planning software that would otherwise be out of reach for many investors.

If there were one thing I could change about the SMI content, it would be the amount of self-promotion in its print and online materials. While there is no outside advertising, I have seen much ink and many pixels devoted to the success of its investing strategies. It seems to me that such performance should be left to speak for itself.

Indeed, while the performance of the strategies appears to be good, it doesn’t seem quite so good when tried with real money. SMI has a series of mutual funds that follow its own investing guidelines, and the results have been mixed. For instance, the Sound Mind Investing Fund has returned 6.8% a year over the past 10 years through Feb. 28, 2018, versus 9.8% for the Wilshire 5000. One likely contributor: SMI’s funds are so-called funds-of-funds, which means they make their money investing in other funds, resulting in two layers of fees. For the Sound Mind Investing Fund, those total expenses come to 2.09%, according to the funds’ website.

I was an SMI member for many years, but now I find that the web resources I personally use do not require membership. I especially like its weekly Money Roundup article, with links to better financial writers and resources across the web. The site also has a year-end financial checklist that helps sort out key points for my annual course correction.

While I don’t have my own membership, I routinely send gift memberships to those who are just becoming aware of the investing world. Regardless of your investing preferences, SMI will offer you solid guidelines for improvement, while keeping the fleeting value of money within a larger perspective.

When not paddling, biking or shooting, Phil Dawson provides technical services for a global auto manufacturer. He, his sweetheart Donna and their four extraordinary daughters live in and around Jarrettsville, Maryland. His previous blogs include No Exit, A Most Morbid Game and DaveRamsey.com . You can contact Phil via LinkedIn .

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Pouring Cold Water

SOMETIMES WE DON’T GIVE KIDS enough credit. Last week, my first-grader reminded me of this fact. On a trip to CVS, he was looking through the drink cooler, when he asked, “What’s Smartwater?” Before I could answer, he started with his own commentary. Seeing the price tag—which was more than double that of the regular water next to it—he wondered, “Why’s it smart? It’s just water. Is it really going to make me smart?”

This made me realize something: As consumers, we’re pretty skilled when it comes to spotting inflated prices and exaggerated marketing claims. My son proved that we have these abilities by age seven, if not earlier. But when it comes to the investment world, unfortunately, it is not as easy to make these distinctions. I see at least two reasons for that.

First, there’s the sheer quantity of investments available. In the U.S., there are more than 8,000 mutual funds offered in more than 25,000 individual share classes. This makes it difficult to do effective comparison shopping.

Second, like the food industry, the mutual fund industry loves creating new products with magical sounding marketing messages. In fact, over the past few years, one of the fastest-growing trends is mutual funds carrying the “smart” label. But instead of smart water, these new funds supposedly offer smart beta.

What does that mean exactly? Forget the “smart” for a minute. “Beta” is a basic finance term that has been around for half a century. It refers to the way in which the price of an investment varies in relation to the movement of the overall market. Stocks with high betas bounce around more than average, while stocks with low betas are relatively steady. The promise of smart beta is that these investments will deliver higher returns for a given level of volatility—and potentially beat the overall market.

Here’s an example: Unlike the typical index fund, which holds stocks in proportion to their size, one popular smart beta strategy seeks to hold an equal amount of every stock. Other smart beta strategies seek to capitalize on stock price momentum, on the quality of companies’ financial results or on the level of their dividends.

Will these smart funds actually help you to earn more? In some cases, there is indeed a sound academic basis for the strategy, and it’s certainly possible that they’ll beat the overall market.

But here’s the thing: The only aspect of these funds that is actually new is the catchy marketing name—and higher price—that some vendors have attached to their funds, as they brand them “smart beta.” The reality is, these kinds of strategies have been around for decades. In fact, way back in 1981, long before the term was coined, an entire mutual fund company was founded on the basis of smart beta. The company had a much more mundane name for it, but it’s exactly the same thing. Indeed, some investment practitioners—those who took the time to understand the concepts involved—have always used them in building portfolios by, say, buying funds that focus on small-company stocks or bargain-priced value stocks.

Confucius supposedly said, “Life is really simple, but we insist on making it complicated.” It’s doubtful he really said this—but, if he did, he could have been referring to Wall Street. Smartwater claims to provide “purity you can taste, inspired by the clouds.” Perhaps that’s true, but that lofty promise comes at a price. Personally, I’d rather pay less and get a largely identical product, even if it carries a less trendy label.

Similarly, smart beta funds may sound new and smart. But in my opinion, when it comes to your investments, your smartest move is to keep it simple. Yes, the concepts underlying smart beta do have value. But you can attain those benefits without funds with faddish labels and inflated prices.

Adam M. Grossman’s previous blogs include Tax Time Robbery, Six Figures, Tiny Taxes and Free for All . Adam is the founder of  Mayport Wealth Management , a fixed-fee financial planning firm in Boston. He’s an advocate of evidence-based investing and is on a mission to lower the cost of investment advice for consumers. Follow Adam on Twitter  @AdamMGrossman .

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