Colleges That Produce The Best Investors (?)
A new study on which schools produce the best investors has U.Va. in the top spot, according to the Wall Street Journal.
SumZero – “a gated online community” for investment pros analyzed their user data reaching back to 2008. The University of Virginia produces better stock pickers on average than any of the Ivy Colleges.
And just in case you’re wondering, two-third of the personnel at NorthStar Capital Advisors are U.Va. graduates!
By the way — we consider these results as pure entertainment. Stock picking is only part of the big picture. Long-term success for most investors requires careful planning, diligent saving, and disciplined execution of your investing strategy.
7 Fatal Flaws in 401(k) Plans
Paul Merriman writes about seven fatal flaws in America’s 401(k) plans:
#1 Restricted Access
The first and biggest flaw in 401(k) plans is restricted access to the best investment choices
#2 Participation not required
I believe that many American households, with nothing saved for retirement, are headed by employed breadwinners who could participate in a 401(k) retirement plan
#3 Insufficient employer match
I also think employers should be required to match at least a quarter of what each employee contributes — after the waiting period, of course.
#4 Employees bear the costs
Many employers make their workers pay the costs of administering a 401(k) plan, which should be treated as an employee benefit that’s paid for by the company. In far too many cases, the costs paid by employees are hidden in the form of higher fees for investment funds.
#5 No Rollover IRA option
Federal law allows — but doesn’t require — employers to let employees move part or all of their 401(k) balances into a Rollover IRA while continuing to contribute to the company plan. All workers should have this option, which gives them access to virtually unlimited investment choices.
#6 Too much company stock
Corporate 401(K) plans often encourage participants to load up on company stock. There’s probably no way to stop this short of a federal law, because employers with publicly-traded stock love the steady market that’s created for their shares every payday.
#7 Default options are too safe
Too many plans steer contributions to low-performance investments. It’s bad enough that the employee’s default option in many plans is simply not to participate. But for those who do sign up, it’s equally wrong to have a default option of a stable value fund that virtually guarantees the employee will gradually lose some of the purchasing power of their savings.
Risks to Family Wealth
source: U.S. Trust
Chasing Past Performance is Expensive
A new study demonstrates that chasing the hot mutual fund is an inferior investing strategy compared to good, old-fashioned buy and hold.
Vanguard analyzed a decade of data ending December 31, 2013 across nine asset classes. In every case the investor would have been significantly better off just sticking with the index. On average the indexes generated 50% higher returns than the performance-chasing strategy!
Buy and hold may not be perfect, but it can be a lot better than flitting from mutual fund to mutual fund.
Regulators Urge Small Investors to Avoid Non-Traded REITs
REITs stands for Real Estate Investment Trusts. REITs sell like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
Real Estate is historically a good performing asset class. Allocating approximately 10% of your stock portfolio is a generally prudent choice. However, state regulators are seeing more and more trouble with a certain type of real estate investment: non-traded REITs.
Non-Traded REITs
Unlike normal REITs, non-traded REITs do not trade on a securities exchange. They have several very significant issues:
- Non-traded be can very illiquid.
- They can be very difficult or impossible to price on a regular basis.
- It can be difficult to exit the investment.
Front-end fees can be as much as 15% (much higher than traded REITs due to the limited secondary market)
Non-traded REITs buy office buildings, stores, and other properties. They are sold directly to private investors by financial advisors and brokers.
State Securities Regulators Worried
Regulators are concerned that small investors are not fully aware nor understand the risks associated with non-trade REITs. States are on the verge of adopting new restrictions to protect “mom and pop” investors including:
- Limit how much an individual’s net worth could be put into any a single REIT
- Limit the ability of REITs to pay dividends immediately after raising new money (to avoid a Ponzi-scheme like dynamic of paying old investors with new investors’ money)
The State of Massachusetts has brought enforcement actions against brokerages for improper sales of non-traded REITs including
- LPL Financial
- Ameriprise
- Commonwealth Financial
- Lincoln Financial
Source: WSJ
Credit Card Comparison Sites are NOT unbiased
If you google “credit card comparison” you’ll get a long list of review websites. These sites purportedly provide an objective, unbiased analysis for consumers looking for a good credit card. But if you dig into the fine print, you’ll discovered that very often lenders pay to advertise on those sites! If fact, credit card providers take a heavy hand in dictating how their cards show up on these sites.
These six websites’ credit card comparison tools show only cards from lenders that pay to advertise:
- Credit.com
- CreditDonkey.com
- CreditSeasame.com
- FindTheBest.com
- Mint.com
- MyRatePlan.com
Many others show mostly advertiser cards and those credit cards receive preferential treatment.
Usually, the card-comparison sites get paid only if consumers start the card application process on the site and the lender approves them for a card.
Buyer (or credit card carrier) be ware!
Source: WSJ
75% of Americans get the Most Important Investing Question WRONG
Powerful observation from Vox.com regarding public perception versus reality when it comes to how to best invest your money:
Which of the following do you think is the best long-term investment?
-
Real Estate
-
Gold
-
Stocks/Mutual Funds
-
Savings Account
Don’t feel bad if you didn’t get the answer right. You’re in good company.
Recently, Gallup asked Americans what they thought their best investment bet was over the long run. 24 percent of Americans named stocks and mutual funds — but the same share named gold, and even more (30 percent) named real estate. The trend lines are actually positive, as in 2011 a baffling 34 percent of Americans named gold as their top pick:
There’s a right answer here — and it’s one that about two thirds of respondents who answered the question got wrong. If history is any guide, stocks are the best bet in the long run, and gold and real estate certainly are not.
Source: Vox.com
Student Debt Linked to Worse Health and Less Wealth
The negative effects of student debt are significant and persistent according to a new Gallop poll. Those who borrowed more than $25,000 are less likely to enjoy work and are less financially and physically fit than their debt-free peers even 24 years after graduation.
Gallop examined five elements of well-being:
- Purpose: liking what you do each day and being motivated to achieve your goals
- Social: having supportive relationships and love in your life
- Financial: managing your economic life to reduce stress and increase security
- Community: liking where you live, feeling safe, and having pride in your community
- Physical: having good health and enough energy to get things done daily
Financial and physical well-being show the strongest relationship with student debt. Conversely, social well-being appears to have the weakest debt link.
“These results offer a new dimension of how college debt affects the rest of your life and it gives us more cause for concern,” said Brandon Busteed, executive director of Gallup Education.
Source: Gallup
Annual Asset Class Returns
The table below ranks the best to worst investment returns by asset class over the past 15 years. CLICK IT FOR A CLOSER LOOK
Great chart from Novelinvestor:
The chart shows several issues investors struggle with all the time. It’s difficult to pick the best performing investment year after year, yet for many investors it’s an annual event. They look for an encore, picking the best asset class last year with the hope of a repeat performance. Yet, betting on last year’s winner rarely works out.
Assets at the top of the chart one year could be at the bottom the next, and vice versa. Much of this is due to reversion to the mean. But over the long-term, those big swings even out. The chart shows annual returns for eight asset classes against a diversified portfolio. Diversification works to smooth out those big swings in the short-term. While you’ll never get the biggest gains of any year, you avoid the huge losses.
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