FundAdvice.com - The best articles on Fund Advice

The best articles on Fund Advice

Written by Paul Merriman
July 22, 2008
Whenever you find an article online at FundAdvice.com, you can be sure it’s there because we think investors can benefit from it – and because we hope they will. We work hard to bring you news and views you won’t find elsewhere. We think our “must-read” retirement articles, featured in a box on our home page, contain the guidance and advice that will make the most difference to you. But it’s also important for you to know what other real-world investors and readers find most beneficial. Our site lets readers rate articles on a scale of one to five, with five being the best. This is valuable feedback for us and good guidance for you when you’re looking for articles that are likely to be worth your time. In this article, I first identify the 10 most popular articles on our site. I’ve put them in order of the number of overall votes. Every one has earned the highest possible rating from our readers. Then I add my own list of additional articles that in my opinion deserve investors’ attention. I think the chances are good that you’ll find one or more items on this long list that you haven’t read. And whenever you read something on our site, I hope you’ll give it your honest vote. The short amount of time you spend on this is a favor to us – and to other investors. No. 1: “The ultimate buy-and-hold strategy” It’s no surprise that this article has by far the highest number of readers’ votes. Of all the articles we’ve written, this one seems to have the biggest impact in two critical areas. First, it lays out our investment philosophy and makes it relatively easy to understand how to put together a world-class portfolio. Second, it is powerful enough to motivate many investors to take action and make changes that are likely to make their money work harder for them. Once you master the handful of simple concepts in this article, you’ll understand investing better than 90 percent of all investors ever do. If you haven’t read this article recently, I hope you’ll check it out to see some important changes we made early in 2007. No. 2: “Ten retirement lessons from the smartest people I know” I’m delighted that hundreds of our readers have liked this article enough to give it the highest rating – which I think it deserves. First published in Southern California Senior Life, this article allowed me to distill a great deal of wisdom I’ve picked up over the years from successful, happy people. Don’t wait until you’re retired to read it. And by the way, the smartest people aren’t always the ones with the most money. No. 3: “Fine tuning your asset allocation” Probably the biggest job every investor must do is manage risk. If you take too much, you could be flirting with disaster. But if you don’t take enough, you might cheat yourself out of the returns you need to take care of yourself, your family and your heirs. In this article, which we update annually, I show you how to use real-life numbers to get this equation right. No. 4: “The best mutual funds: DFA or Vanguard?” The first and third articles on this list tell you what kind of assets to invest in. This one focuses on the best places to actually find those assets. To state that another way, the first and third articles are about defining the job that you need done; this one is about getting the best tools to do that job. I’ve said for more than a decade that Dimensional Fund Advisors has the best mutual funds in the world for investors who use professional advisors. And I’ve thought for many years that do-it-yourself investors will do best at Vanguard. Here I compare and contrast these two great fund families. No. 5: “One portfolio for life?” Many investors are captivated by the lure of a “set-it-and-forget-it” lifetime plan that requires little or no maintenance. In this article, I team up with FundAdvice.com Managing Editor Richard Buck to examine an asset allocation strategy that could be suitable for many investors from age 21 to age 91. No. 6: “The perfect portfolio” Great chefs know it takes more than the right ingredients to make an extraordinary meal. If you put everything together in just the right way, ordinary ingredients can turn into magic. The same thing can work for investors. The title of this article says it well. Jeff Merriman-Cohen, my son and the chief executive officer of our company, gives the best description I’ve seen of how to reduce risk through smart diversification. No. 7: “Retirement: When your portfolio starts paying you” When you retire, you must make a few major decisions that will determine the bulk of your financial future. In this article we examine the best ways to take money out of your portfolio – an issue that’s more complex than you might think. If you have more money than you can ever imagine spending, you don’t need this article. Otherwise, I hope you’ll read it. No. 8: “Retirees: Earn lower returns. Have more money.” The irony of this topic is reflected in the title. When you retire and start taking out money for living expenses, you need that money to last and to keep up with inflation. That can be a tall order if you invest too aggressively. I show you why it’s crucial to invest in the lowest-risk assets that are likely to produce the return you need. You may be surprised at what you learn. No. 9: “My 500-year estate plan” My estate plan is designed first to take care of my family after I’m gone, and later to support some worthwhile causes. I’ve shared this plan here and in a separate chapter of my book “Live It Up without Outliving Your Money” in order to stimulate parents and grandparents to think about estate planning in a fresh way. The article could be particularly helpful for parents who want to do something financially meaningful for their children besides leaving them a big check. No. 10: “Superior diversification on a shoestring budget” This is one of my favorite articles for investors who are just getting started and those who may be starting over. If you don’t have much money, it’s impossible to achieve the wide diversification that we believe is so important. So what do you do? Here you’ll find a step-by-step plan for solving this very common problem. MORE ARTICLES The following list includes more of my favorites, designed to be useful to a wide range of investors. If you aren’t in a position to benefit yourself from one of these, I hope you’ll consider passing it on to somebody who could put it to use. ARTICLES FOR YOUNG INVESTORS Here are two articles aimed at young people – both of them also good refreshers for more seasoned investors. Each is adapted from a talk I give to high school students every year called “How to Get Rich.” You’ll find these in the Investing Basics section of our article library: Young investors: How to be better than your parents Yes, this title always gets their attention, and I think the title is warranted. If I could put only one article in the hands of 20-something investors, this is the one I’d probably choose. In 10 easy lessons (each followed by a self-scoring quiz), this article tells how to be more successful than the great majority of seasoned investors. It’s easy and fun to read. If you know somebody who’s starting out or starting over – or who seems to need a refresher course in the basics – I hope you’ll pass this article along. Four easy steps to better returns This is basic material, but you’d probably be surprised at how many people either aren’t aware of easy things they can do to help themselves or choose to ignore them. You’ll see how doing just four things right could be worth up to $15 million for a diligent investor of ordinary means. THE BASICS OF INVESTING Here are four more articles from the Investing Basics section of our online article library: How to avoid the worst mistakes investors make To my mind, this title indicates a must-read article. If I am trying to learn or master anything unfamiliar, the first thing I want to do is try to avoid repeating the basic mistakes that many other people have made already. I accept that I’ll make mistakes from time to time in most of what I do. But I can’t see any point in knowingly making the same ones everybody else does. This article covers topics ranging from managing risks to planning to procrastination. Along the way we visit out-of-control expenses, misplaced trust in institutions and the financial media and the fallacy of believing recent performance means more than it really does. Even people who are sure they are doing everything right can often find something here that warrants more attention. “Loading up” on poor performance As you might guess from the title, this article is about the ways that investors shortchange themselves by buying load funds. The form of the article is my response to a message I received from a financial planner who was unhappy about my “almost religious zeal” in favor of no-load funds. My answer was polite, but I doubt that he was very happy about the facts and opinions I cited. And I doubt he ever shared my reply with any of his clients. How to be a successful contrarian investor If you follow the crowd, you’ll have lots of company. But not, it turns out, lots of above-average investment returns. Isn’t that obvious? Apparently it’s not obvious enough. You’ll learn more in this provocative article that I wish more people would read. (Of course, if everybody suddenly started exhibiting contrarian behavior, it would become normal, forcing real contrarians to switch. So please keep this information to yourself!) I advocate contrarian investor behavior because so many investors make so many mistakes that doing the opposite cannot be entirely bad. In addition, the very nature of investing calls for doing what others don’t do. The most obvious example is buying low (after a decline when most people are wary of the market) and selling high (when others are finally jumping on the bandwagon after a rise in prices). If you think this is easy and obvious, consider that one of the most famous and revered investors of our times is Warren Buffet. In this article, I give four reasons why I don’t think investors should try to follow his example. Later I spell out numerous paths to what I think will be successful contrarian investing. All about annuities Most people who buy variable annuities don’t understand what they’re getting until it’s too late. I believe that if they understood the product, most annuity investors would choose to take their money elsewhere and avoid the high taxes, high fees and restricted investment choices that are part of this product. This article tells you in plain language what most annuity salespeople would rather not discuss. RETIREMENT Much of our work is related to retirement, as reflected in our list of most popular articles above. The following article covers an issue that faces nearly everybody who retires or plans to retire: When should you start taking Social Security? The answer that’s just right for your neighbor or your colleague won’t necessarily be right for you. This is a thorough step-by-step guide to help you make this decision and understand its consequences. Those consequences can sometimes reach farther into the future than you might think. If you haven’t already made your irrevocable choice about when to take Social Security benefits, I hope you’ll look this article over before you do so. THE PSYCHOLOGY OF INVESTING Even if you figure out and implement the perfect low-cost portfolio, save diligently, rebalance regularly and do everything else right, you still haven’t won the battle. Your mind and your emotions can be powerful adversaries on the road to long-term success. Here are three articles on this topic. The psychology of successful investing If you’ve ever driven a car, you’re familiar with traffic jams, defensive driving, accidents, lane-changing, tailgating, road rage and frustration – and of course I hope you’ve encountered plenty of safe, courteous driving as well. In this article I use all these as metaphors for investing. The second most important investment decision you must make This article was written in the midst of the severe bear market of 2000-2002, a time many investors would just as soon forget. But its lessons are as important now as they were then. We start with a true story about a smart, sophisticated client who came into our office asking why he hadn’t done what he had known he should do before he lost the majority of his money. This man came face-to-face with what for many people is the real rubber-meets-the-road issue: taking action or not taking action. In this article, I use a baseball analogy to address this topic, which is covered in a whole chapter of my book “Live It Up without Outliving Your Money.” Trust, the most important variable Trust can be tricky. If you don’t trust your advisor, your strategy or yourself, you can be pulled hither and yon by the whims of the market or something as trivial as who ends up sitting next to you on an airplane flight. But on the other hand, if you trust the wrong strategy or the wrong advisor you can also be led astray. This article gives investors some valuable guidance on when to be trusting and when to be wary. MANAGING RISKS Anybody who has heard me speak knows I take the topic of risk very seriously. Here are two great articles, both in the Investing Basics section of our article library, that address this subject well: Drawdowns: Losing money is no fun This article would be nice to have close at hand when the market takes a tumble. Toward the end you’ll find a paragraph that, if I could, I’d cut out and tape on the front of your refrigerator. In the body of the article I use statistics to show, based on data going back to 1970, that for investors in the stock market, losing money (at least temporarily) is a sure thing. Why would you want to read about such dreary stuff? Because if you learn to expect the bumps in the road, they’ll be a lot less upsetting. And when you’re less upset, you’re likely to make better decisions and choices. And when you make better decisions and choices, you’re more likely to wind up with the returns you want and need from your investments. Risk vs. reward: What’s best for you? This article highlights the tradeoff of safety vs. expected return. Think of them as being on opposite sides of a teeter-totter. When one goes up, the other goes down. If it were as simple as that, of course, investing would be easier to understand. This article presents a table of past investment returns and then lists 13 lessons that the numbers have taught me. If you’re looking for light reading, this probably isn’t it. But if you’re willing to roll up your sleeves and dig in, you’ll find plenty of interesting material here. ACTIVE RISK MANAGEMENT Many investors believe in buying and holding for the long term. But when the chips are down they may have a terrible time actually sticking with investments that are falling in value. While this approach is certainly not for everybody, investors who aren’t willing to passively accept interim losses may find that active risk management can be a worthwhile approach. Here are two articles from the Market Timing section of our article library: The myths and realities of market timing If you’ve heard bad things about attempts to time the market, you’ve undoubtedly run into one or more of the seven myths that I address here. Why we teach both timing and buy-and-hold strategies Many investors are puzzled by the fact that we advocate buy-and-hold investing as well as active risk management. True, these are very different approaches to investing. But each has its strong points and its weak points. Some investors are happy to have part of their money governed by timing and the rest invested on a buy-and-hold basis. In this article, you’ll learn why we don’t think these two approaches to investing are incompatible. MY FINAL REQUEST In my view, the two dozen articles listed here contain enough wisdom to be worth a college degree in the art and science of investing. Once you’ve taken what you need from them, I hope you’ll do one more thing: Please give this list to somebody else who could benefit from it.