Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.
The biggest streak to impact returns ended this week. For twenty Tuesdays in a row the Dow closed positive until this week. It seems those positive Tuesdays had a big impact on performance so far this year. The Disciplined Investor has a great chart showing just how much Tuesday’s account for the Dow and S&P 500 this year.
Now, had you only invested for the Tuesday effect, by that I mean buying Monday and selling on Tuesday, you’d still underperform the benchmark. But can anyone complain about a 12% return in 5 months by only investing one day a week.
When Guru’s Attack
When you think of brawls, social media doesn’t come to mind. Yet, Twitter seems to be built for online fighting. With a 140 character limit, you need to make it count. And its fast becoming an annual event. Last year it was Suze Orman, this year…Dave Ramsey.
Ramsey is most known for helping people get out of debt and does it well. It’s his investment claims that get him in trouble. Ramsey likes to throw around 12% returns and an 8% withdrawal rate for retirement planning. Both are higher than any rational CFP would assume.
There’s good reason for it. It’s nearly impossible (this post does a great job showing the flaws).
That post also makes another great point. Ramsey’s 12% claim just one ups everyone else. Its workout video marketing at its best. How do you beat the 30 minute workout video in sales? Release a shorter one.
While all the sane financial planners are showing clients conservative 6% growth numbers, Ramsey’s out there swinging 12% around. Well, 12% gets you noticed even though his math is wrong (which seems to be a constant with him).
People like guarantees. While Ramsey sells people on getting into financial shape, his 12 minute retirement workout almost always fails. Yet, backing off his claims now would impact his sales, certainly his image and credibility, and his network of so-called advisers selling poor investment products. So he’s forced to defend himself by doing what all gurus do best, mudslinging. It’s a tried and true move, attack your opponents and avoid backing your claims at all costs.
All things considered it’s probably the only move in his case. The only way his 12% return and 8% withdrawal rate works is when the money out lives you. Unless the key to your retirement plan involves a premature end, I suggest you get retirement advice from someone more credible.
- How Warren Buffett Made His Fortune - brief history on Buffett and his willingness to adapt.
- Avoiding the Easy Trap of Buying High – hard to do but a great reminder.
- Easy-Money Addiction Could Hurt Performance – with all the concerns out there deflation might be the one of the biggest.
- How Chasing Yield Affects Expected Returns - great summary why high yield isn’t the best choice now.
- Bill Black: How Elite Economic Hucksters Drive America’s Biggest Fraud Epidemics - a look at financial crises from the S&L crisis to today.