Novel Investor • Compounding investing wisdom...

Equal Weighting International Funds By Stocks vs Countries

November 6, 2014

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Jon

Equal weighted fund strategies are the laziest form of active indexing. When you put the least amount of thought into changing an index, the lazy solution is to give every stock an equal say. However, the results show equal weighted funds outperform your vanilla cap weighted funds.

That outperformance is accidental.

Luck would have it that by equal weighting every stock, you accidentally tilt toward factor premiums, like value, momentum, volatility, or size, which can add to long-term performance. I cover this in the smart beta guide. If you weighted stocks alphabetically you’d see similar results. Then the fund industry could charge a premium for ALPHA-bet funds instead.

With international funds, an equal weighting adds risk. I suspect this is one reason the equal weighted MSCI EAFE fund didn’t last long. The side effect of equal weighting international, emerging market, or global funds, is increased country risk. Continue Reading…
Happy Hour: Competing With Free

October 31, 2014

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Jon

Welcome to the end of the week! Just sit back, relax, and enjoy this weeks roundup in another edition of Happy Hour.

Competing With Free

The hardest thing most people have with investing is knowing where to start. How do I build a portfolio and what funds should I use? I hazard to guess its the biggest reason more people don’t start sooner.

Technology, in the form of robo-advisors, have popped up to remove this obstacle. All you have to do is set up regular deposits, answer a few questions, and the robo-advisor does the rest. Continue Reading…
2016 IRA Contribution Limits Stay The Same

October 30, 2014

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Jon

A major step in the retirement planning guide is to understand all the savings tools available. The IRA is the most versatile tool in your retirement toolbox. To take advantage of it, you should stay on top of yearly changes to the IRA contribution limits.

Each year the IRS announces the inflation adjusted numbers for the traditional and Roth IRA contribution limits along with the traditional IRA deduction limits. These cost of living adjustments are made when the inflation index meets a certain criteria. In turn, the adjustments prevent inflation from eating away at the IRA limits and your ability to save for retirement.

2016 IRA Contribution Limits

The 2016 IRA contribution limits will look just like it did for 2015. Both the traditional and Roth IRA will have the same contribution limit, which will max out at $5,500. If you are 50 years or older, there is a $1,000 catch up contribution. Continue Reading…
2016 401k Contribution Limits Stay the Same

October 30, 2014

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Jon

The 401k plan is the most popular retirement plan offered by companies today. One of the keys to retirement planning is knowing about the savings tools available to you. If that happens to be a 401k, you have one of the best tools available to save for retirement. Better make the most of it.

Every year the IRS must calculate cost of living adjustments for the 401k and other retirement plans. In keeping with tradition, the IRS recently released a slew of information for the 2015 tax year including the 401k contribution limits.

The decision to raise the 401k limits is based on an inflation index, specifically the Consumer Price Index (CPI). If the CPI meets a certain threshold the IRS adjusts the contribution limits accordingly. Some years inflation is high enough to call for a change other years it’s not. Either way, the point is to make sure the limits aren’t eaten away by inflation. Continue Reading…
Happy Hour: Optimism Is Better

October 24, 2014

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Jon

Welcome to the end of the week! Just sit back, relax, and enjoy this weeks roundup in another edition of Happy Hour.

Optimism Is Better

Marc Andreeson was interviewed by NY Mag this week. Several topics were discussed including optimism versus pessimism:

And I can tell you, at least from the last 20 years, if you bet on the side of the optimists, generally you’re right.

I agree, as long as we avoid the two extremes. Somewhere between the two sits reality. For now, lets focus on pessimism. Continue Reading…
10 Lessons Learned From Shelby Davis

October 23, 2014

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Jon

Who the hell is Shelby Davis? That was my first thought after I heard the name from a reader’s comment on recommended investing books. So I added it to my growing wishlist to check out later. Later finally happened and here’s the answer. He’s probably the best investor you never heard of.

The story of Shelby Davis is reminiscent of today. Interest rates were at all time lows. Bonds were loved and stocks were loathed. Davis did the one thing most investors wouldn’t do. He bought the most hated, boring stocks he could find and stuck with it his entire life.

Davis was an unknown. He didn’t build a company or manage a fund. He avoided the media. He only managed his money wisely. He was THE millionaire next door until the Forbes 400 list of richest Americans outed him in ’88.

Davis lived by the principles we so often forget or ignore. The Davis Dynasty shows us what’s possible even if we get started late. Continue Reading…