Luxury for less?

UntitledThere’s a paid ad in my Facebook feed from the New Yorker ( on “How to Live Luxuriously Right Now.” Here’s a sample: The New Yorker recommends used “Vintage Timepieces” like a classic Omega 3177 watch from the 1970s for only $4,695.

Right, that’s $4,695 as in almost $5,000. Notice that for this price, you don’t get better time-keeping than with say, a $90 Casio Wave Ceptor watch (my personal favorite). The Casio syncs with the mother clock once a day. Mine has never been more than two seconds off.

So what do you get for $4,695? A piece of jewelry, mostly. I do not know how to recognize such a fine watch, but I’m sure there are people who do, and who care, and who are impressed by someone who wears such a watch.

[I would not, as we say out here far from New York, “trade you even,”  that Omega for my Casio — because then I’d have to worry about losing or damaging the thing. And nobody’s going to mug me for my Casio watch. I actually like the Casio’s dial better, too.]

If you want to spend almost $5,000 on a watch like that, fine. But don’t pretend there’s any thrift involved. And if you have friends who will be impressed by your show of wealth — uh, what kind of people are you hanging out with? [Don’t get mad; I’m just asking.]

Pale, male and stale?

UntitledOver at, a writer has discovered that investment advisers are largely white males, with little diversity. I’m not surprised — but what should a woman or person of color do in response? First, recognize that there are thousands of investment advisers out there who are totally welcoming and affirming to their diverse client base.

But beyond that, if you don’t feel respected by the investment advisers you audition, consider this: Educate yourself, and buy and hold index funds. You’ll discover that you don’t need an investment adviser at all to get a good start on building lifetime wealth. If you follow simple passive strategies, before too many years go by, you’ll have enough money that the investment advisers will treat you with great deference. (Money talks in that business.) And it’s only then that you’ll need the tax advice and compliance help that investment advisers can provide.

But as to getting stock picks that will beat the market from an investment adviser? Forget it! The “advantage” of being comfortable with a stock-picking adviser will vanish in costs that make those picks almost certainly worse than buying and holding index funds. Whether you’re white, black, red or even purple, you can leave those  “pale, male and stale” advisers with their stock picks in the dust. Trust me, the best index funds don’t know or care about your race or gender. They just keep providing superior long-term returns.

What’s next? (asks an investment firm)

Here’s an investment firm’s commercial — I have highlighted the key part:

Why do people invest?
They invest for what’s next.
That could be a college dream, a new priority, an active retirement.
Whatever next is, it takes smart investments managed by experts who actively spot risks and opportunities.
[Name of firm] has been doing that for over 65 years, helping millions of investors achieve what’s next.

For a minute, consider what I recommend — the opposite of that firm’s alleged strategy:

  • Smart investments? No, I recommend stupid investments, just index funds that hold  essentially every stock.
  • Managed by experts? No, I recommend funds that instead aren’t managed at all, since they hold everything and only do minor adjustments to stay in balance.
  •  Who actively spot risks and opportunities? No, I recommend not even trying to spot opportunities, neither trying to sell bad stocks on the way down or to buy into promising stocks on the way up.

And the result: My recommended stupid passive management strategy brought a ten-year return of 8.10 percent (in my favorite total stock market index fund). Go over to that other firm’s site — the one with the active experts — and you’ll see: They found it hard to beat a stupid passive strategy. But don’t be too hard on that firm. Its competitors fell short of the indexes more than half of the time, too.

The bottom line? Buy and hold index funds.

Flash crash immunity

The Washington Post repeats a common theme: that small investors were the hardest hit in a stock market selloff.  The story has an appealing logic. When there is a big market move and small investors are trying to get their trades executed, they may well get locked out by the fat cats who dominate trading on Wall Street.

Here’s how the Post describes the problem:

Popular trading platforms run by TD Ameritrade, Scottrade and others ran slow or not at all as panic grabbed hold. It took just six minutes for the Dow Jones industrial average to suffer its biggest drop in history. And these investors could only watch.

What the Post misses is that smart small investors were not hurt at all. Why? Because smart small investors assume in advance that they cannot play the game of timing the market or beating the market. Instead, they buy and hold index funds.  That’s a hard strategy to beat over the long haul.

Dumb small investors were undoubtedly hurt. They were trying to pull their money out after widespread predictions that Monday would be a bad day on Wall Street — and they just couldn’t sell because the system was jammed. However, had they succeeded in selling on that Monday, for most of the day they’d have gotten a far worse deal than if they had waited until later in the week.

So: Get your budget in order as I describe in my book, only invest money in the stock market that you can afford to keep invested, and don’t worry about flash crashes.

Easy money exploiting the index funds?

You’ll occasionally see articles like this one claiming that it’s relatively easy to exploit index funds with the following strategy:

  1. Figure out which stocks will be added to a widely tracked index, such as the Standard & Poors 500.
  2. Buy them before they are added.
  3. And then sell them when they’re added to the index, at a time when index funds are required to add them also, pushing their prices up.

So, does that mean “buy and hold index funds” is a bad strategy? Hardly. The index funds know about this (surprise!) and so they begin building their holdings of likely index additions well in advance. The loss to index fund investors is minimal, leaving index fund returns still well above the averages and the alternatives.

In that same article you’ll notice the recommendation of two analysts to buy total market index funds to get around the problem:

Petajisto and Morningstar’s Rawson also suggest passive funds that buy the entire market can minimize the damage of front-running. By owning almost every stock, there’s barely anything for arbitragers to buy first.

The fund they cite is the exact one I recommend, the Vanguard Total Stock Market Index fund. The conclusion — you’re not surprised, are you? — is: Buy and hold index funds.

Getting a Grip on Your Money, with special advice for new investors