Warren Buffett recommends a simple investment strategy for the trustee of his bequests: invest 10% in short-term government bonds and 90% in a low-cost S&P 500 index fund. Buffett believes this strategy will achieve superior long-term results compared to most investors who use high-fee managers. Index funds provide easy diversification with low fees, allowing the market return to be earned rather than paying high fees that undermine returns. Most actively managed mutual funds underperform index funds over the long run due to their higher fees.
A sense of puzzlement surrounds the topic of hedge funds. Some investors are hesitant to invest because they find the concept foreign, preferring instruments with which they are more familiar. Others claim insight, but are quick to warn against the dangers of Hedge Funds, describing them as complex, high-risk investments that expose the investor to almost infinite downside risks in the pursuit of optimistic returns. Neither of these views are uncommon, although far from the truth. It is therefore important that these rumours and their origins are addressed and that investors are educated regarding the true nature of hedge funds.
How do investors achieve financial freedom? How do you establish your financial goals? Understand the benefits of diversification and following an asset allocation strategy.
www.Quantumamc.com
Why do people make irrational investment decisions? How to make sure you don't.netwealthInvest
Part of Netwealth's portfolio construction webinar series - Chris Inifer from Allan Gray presented to an audience on 12th July 2016 on how a contrarian investment approach may help protect against poor human decision making that are often driven by emotion and biases.
A sense of puzzlement surrounds the topic of hedge funds. Some investors are hesitant to invest because they find the concept foreign, preferring instruments with which they are more familiar. Others claim insight, but are quick to warn against the dangers of Hedge Funds, describing them as complex, high-risk investments that expose the investor to almost infinite downside risks in the pursuit of optimistic returns. Neither of these views are uncommon, although far from the truth. It is therefore important that these rumours and their origins are addressed and that investors are educated regarding the true nature of hedge funds.
How do investors achieve financial freedom? How do you establish your financial goals? Understand the benefits of diversification and following an asset allocation strategy.
www.Quantumamc.com
Why do people make irrational investment decisions? How to make sure you don't.netwealthInvest
Part of Netwealth's portfolio construction webinar series - Chris Inifer from Allan Gray presented to an audience on 12th July 2016 on how a contrarian investment approach may help protect against poor human decision making that are often driven by emotion and biases.
Netwealth portfolio construction series: Investment Moneyball - Taking advant...netwealthInvest
Discover how you can apply the Moneyball theory to potentially discover good investment opportunities at good prices by finding market anomalies to take advantage of. Paul Moore, founder and Chief Investment Officer of PM Capital, discusses.
Personal Finance - Starting Your Investment JourneyJonathan Tan
A personal sharing session conducted with my colleagues on how to manage their personal finances and begin their investing journey.
Disclaimer: I'm not a financial planner by profession, just sharing from my own personal journey, lessons, experiences.
Savings and Investing are the foundations of a strong financial future for every individual. You can place a good foundation effectively with the Financial Planning exercise. But many of us find it difficult to put this into practice and are therefore faced with numerous difficulties in achieving financial goals. Most of us find it hard to understand the variety of financial products available in the market. Thus are unable to take informed decisions. This results in delaying or putting of the financial decision which can lead to unfulfilled goals and hurdles.
This presentation helps in understanding the basics of Financial Planning.
Pep Talk: Choosing the Best Pooled Employer Plan (PEP)Ron Surz
There are approximately 150 PEPs from which to choose so it’s complicated, but the most important differentiator narrows the search considerably. The best PEP has the safest Qualified Default Investment Alternative (QDIA). A safe QDIA is not the most popular because the most popular QDIAs are risky.
A PEP with a safe QDIA is an asset. A PEP with a risky QDIA could become a liability.
Steve Stanganelli, CFP(R) of Clear View Wealth Advisors, LLC, a registered investment adviser providing fee-only / fee-for-service financial planning and investment advice to Baby Boomers and retirees. Plan Well. Invest Smart. Live Better. Planning for Life.
This is a very appropriate article if you are getting ready to retire and looking for an investment strategy that will preserve your hard earned savings and provide you with an income to last throughout retirement.
AES International is a multi-award winning international wealth management and employee benefits organisation.
Find out why you should join our movement: https://www.aesinternational.com/
When defined benefit plans were popular most retirees lived on a pension that was an annuity. That can still happen but today the retiree needs to sponsor the annuity, or (s)he can buy non-insured annuity-like investments
Week One material for Wealth Management course.
The information contained in this presentation is for illustrative and informational purposes only and should not be considered investment advice.
Supercharge your Investments with Tax-Loss HarvestingWealthfront
Tax-loss harvesting, or "tax selling," is a technique used to lower your taxes while maintaining the expected risk and return profile of your portfolio. It harvests previously unrecognized investment losses to offset taxes due on your other gains and income. You can reinvest these tax savings to significantly grow the value of your portfolio.
Committed to democratizing access to sophisticated investment advice, Wealthfront developed software to make tax-loss harvesting, traditionally only available to accounts in excess of $10 million, available to taxable accounts with at least $100K.
Learn more about Wealthfront's tax-loss harvesting service: wealthfront.com/tax-loss-harvesting/
Everyone wants to be more financially secure, but don't know the basics of how to get there. This presentation is a roadmap with seven simple rules for financial success. It is part of a series of seminars offered by Saunders Learning Group on personal money management. You can now view the presentation here, order the Family Financial Freedom book from any of the ebook sites for iPhone, iPad, Kindle, Nook, Kobo reader etc. contact me at floyd.saunders@yahoo.com for a copy of the presentation or more information on how to get seminar materials.
Netwealth portfolio construction series: Investment Moneyball - Taking advant...netwealthInvest
Discover how you can apply the Moneyball theory to potentially discover good investment opportunities at good prices by finding market anomalies to take advantage of. Paul Moore, founder and Chief Investment Officer of PM Capital, discusses.
Personal Finance - Starting Your Investment JourneyJonathan Tan
A personal sharing session conducted with my colleagues on how to manage their personal finances and begin their investing journey.
Disclaimer: I'm not a financial planner by profession, just sharing from my own personal journey, lessons, experiences.
Savings and Investing are the foundations of a strong financial future for every individual. You can place a good foundation effectively with the Financial Planning exercise. But many of us find it difficult to put this into practice and are therefore faced with numerous difficulties in achieving financial goals. Most of us find it hard to understand the variety of financial products available in the market. Thus are unable to take informed decisions. This results in delaying or putting of the financial decision which can lead to unfulfilled goals and hurdles.
This presentation helps in understanding the basics of Financial Planning.
Pep Talk: Choosing the Best Pooled Employer Plan (PEP)Ron Surz
There are approximately 150 PEPs from which to choose so it’s complicated, but the most important differentiator narrows the search considerably. The best PEP has the safest Qualified Default Investment Alternative (QDIA). A safe QDIA is not the most popular because the most popular QDIAs are risky.
A PEP with a safe QDIA is an asset. A PEP with a risky QDIA could become a liability.
Steve Stanganelli, CFP(R) of Clear View Wealth Advisors, LLC, a registered investment adviser providing fee-only / fee-for-service financial planning and investment advice to Baby Boomers and retirees. Plan Well. Invest Smart. Live Better. Planning for Life.
This is a very appropriate article if you are getting ready to retire and looking for an investment strategy that will preserve your hard earned savings and provide you with an income to last throughout retirement.
AES International is a multi-award winning international wealth management and employee benefits organisation.
Find out why you should join our movement: https://www.aesinternational.com/
When defined benefit plans were popular most retirees lived on a pension that was an annuity. That can still happen but today the retiree needs to sponsor the annuity, or (s)he can buy non-insured annuity-like investments
Week One material for Wealth Management course.
The information contained in this presentation is for illustrative and informational purposes only and should not be considered investment advice.
Supercharge your Investments with Tax-Loss HarvestingWealthfront
Tax-loss harvesting, or "tax selling," is a technique used to lower your taxes while maintaining the expected risk and return profile of your portfolio. It harvests previously unrecognized investment losses to offset taxes due on your other gains and income. You can reinvest these tax savings to significantly grow the value of your portfolio.
Committed to democratizing access to sophisticated investment advice, Wealthfront developed software to make tax-loss harvesting, traditionally only available to accounts in excess of $10 million, available to taxable accounts with at least $100K.
Learn more about Wealthfront's tax-loss harvesting service: wealthfront.com/tax-loss-harvesting/
Everyone wants to be more financially secure, but don't know the basics of how to get there. This presentation is a roadmap with seven simple rules for financial success. It is part of a series of seminars offered by Saunders Learning Group on personal money management. You can now view the presentation here, order the Family Financial Freedom book from any of the ebook sites for iPhone, iPad, Kindle, Nook, Kobo reader etc. contact me at floyd.saunders@yahoo.com for a copy of the presentation or more information on how to get seminar materials.
In this session, we will build a case to invest in options. We will see how it fundamentally differs from stock investing or derivative trading. We will discuss how options can act as an insurance and safe guard our portfolio.
We will go through a group exercise which will reinforce basic concepts of buyer, seller and the important role of a market maker.
Are you thinking about retirement? Understand your retirement income and estate planning options with this Roadmap to Retirement presentation by Greg Stevens, CFP, Senior Wealth Advisor, and Tom Vautin, Senior Financial Planner, of Cabot Wealth Management.
As Indians, we are generally risk averse towards our investments. We believe that our money should be protected at any cost and there should be no risk involved. Hence, we agree to settle down for investments that seem to offer a guaranteed return which in reality does not beat inflation and hence devalues the money in the long term.
Financial Planning is a long term process through which you can achieve your financial goals. We at Financial Hospital bring to you a presentation to help you understand the basics of having a healthy and planned financial future.
13 Investment FundamentalsYOU MUST BE KIDDING, RIGHTTwins T.docxaulasnilda
13 Investment Fundamentals
YOU MUST BE KIDDING, RIGHT?
Twins Tiffany and Taylor Jackson have worked for the same employer for many years. Tiffany started early to save and invest for retirement by putting $5000 away each year for 15 years starting at age 25 and never added any more money to the account. Taylor waited until age 40 to begin saving for retirement and he invested $5000 per year for 25 years until retirement at age 65. Assuming that they both earn a 6 percent annual return, how much more money will Tiffany have accumulated for retirement than Taylor by the time they reach age 65?
A. $ 98,919
B. $174,231
C. $274,323
D. $373,242
The answer is A, $98,919. Tiffany's account balance at age 65 is projected at $373,242 and Taylor's is $274,323. Even though Tiffany saved for only 15 years compared with Taylor's 25 years of saving, Tiffany's long-term investment approach had her starting to save early in her working career for retirement. Thus, she accumulated 36 percent more money than her brother ($373,242 – $274,323 = $98,919/$274,323).Starting early on long-term investment goals is a money-winning idea!
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
Explain how to get started as an investor.
Identify your investment philosophy and invest accordingly.
Describe the major risk factors that affect the rate of return on investments.
Decide which of the four long-term investment strategies you will utilize.
Create your own investment plan.
Use Monte Carlo Advice when investing for retirement.
WHAT DO YOU RECOMMEND?
Shavenellyee and Sarena are sisters, both in their 20s. Shavenellyee drives a leased BMW convertible, and she makes about $42,000, including tips, as a part-time bartender at two different restaurants. Although she has no employee benefits, she enjoys having flexible work hours so that she can go to the beach and the local nightspots. Currently, Shavenellyee has $10,000 in credit card debt. She has $1500 in a bank savings account, and two years ago she opened an individual retirement account (IRA) with a $1000 investment in a mutual fund. Her sister Sarena drives a paid-for Honda CR-V, pays her credit card purchases in full each month, and sacrifices some of her salary by putting $100 per month into her employer's company stock through her 401(k) retirement account. Over the past seven years, the stock price, which was once about $40, has risen to almost $70, and Sarena's 401(k) plan is now worth about $16,000. Sarena also has invested about $14,000 in a Roth IRA mutual fund account that is currently invested in an aggressive growth mutual fund, and she plans to use that money for a down payment on a home purchase. She earns $58,000 as a manager of a restaurant, plus she receives an annual bonus ranging from $2000 to $4000 every January that she uses for a spring vacation in Mexico. Sarena's employer provides many employee benefits.
What do you recommend to Shavenellyee and Sarena on the subject of ...
13 Investment FundamentalsYOU MUST BE KIDDING, RIGHTTwins Tkendahudson
13 Investment Fundamentals
YOU MUST BE KIDDING, RIGHT?
Twins Tiffany and Taylor Jackson have worked for the same employer for many years. Tiffany started early to save and invest for retirement by putting $5000 away each year for 15 years starting at age 25 and never added any more money to the account. Taylor waited until age 40 to begin saving for retirement and he invested $5000 per year for 25 years until retirement at age 65. Assuming that they both earn a 6 percent annual return, how much more money will Tiffany have accumulated for retirement than Taylor by the time they reach age 65?
A. $ 98,919
B. $174,231
C. $274,323
D. $373,242
The answer is A, $98,919. Tiffany's account balance at age 65 is projected at $373,242 and Taylor's is $274,323. Even though Tiffany saved for only 15 years compared with Taylor's 25 years of saving, Tiffany's long-term investment approach had her starting to save early in her working career for retirement. Thus, she accumulated 36 percent more money than her brother ($373,242 – $274,323 = $98,919/$274,323).Starting early on long-term investment goals is a money-winning idea!
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
Explain how to get started as an investor.
Identify your investment philosophy and invest accordingly.
Describe the major risk factors that affect the rate of return on investments.
Decide which of the four long-term investment strategies you will utilize.
Create your own investment plan.
Use Monte Carlo Advice when investing for retirement.
WHAT DO YOU RECOMMEND?
Shavenellyee and Sarena are sisters, both in their 20s. Shavenellyee drives a leased BMW convertible, and she makes about $42,000, including tips, as a part-time bartender at two different restaurants. Although she has no employee benefits, she enjoys having flexible work hours so that she can go to the beach and the local nightspots. Currently, Shavenellyee has $10,000 in credit card debt. She has $1500 in a bank savings account, and two years ago she opened an individual retirement account (IRA) with a $1000 investment in a mutual fund. Her sister Sarena drives a paid-for Honda CR-V, pays her credit card purchases in full each month, and sacrifices some of her salary by putting $100 per month into her employer's company stock through her 401(k) retirement account. Over the past seven years, the stock price, which was once about $40, has risen to almost $70, and Sarena's 401(k) plan is now worth about $16,000. Sarena also has invested about $14,000 in a Roth IRA mutual fund account that is currently invested in an aggressive growth mutual fund, and she plans to use that money for a down payment on a home purchase. She earns $58,000 as a manager of a restaurant, plus she receives an annual bonus ranging from $2000 to $4000 every January that she uses for a spring vacation in Mexico. Sarena's employer provides many employee benefits.
What do you recommend to Shavenellyee and Sarena on the subject of ...
2. Buffett‘s advice to the trustee of bequests
Copyright 2014 Shiro Miyashita
In the 2013 letter to shareholder, Buffett uncovered his
investment advice to the trustee regarding his cash
bequest to his partner (67 years old) as follows;
“My advice to the trustee could not be more simple:
Put 10% of the cash in short-term government
bonds and 90% in a very low-cost S&P 500 index
fund. (I suggest Vanguard’s.) I believe the trust’s
long-term results from this policy will be superior to
those attained by most investors – whether pension
funds, institutions or individuals – who employ high-fee
managers.”
3. Human Capital vs. Financial Capital
• Invest in yourself first and raising your Human Capital
Copyright 2014 Shiro Miyashita
4. “Time” is the strongest power
you can equally utilize!
Had better starting early because;
• Enough time to recover from mistakes
• Getting wiser and reducing mistakes
• Realizing how costly is wasting your money & time
It’s easy to become “well-to-do” slowly
Copyright 2014 Shiro Miyashita
5. What do “sages” say?
Copyright 2014 Shiro Miyashita
“Well, I think the biggest mistake is not
learning the habits of saving properly early.
Because saving is a habit. And then, trying
to get rich quick.
It's pretty easy to get well-to-do slowly.
But it's not easy to get rich quick.”
Warren Buffet
6. Facts About Lottery Winner Bankruptcies
According to multiple studies,
• 44% of lottery winners had spent all of their
winnings within 5 years of winning the lottery.
• About 70% of all lottery winners end up going
broke and filing for a bankruptcy.
• About 1% of lottery winners will go bankrupt
every single year.
Copyright 2014 Shiro Miyashita
Source: BrandonGaille.com
7. What do “sages” say?
Copyright 2014 Shiro Miyashita
“Compound interest is the eighth wonder
of the world.
He who understands it, earns it ...
he who doesn't ... pays it.”
Albert Einstein
8. Real power of compound interest
Assume investing $10,000 with compound interest (5, 10, 15%)
x17.4
Compound
Interest 5% 10% 15%
10 years $16,289 $25,937 $40,456
20 years $26,533 $67,275 $163,665
30 years $43,219 $174,494 $662,118
31 years $45,380 $191,943 $761,435
Copyright 2014 Shiro Miyashita
x66
x19.2
x76
x4.3 x4.5
The last year’s gain is huge!
16. Source: AAII.org
Jeremy Siegel “Stocks for the Long Run”
Gold Standard EndsGreat Depression
Stock is the best
for long term
17. • Not a “Zero Sum” game
• Everybody can win
• Stock index return is upward sloping in the long term since it is a
natural reflection of economic activities
Why the long term stock investment
is the safest bet?
Copyright 2014 Shiro Miyashita
18. Source: ”Stocks for the Long Run” by Jeremy Siegel
S&P500 index, Earnings, and Dividends during business cycle
19. • Not a “Zero Sum” game
• Everybody can win
• Stock index return is upward sloping in the long term since it is a
natural reflection of economic activities
• Compound Return plus alpha
• Stock return beats inflation(Long-term real total return 6.7%)
• Bond return is sometimes lower than inflation
Copyright 2014 Shiro Miyashita
Why the long term stock investment
is the safest bet?
20. Source : ”Stocks for the Long Run” by Jeremy Siegel
Even in the very high inflation year,
stock has the least negative return.
For any 30 years span, stock’s real return
is stably about 6 ~ 8%.
History shows that stock beats inflation
(1871-2007)
Copyright 2014 Shiro Miyashita
21. • Not a “Zero Sum” game
• Everybody can win
• Stock index return is upward sloping in the long term since it is a
natural reflection of economic activities
• Compound Return plus alpha
• Stock return beats inflation(Long-term real total return 6.7%)
• Bond return is sometimes lower than inflation
• Dividend re-investment is more powerful than compound interest
Why long term investment in stock index fund
is the safest strategy?
Copyright 2014 Shiro Miyashita
22. Invest $1,000 in stock in 1871 and hold until 2003 (No tax assumed)
Capital Gain is only 3% and 96% comes from dividend reinvestment
Source: ”Future of stock investment” by Jeremy Siegel
3%
96%
Dividend
Reinvestment
+ 1%
Capital Gain only vs. Dividend Re-investment
$90,000+Dividend
Total Return
(Div. Reinvest)
Capital Gain
Copyright 2014 Shiro Miyashita
23. • Work as a “Protector” in a down time
• Earnings decrease and stock price goes down, however
company management has a motivation to keep dividend in
order to avoid the stock price collapse, then the dividend
yield goes up
• Even if dividend is cut a little bit, stock prices will decrease
more than that and dividend yield goes up anyway
• Since stock price is lower and dividend yield is higher,
dividend re-investment can buy more share than before,
and it increase accumulation of the share.
• Work as an “Accelerator” in an up time
• Thanks to the accumulation of shares in a down time,
return will accelerate in a up time.
• Dividend will increase when earnings increase in an up time
Stock market collapse is actually “good news” for a long
term investor who re-invests his dividend.
Why dividend re-investment is more powerful than
simple compound interest?
Source: ”The future for investors” by Jeremy Siegel
Copyright 2014 Shiro Miyashita
24. 25 years the index return to the pre-Great Depression high
Real Total Return
If Great Depression did not occur
-40%
Capital Gain Only
The actual total return is much higher than it would
have been if the Great Depression did not happen
Source: ”Future of Stock Investing” by Jeremy Siegel
25. • Not a “Zero Sum” game
• Everybody can win
• Stock index return is upward sloping in the long term since it is a
natural reflection of economic activities (cf. Appendix A1)
• Compound Return plus alpha
• Stock return beats inflation(Long-term real total return 6.7%)
• Bond return is sometimes lower than inflation
• Dividend re-investment is more powerful than compound interest
• Lower Risk, Higher Return
• Stock index is riskier than Bond in the short term, however, it become
safer than Bond if the term is longer than 10 years
Copyright 2014 Shiro Miyashita
Why the long term stock investment
is the safest bet?
26. Stocks
Risk & Return is liner in the short term
Bonds
T-Bills
Return
Risk
Risk free Rate
0
Risk & Return for T-bills, Bonds, Stocks
Copyright 2014 Shiro Miyashita
T-Bill=Treasury Bill
27. Stock never go minus
Stock is the safest
Worst Case
Best Case
Source: ”Stocks for the Long Run” by Jeremy Siegel
Worst vs. Best of Inflation-adjusted Total Return
28. Risk-Return Trade-offs for Various Holding Periods (1802 – 2006)
Efficient Frontier
Source: ”Stocks for the Long Run” by Jeremy Siegel
29. • Not a “Zero Sum” game
• Everybody can win
• Stock index return is upward sloping in the long term since it is a
natural reflection of economic activities
• Compound Return plus alpha
• Stock return beats inflation(Long-term real total return 6.7%)
• Bond return is sometimes lower than inflation
• Dividend re-investment is more powerful than compound interest
• Lower Risk, Higher Return
• Stock index is riskier than Bond in the short term, however, it become
safer than Bond if the term is longer than 10 years
• Tax Saving
• Defer Capital Gain Tax until sold
• Long term capital gain tax is much lower than short term
Copyright 2014 Shiro Miyashita
Why the long term stock investment
is the safest bet?
30. How Deferring Tax Is Effective for Return
Copyright 2014 Shiro Miyashita
Note*: - In US, Capital Gain Tax for short term is personal income tax rate typically 20% to
35% while Capital Gain Tax for long term(>1yr) is 15% typically.
- This scenario does not consider transaction cost
Assume both A and B invests in the same stock with
10% return and the term is 20 years, and
A. Hold it until 20 years later and pay capital gain tax
when sold, the return is calculated as
[(1+0.10)20 -1](1-0.15*)+1= 5.87 times
B. Sell it at every year-end and buy back it at every year-
begin, the return is calculated as
[1+(0.10)(1-0.20*)]20 = 4.66 times
Difference between A and B is 1.2 times of the principal
31. • Not a “Zero Sum” game
• Everybody can win
• Stock index return is upward sloping in the long term since it is a
natural reflection of economic activities
• Compound Return plus alpha
• Stock return beats inflation(Long-term real total return 6.7%)
• Bond return is sometimes lower than inflation
• Dividend re-investment is more powerful than compound
interest
• Lower Risk, Higher Return
• Stock index is riskier than Bond in the short term, however, it become
safer than Bond if the term is longer than 10 years
• Tax Saving
• Defer Capital Gain Tax until sold
• Long term capital gain tax is much lower than short term
Copyright 2014 Shiro Miyashita
Why the long term stock investment
is the safest bet?
32. • In 1974、John Bogle establish
Vanguard Group which provides low
cost mutual fund.
• In 1976, the world first index fund
“Vanguard 500” was announced.
• Now, they are the largest mutual
fund company.
One man has changed the world
Copyright 2014 Shiro Miyashita
If you say “diversified stock investment” in the past...
It meant buying active mutual fund with high expense
ratio. There was no other choice at the time.
33. • Many can’t distinguish between active fund and passive
fund
• Advisors of large firms recommends only active funds
because passive funds pay nothing to them
• When you ask your advisor about index fund, he/she
should show you a few active funds which outperformed
index fund in the past couple of years, and you would be
convinced to buy them.
• Even if knowing active fund cannot beat index in average
due to higher expense ratio, people still often
undervalue the magnitude of the result difference in the
long term, rather apt to ask big firm in order to feel safe.
The pitfalls for beginner investors
Copyright 2014 Shiro Miyashita
34. • Index Fund is a passive fund which mechanically copy
benchmark index portfolio
• It does not need a fund manager
• Its MER is low enough, and the performance of an
index fund is very close to that of the benchmark index
• You can easily check performance with news media
What is an Index Fund?
Copyright 2014 Shiro Miyashita
35. Market cap
Industry ETF covers REIT, Financial, Energy, Technology, Health Care, Transport etc.
Categorized ETF covers Large Cap, Mid Cap, Small Cap, Value, Growth, Blend etc.
Nasdaq 100
Dow 30
S&P500
Nasdaq Composite(3200)
Russell 3000
Russell 1000
Wilshire 5000(3678)
Major stock market index funds in US
Copyright 2014 Shiro Miyashita
Some stocks are included
in multiple indexes.
eg.) Apple, Intel, Microsoft, Cisco
are included in all major indexes.
37. ETF
type
Mutual Fund
type
Real Time Trade -
Limit Order -
Short -
Expense Ratio 0.05%~ 0.05%~
Transaction cost (commission) -
Dividend re-investment (up to Broker)
Tax merit
Copyright 2014 Shiro Miyashita
Two Types of Index Fund
ETF type vs. Mutual Fund type
No big difference, but Mutual Fund type is best for re-investment
38. • History shows the evidence that majority of the all
active mutual funds cannot beat index fund like
S&P500 or Wilshire5000 in the long term
• If you take the survivor bias into account, such
probability of outperforming index fund get worse.
• These trend was broadly observed in other countries
Why I can’t recommend active mutual fund?
Copyright 2014 Shiro Miyashita
39. Source:”Stocks for the Long Run” by Jeremy Siegel
(term:1972~2006)
How much % of mutual funds outperforms S&P500 or Wilshire5000?
Copyright 2014 Shiro Miyashita
40. Source: ”Stocks for the Long Run” by Jeremy Siegel
(term: 1972~2006)
31%69%
Even if forgetting about survivor bias,
69% of all survived mutual funds cannot beat Wilshire5000
44. Expense Ratios of Actively Managed and Index Funds
Sources: Investment Company Institute and Lipper
Basis points
45. The long-term impact of investment costs on portfolio balances
Assuming a starting balance of $100,000 and a yearly return of 6%, which is reinvested
Source: Vanguard
Just 65 basis point spread makes a big difference in 30 years
46. • Higher Fees
• MER(Mgmt. Expense Ratio) or Transaction fees(Frond-
end/Back-end load)
• Fundamental Issues
• Limitation by SEC regulations
• Cannot change fund strategy even if trend has changed
• Dilemma on seeking both higher return and lower risk
• The more diversify the portfolio seeking lower risk, the more
the performance get closer to that of the benchmark index.
• Winner’s curse
• The tendency that last year’s “best performance fund” is
the most popular this year creates big money flow into
the fund, which could be the main cause of lackluster
performance later
• Successful performance is mainly achieved by small portion
of super successful stocks and the fund manager have to
continue buying those stocks at higher price, and it affects
its performance negatively.
Why Active mutual funds cannot beat index fund?
Copyright 2014 Shiro Miyashita
47. Copyright 2014 Shiro Miyashita
Sector rotation is not efficient
And more, you cannot say who will be the winner next year
48. Number of Mutual Funds Leaving and Entering the Industry
2003–2013
Source: Investment Company Institute
Copyright 2014 Shiro Miyashita
49. Some of the Outflows from Domestic Equity Mutual Funds Have Gone to ETFs
Cumulative flows to and net share issuance of domestic equity mutual funds and ETFs, billions of dollars; monthly, 2007–2013
Note: Equity mutual fund flows include net new cash flow and reinvested dividends. Source: Investment Company Institute
50. • Choose low cost fund (around 10 bp)
• Choose well diversified fund
• Dow 30, Nasdaq 100 is not well diversified.
• Avoid overlapping
• If you buy S&P500 and Russell 1000, you’d weight on S&P 500
• Diversify industries
• Nasdaq composite is diversified but biased to high tech industry
• Buying multiple industry ETFs is not an efficient way
• Industry diversification is much important than country
diversification
• When you buy a US large stock, they do business globally
• Keep global investment less than 50% of your portfolio
• Avoid too much exposure to foreign currency/country risks
• Strong US dollar does not justify too much currency risk
• You may select “Small Cap Value” category as you like
Tips for buying index fund
Copyright 2014 Shiro Miyashita
51. Source: ”Stocks for the Long Run” by Jeremy Siegel
Small-Cap Value vs. Small-Cap Growth
52. Small Cap Growth tend to outperform Small Cap Value in high tech boom period
Source: Federal Reserve Economic Data
Copyright 2014 Shiro Miyashita
53. Source: FactSet as of March 31, 2015. Annualized index data from March 31, 1995 to March 31, 2015.
Risk/Return Profile (Mar 31, 1995 ~ Mar 31, 2015)
Copyright 2014 Shiro Miyashita
54. Vanguard major index fund
Ticker Description ETF/MF MER%
VTI Vanguard Total Stock Market ETF (# 3629) ETF 0.05
VTSMX Vanguard Total Stock Market Index Fund (# 3629) MF 0.05
VOO Vanguard S&P 500 ETF ETF 0.05
VFIAX Vanguard S&P 500 Index Fund MF 0.05
VTHR Vanguard Russell 3000 ETF ETF 0.15
VRTTX Vanguard Russell 3000 Index Fund MF 0.08
VONE Vanguard Russell 1000 ETF ETF 0.12
VRNIX Vanguard Russell 1000 Index Fund MF 0.08
VBR Vanguard Small Cap Value ETF ETF 0.09
VSIAX Vanguard Small Cap Value Index Fund MF 0.09
VBR Vanguard Mid Cap Value ETF ETF 0.09
VSIAX Vanguard Mid Cap Value Index Fund MF 0.09
VTV Vanguard Value ETF ETF 0.09
VVIAX Vanguard Value Index MF 0.09
Ticker Description ETF/MF MER%
VGSH Vanguard Short term government bond ETF ETF 0.12
VSBSX Vanguard Short term government bond index fund MF 0.10
Copyright 2014 Shiro Miyashita
55. Source: ”Stocks for the Long Run” by Jeremy Siegel
Keep away from IPO stocks
Copyright 2014 Shiro Miyashita
Buy & Hold Returns of 9,000 IPOs (1968 - 2001)
56. • Person who has stable salary is a “pseudo Bond”
• Young people should not have any bond.
• Old Rule of Thumb (bond allocation=age%) is
never justified
• Long term bond bull market has just ended now
• You cannot expect current near zero interest goes
lower, rather it’d goes higher
• Risk of living too long is much higher than that of
dying too early
• You should have an asset which overcome inflation
and have to make it grow until you die
Why Bond should be minimum in your portfolio?
Copyright 2014 Shiro Miyashita
57. Buffett‘s advice to the trustee of bequests
Copyright 2014 Shiro Miyashita
In the 2013 letter to shareholder, Buffett uncovered his
investment advice to the trustee regarding his cash
bequest to his partner (67 years old) as follows;
“My advice to the trustee could not be more simple:
Put 10% of the cash in short-term government
bonds and 90% in a very low-cost S&P 500 index
fund. (I suggest Vanguard’s.) I believe the trust’s
long-term results from this policy will be superior to
those attained by most investors – whether pension
funds, institutions or individuals – who employ high-fee
managers.”
58. 1. If you need customized/optimized portfolio
2. If you need customized advise/consultation
3. If you need complicated tax consideration
4. If you wants to invest in individual stock, option, junk
bonds, shorting etc.
The fee worth paying is only for
“Customization and Consultation”
When do you need advisor?
Copyright 2015 Shiro Miyashita
59. • No Conflict of Interest
• No incentive to choose higher fee funds or accounts
• No quota, No product sales
• Should focus on client satisfaction and asset’s growth
• Pay only for optimization/customization of the
portfolio and consultation if needed
• He/she knows you very well, so you can expect
good and detail advise
Why independent advisors are good for you?
Copyright 2015 Shiro Miyashita