Archive - June 24, 2011

1
Why Our Economy Needs Negative Interest Rates
2
Why Index Funds Beat Actively Managed Mutual Funds
3
How To Invest Over the Long Run Like Warren Buffet

Why Our Economy Needs Negative Interest Rates

Jun 24 2011
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Don Martin, CFP® All posts from Don Martin, CFP®
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People ask about things like “will the dollar be devalued?” Or “what investments hedge against devaluation”? To answer these questions one should look at the big picture of the economy and see that there is a need for interest rates to be negative in order to stimulate the economy.

With the risk of an unfundable series of sovereign bond defaults in the Eurozone, and a potential for a crash in China, the whole world is at risk of falling into Japan-style deflation.

If rates become negative then foreign investors would sell their dollar holdings to invest in countries with higher …

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Why Index Funds Beat Actively Managed Mutual Funds

Jun 24 2011
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Richard T. Feight, CFP®

Among independent financial advisors, Mr. Feight is one of the most well known and highly respected “Fee-Only” financial planners. Since 1997, Rich has dedicated his career to offering low cost “Fee-Only” comprehensive financial planning and investment advice. Rich assists his clients in organizing their finances so that they can retire on time.Rich is a graduate of Michigan State University where he received his degree in Finance. Rich has earned the Certificate of Financial Planning from The College for Financial Planning in Denver , Colorado that was comprised of intense graduate level classes grounding him in the various foundations of financial planning. He is a CFP® (Certified Financial Planner®) since 2001, meeting the experience, education requirements and passing the two-day, 10 hour exam, making him one of the few in the country who hold the designation. Since 2003, Rich has subscribed to the stringent and mandatory annual educational hours, experience, and code of ethics to meet the requirements to be a NAPFA Registered Financial Advisor. Out of the 800,000 individuals in the country who claim they are financial advisors/planners, fewer than 1,300 in the country qualify for the membership; Rich is one of them.

Rich is the President of the Financial Planning Association (FPA) of Michigan . The FPA of Michigan is one of largest and influential chapter in the country. Rich was recently named President for Transportation Toastmasters Club 4776 downtown Lansing . He has been quoted in both local and national media from Noise Magazine to CNBC, and Bloomberg, and industry news publications such as Investment News and Financial Advisor Magazine. Rich enjoys public speaking and has spoke at industry educational meeting, high schools, and executive investment clubs, AARP conferences, and business educational seminars for companies looking to educate their employees. Rich views his role as a Fiduciary for his clients as the single biggest key to any planning relationship and strives to provide the most competent, unbiased and objective advice in the financial planning profession today.

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There has been a lot of research that explains why index funds outperform actively managed mutual fund. I thought I’d share a distilled version:

An index fund has low turnover because it knows what stocks it will invest in; whatever stocks are in that index. Furthermore, because it knows the stocks it is going to invest in, it doesn’t have to pay a manager big bucks to beat the stock market. That means low fund expense ratios.

Actively Managed Funds

On the flip side, an actively managed fund has to try to beat the stock market by constantly buying and …

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How To Invest Over the Long Run Like Warren Buffet

Jun 24 2011
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Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

An IRA Owner's Manual
A Social Security Owner's Manual

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In his Preface to the Fourth Edition of Benjamin Graham’s legendary book The Intelligent Investor, Warren Buffett wrote the following:

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information.  What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.  This book precisely and clearly prescribes the proper framework.  You must supply the emotional discipline.

I’ve seen the same sentiment boiled down and paraphrased a bit, also attributed to Mr. Buffett (although I couldn’t find the original source) as:
It only
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