Investing: focus and avoiding the frivolous

I'm in the middle of making my through David Swensen's book Unconventional Success. It's a very insightful book written in a repetitive clinical style with an surly attitude towards financial swinders, which includes all high-fee investment vehicles. Once you have a decent understanding of investment basics, I strongly recommend you read it.

I'll summarize different parts of the book over time, but for now I was struck by his assessment of where return comes from. Note that in return you can choose to tradeoff safer/less return versus riskier/more return.

1. Asset allocation dictates almost all of your return. This means choosing what fraction of your money is in stocks (broken down into domestic, international, emerging market), US govt obligations(Treasury bonds and Treasury Inflation Protected Securities (TIPS) and real estate. In case this wasn't clear: this is where you should be putting almost all your investment effort. The good news is that this is a hard problem with no obvious answers so you can't really spend more than an hour or two every so often (say every 6 or 12 months) and you just have to make a decision. The other good news is that I don't think your return is too sensitive to minor perturbations in your asset allocation, so you can be somewhat relaxed about it.
   


2. Market timing is at best ineffective. Namely trying to determine when to buy/sell certain asset classes (e.g. load up on foreign stocks, now) is at best ineffectual for the professionals and quite often disasterous for the individual. Individuals get greedy and often chase performance, namely putting money into hot assets which historically is the worst way to choose your assets. The recent US stock market bubble in 2000 is a good example. US stocks in general and tech stocks in particular were particularly hot, giving irrationally large returns. Many people who don't normally invest in the market, finally decided to hop in, essentially doing market timing, and got burned.
   

   Early on after the 1987 crash, I did realize I could not time the market in the broadest sense, by deciding on cash versus stocks. I recall pulling out of the market after continued losses only to watch it rise above my pullout level when I least expected it. So I've always stayed fully invested, but I've done performance chasing putting money into hot mutual funds and my returns suffered. The darn Kauffman fund (KAUFX) in the 1990's was my personal return killer. I've learned my lesson over time.
   

3. Security selection has a minimal role in return. This means deciding which stock or mutual fund or ETF or bond to buy/sell. This is typically where most casual investors spend their time, because they feel like they can analyze the various options and make an informed decision. Yet, there is surprisingly little benefit from doing this. Choosing your own stocks is essentially like running your own mutual fund, and historically mutual fund managers haven't beaten the market, despite having a lot more resources than you or I.
   

   A new game is to find the right super low-cost low-turnover, low capital gain index funds or ETFs to cover your asset allocation. It is appealing as you can evaluate largely comparable quantities such as management fees, turnover and asset breakdown. But don't be fooled, as this does not really buy you much.
   
   

So if you're interested in improving your returns, think about asset allocation and try not to spend too much time on security selection as tempting as it may be.

My current thinking for an aggressive stance is:

40% US, 30% foreign, 10% emerging, 15% real estate (domestic and foreign), and 5% cash/money market/T bills.

Swensen repeatedly gives the allocation: 30% domestic, 15% foreign, 5% emerging, 20% real estate, 15% T bonds, and 15% TIPS. And he's done exceptionally well (15+% annualized return with moderate risk. Wow.) over the last 20 years managing the Yale Endowment, so don't dismiss his views too easily.

The Rule of 72

What is this "Rule of 72", that you run across in investing sooner or later (or right now as you read this)?

It is a fast, simple and reasonably accurate way to estimate how fast your money doubles.

Common Use 1: If your money grows by a consistent G% every year, then it will double after 72/G years.
Example 1: your savings account offers 4% a year. After (72/4) = 18 years, your money will have doubled.

Example 2: Yale's endowment under David Swensen grew at a truly remarkable16.1% a year for many, many years. The endowment was doubling in value every (72/16.1) = 4.47 ~ 4.5 years (!).

Being an approximation, the rule of 72 can't be used indiscriminately, but it is useful for typical investment returns.

• It is very accurate for G% between 5% to 12%
• It is reasonably accurate for G% between 2% to 16%.
• For large returns above 30%, it is not that accurate.

Or using colors where green is accurate and red is inaccurate, the rule of 72 works this well

0.5, 1, 2, 3 4, 5, 6, 7, 8, 9, 10 12,, 14, 15, 16, 18, 20, 25, 30,35, 40, ... .

Less common use: If you sum your returns over several years, even if they are not the same, your money has double when you hit 72.

Example: if you have annual returns (in percent) of 9, 12, -3, 5, 7, 18, 2, 4, 12, 15, this sums to 81. So you would have doubled your money and more in the last year wtih the 15% returns.

Mathematical underpinnings.
If I have time later I'll explain the math behind the rule of 72. For now see the Wikipedia entry.

Keeping it simple in investing

Part of me remains baffled at how many people resist investing. Many highly intelligent, go get'em and otherwise rational people just stick their heads in the sand when it comes to investing. Yet shockingly, it does not take excessive amounts of effort to invest well. One of my mottos of the last few years is:

You can do an B+/A- job investing with very minimal work and relatively little anxiety.

Note that many people do a C- or worse job of investing, so an B+/A- job is pretty darn good. I think one of the problems is paralysis in making investing choices because there are so many bloody choices. And there are numerous tales of how making the wrong choice means losing your shirt, but pretty much all these cases of shirtlessness involve getting too greedy or trusting your money to someone inept or unethical. I present two choices: super-ultra simple and simple.

1) I want to keep my head in the sand:

If you want the absolute simplest plan of action, buy one of the "target lifecycle/retirement" mutual funds which automatically adjust the asset mix as you near retirement or cash withdrawal. Choose the fund with the target date close to your planned retirement. E.g Vanguard offers funds with target dates of 2010, 2015, 2020, etc. As the target date gets nearer, the fund mix gets more conservative.

Recommendation: Vanguard Target 20XX funds. For 20+ year horizons, they keep very little cash, have very low fees. E.g. for their 2035 fund, their mix of domestic/foreign/bonds is a reasonable 72/14/10 . I prefer more foreign, but that's just me.

But if at your brokerage is Fidelity or Schwab, just buy their in house target funds instead and avoid paying the mutual fund transaction fee. At least, I know buying Vanguard funds from a Schwab account has a fee but buying Schwab funds have no fee.

2) I want a simple plan where I am involved:

But if you're in the camp of just not being sure where to start, take the consistent and nearly unanimous advice of the big names (Malkiel, Bogle, Swensen) and the big boys (many pension funds, including TIAA-CREF) and put your money in 2 to 4 low cost index funds each covering a different asset class. I give some baseline weightings for your assets but you can tweak the weightings as you wish. The good news is that your returns are not very sensitive to 5% or even 10% adjustments in weighting. Put the rest in a money market fund.

Recommendations:

If you have less than $6K to invest, use a complete US and a complete foreign fund:

• 60% Total US index (VTI)
• 40% Foreign including some emerging markets (VGTSX or FSIIX, but if you don't have enough money, buy EFA)

If you have less than $20K to invest, put the money in the following categories:

• 55% US stocks (say VTI or VFINX)
• 35% International developed countries (say EFA, DODFX)
• 10% Emerging markets (EEM or VWO)

If you have more than $20K you can also add some real estate or US bonds/Treasury bills:

• 40% US stocks (say VTI or VFINX)
• 25% International developed countries (say EFA, DODFX)
• 5% Emerging markets (EEM or VWO)
• 15% REIT index (VNQ or VGSIX)

And remember, rebalance once every 6 to 18 months to your desired weightings. It turns out your returns are not too sensitive to how frequently you rebalance. But you must rebalance. I recommend every 12 months to minimize the work and to ensure you'll get long term gains.

In short: don't over think how to invest. Just do it and keep it simple. And if you follow the above guidelines, it's hard to mess up much. It's a lot like exercise: the biggest mistake is not doing it; and if you do something, heck anything, reasonable, you'll be fine.

Choosing brokerage firm(s)

The short summary is:
- once you have considerable assets (IRAs, Roths, regular), consolidate into one place
- avoid high cost brokerages, which are the old time big names (Smith Barney, JP Morgan, Merrill, etc).
- Among the discount full-service places (Fidelity, Vanguard, Schwab), I don't think there is too much difference righ now. Among the ultra-value places (E-trade, Ameritrade, etc), I don't think there is much difference. What type of firm you choose is up to you and the relative costs on how you intend to trade.
- once you consolidate, you probably won't want to move assets very often (at most once a decade)
- you can compare costs now but remember the brokerages change their costs and fees over time, so it is important to choose a brokerage that has historically treated their customers well, since you won't likely switch.
- In trades, keep commissions below 0.3% of the trade, preferably below 0.1% of the trade. Your firms fees can influence this if you're making small trades of $2K or less.

My personal preference is for places that started out with a customer focus, offering a unique benefit. I like Schwab as they were the first big discount brokerage with many services. I also like Vanguard which has consistently kept its costs very low, though they have grown from largely handling their own excellent mutual funds to a full service brokerage. I'm a bit leary of Fidelity as they originally were a mutual fund house with many good funds but they charged significant loads (3% entry fee back in the 80's). While they have become a pretty good low-cost firm, it is mainly because they were forced to do so. They scoffed at index funds for a long time but back in the late 90's (?) started offering a few very low cost Spartan index offerings.

I like the bigger companies once you get significant assets, because once you start doing other transactions like buying a house or giving assets away as gifts or charity, you need other services like wiring or DTC. And it is nice to be able to drop in to an office once in a while.

If you have a more modest pool of assets (say less than $50K) and intend to do some trading for fun and loss (I mean profit) and you have the time to monitor all this, then choose a low-cost firm that minimizes your type of trading costs. Namely if you're intending to trade stocks, keep stock commissions low. My office mate opened an account at zecco.com because they have free stock trades and he intends to trade small amounts so even a $10 commision would be significant; of course there are several restrictions to this account. There appear to be other ultra-low cost brokerages if you are so inclined. But remember if you insist on trading individual stocks, make sure that it is less either less than 5% of your holdings or less than $2K; invest the bulk of your money in diversified or safer holdings such as mutual funds, ETFs, T-bills or safe bonds.

Benefits of a Roth versus a regular after-tax IRA

Someone asked if they should recharacterize an after-tax IRA to a Roth. Basically was it worth the trouble to do so.

Here's two, no make it, three, lines of reasoning on the benefits of recharacterizing, from which you can decide yourself.

1) Tax savings.
Let's figure out how much you'll save on taxes.
1a) Let's assume for simplicity you have 40 years for this money to grow, say you are 30 and won't withdraw this until you're 70.
For a somewhat conservative estimate, assume your money doubles every 10 years (a 7.2% return -- using the rule of 72),
so your money has grown to 16X of the current value of 4K => 64K. The taxable portion is the gain, which is 64K - 4K = 60K.

Non-roth tax-deferred distributions are taxed as ordinary income and I'll assume you'll be in a mid-high bracket at the age of 70, due
to your accumulated wealth. Again, I'll assume incremental tax rates of today, so say you pay 30% of %60K, which is $18K.

1b) If your return were slightly better, say 9% a year, you would double every 8 years and your IRA would be 32X, and then you'd save roughly double of (1a) in taxes, say $36K.

2) Tax simplicity.
A Roth frees you from all the paperwork of calculating taxes on that IRA, since you're not taxed again. Ever.
If it remains a non-Roth IRA, when you get distributions, you're forced to assume you're getting a proportional amount
from your basis (the 4K on which you've paid taxes) and the gains (for which you owe taxes).

3) Flexibility.
If it is a Roth, you're not subject to mandatory distributions (I think), so you can pass it along after your death, possibly
having the recipient get a stepped up basis.

It's anybody's guess if the 2010 law letting anyone recharacterize a traditional IRA to a Roth will stand until then.

Were it me, I'd recharacterize.

The tax simplicity of tax deferred accounts

A common question is whether to put money in a 401K or IRA or not. Unfortunately, there are a daunting number of options and an even more bewildering battery of rules for each choice.

However, one often ignored but compelling reason to put money in a tax deferred account (401k, 403b, IRA) is simplicity. Tax simplicity in particular.

If you're just starting to invest or your accounts are relatively simple, then this may seem like a moot point.
But as time goes on and your portfolio grows and becomes more diverse, you will soon find that filing your taxes and keeping all the bookwork starts to take a life of its own. A time consuming, minutae filled life.
And typically it only gets worse over time.

Assume you are a long term investor and buy a mutual fund and just hold it for 7 years. And you reinvest all dividends and capital gains. What can be so bad? It's the regular dividend and capital gains distributions.

Let's take the Vanguard S&P 500 Index VFINX, a widely held mutual fund (the third largest as of Mar 2007). It is a well-behaved fund as it has few if any capital gains distributrions, from selling appreciated stock, in part because it is a growing fund (so all they do is buy more) and in part because it is very well run. But it does have quarterly dividend payouts. (As an aside, the Vanguard website on VFINX indicates the unrealized capital gain in the fund price is very significant at 38% of the NAV, meaning they are holding lots of appreciated stock).

Let's outline the problem(s) of the dividend payout.
- On every dividend payout, you have to add them all up and pay taxes at the end of the year. No big deal.
- Each time you reinvested dividends, you buy a bit more of the fund, at the price on the dividend payout. Not a big the first time, but it starts to get worse.

After 5 years, you have made 21 different purchases, 20 of which were dividend reinvestments for small amounts at different prices and different amounts. You essentially have 21 positions in VFINX. Yow.

Eventually, if you sell all of your holdings, at tax time it is a tedious calculation mess, because you are essentially selling out of 21 different positions, all of VFINX. But at least you are done with that investment once and for all, from a tax standpoint.

But if you only sell a fraction of your holdings, say to rebalance, then you have a mess now and bigger mess later. You have to decide from a tax standpoint which shares you sold - (a) the original shares, or (b) the most recent shares bought by divident reinvestment or (c)perhaps you sold all shares proportionally. The simplest taxwise is (a) but this is likely the worse from a tax payment standpoint as the original shares have appreciated the most. If the price has gone up somewhat steadily you might choose (b) to minimize your tax burden, but might want to sell shares you've had for at least 12 months for LT gains. Finally, I cannot recommend (c) under any circumstance as it complicates the books now and especially in the future.

Now imaging if you buy or sell more shares every year moving forward due to rebalancing concerns. As you can see the bookkeeping just keeps getting uglier. After 4 years of rebalancing, it isn't hard to imagine having 30+ positions of VFINX, many of which had already had some buying and selling. It takes several years to reach that point, but if all goes well for you, you will reach that point.

The other alternative is to not reinvest dividends or cap gains. However, this creates small bits of cash in your portfolio at regular intervals, which is hard to invest. If you want to cash for cash flow, that's OK, but it is irregular in that you can't predict cap gains very well. And if you are constantly pulling out cash, it is harder to determine return. So I assume you want to reinvest, if at all possible.

In contrast to all this, having a tax deferred account is very simple.

1. If is a Roth, you never pay taxes. This is the simplest. The Roth is my favorite vehicle, though both the Roth and the pretax 401k/IRA have roughly equal tradeoffs.
   
2. If it a pretax IRA or pretax 401k, you pay ordinary income on everything you withdraw. Again very simple from a tax stand point.
   
3. If it is a post tax IRA or 401k, it is a bit more compliated but again not too bad. And you get to defer all this work until you actually withdraw, so it is still a procrastinators dream.
   

Catching the falling knife

Today (Feb 27, 2007) saw a 10% drop in the China stock market, which caused at least a 3% drop in most other major stock markets. On a serious decline or plunge, the experts warn us not to invest as the various markets plunged, saying instead to wait for this correction to stablize. The common phrase I've heard (over the last decade no less) is that investing in a plunging market is "like trying to catch a falling knife."

Yet, I've done quite well catching that knife.

So today, I saw the market was down in the morning. Then I happened to recheck the market and realized how far the market had dropped by 3 PM EST (noon PST) and decided to do some knife catching. I picked up various ETFs at near the lows of the day (FXI, ILF, VTI, RWX). It remains to be seen if the market rebounds, and whether I got bargains or the market continues to fall and I got cut by the knife.

I also need to study how often the knife falls below it's initial plunge. I got the impression that todays' fall was simply a sell off with no particularly compelling catalyst. Hence my hope that markets recover.

Update the next day 2/28:

Pretty much everything was up today, the next day. China recovered 4% and the international markets were up about a 1%. The US market was up a tad, too.

In the SJ Mercury lead article, they mentioned there had been 14 single day declines worse than yesterdays decline of 3.3% in the last 40 years. And in 9 of the 14 cases, the markets were up the next day. So you can catch the knife more often than not.

Asset allocation in the presence of unrealized gains

This is an oft ignored question: should your asset allocation be affected by the amounts of the unrealized capital gains in your position. Let me give an example. Assume for simplicity you want 70% stocks and 30% cash.

Case 1: you have $10,000 of cash to invest. You pretty clearly put 7K in stocks and 3K in cash.

Case 2: you invested in stocks many years ago and they have done well. You have large unrealized, capital gains in your stocks and they are now worth 10X their original investment, namely $7K. If you were to sell all your stocks, you would be taxed and would be left with a siginificantly smaller sum. Or you can just sell enough stock to bring your allocation in line with the 70-30 allocation.

A coworker had asked this a few years back and I came to the pleasantly simple conclusion:

No, you should safely ignore all this and allocate oblivious to unrealized gains.

The short summary (which I need to elaborate on later) is that by considering the incremental return-risk tradeoff of a given allocation, the behaviour of your investments is blind to how much unrealized capital gain there is. Thus you invest blind to this. Thank goodness.

The cost of borrowing

The opportunity cost of borrowing

I'm a saver at heart. A dollar saved is another dollar I can mismanage investing. Yet, given the massive amount of credit card debt and home refinance debt of this country, there's a lot of non-savers out there. I have to believe that those with a spend-now attitude, the so called "gold collar" workers, simply don't know how costly it is to spend beyond your means. Yet sadly, I think even if they did, they wouldn't care.

I think one of the problems is non-symmetry of a dollar owed versus a dollar gained. Consider the following two scenarios.

1) Happy: If I told you I would give you an extra $1000 a month, how happy would you be?

2) Sad: In contrast, if I told you I'm going to increase your bills/housing cost by an extra $1000 a month, how unhappy would you be?

I'm betting you'd be a lot unhappier than happier. Yet if you borrow money (aka use a credit card and don't pay it off) you get your happy day now but suffer the (much) sadder days later. And there's more sad days than happy days. Doesn't seem like such a good deal does it?

But since this a column on investing, let's do the math.

Things are a bit different depending on whether you have the money or not. For the sake of simplicity let's assume you can either buy a $18000 econo car or spend another $10000 for a new $28000 nicer car. Clearly you'll be at least $10K poorer if you buy the nicer car. The question boils down to, how much does spending the extra $10,000 cost you down the line.

Case A: you have to borrow the extra $10K. (How you get the first $18K doesn't matter since in both cases it is treated the same).

[Nicer car] you have borrow the $10K and get a 8% loan for 5 years. This loan is short enough that we'll ignore the compounding of the interest. The total interest you'll pay is 10K * 8%/year * 5 years * 1/2 = $2K in interest. (The 1/2 comes in because after you're steadily paying down the principal and over the loan lifetime [5 years], on average you only have 1/2 the original principal building up interest. In reality, the 1/2 term would be slighly higher, say 0.55 or 0.60 since 8% * 5 yrs = 40% isn't completely negligible compare to the original loan). In general, for short term low interest loans, the interest you pay is Principal * Interest rate * Loan Duration * 1/2.

[Econo car] Instead, if you bought the econo-car and had invested the money you used for the loan payments, you would have gotten investment gains. Let's say you could earn a paltry 6% on your money. Over 5 years, again ignoring compounding the investment return you would get is $10K * 6%/year * 5 years * 1/2 = $1500. (Again the 1/2 is because initially you have no money invested and it linearly builds up, so on average over the 5 years you have 1/2 the money invested earning returns).

So with our numbers, that buying the more expensive car means you'll be $13,500 poorer after 5 years. If you don't like the loan rate and investment return I used, the formula is

Principal * (Loan Interest + Investment Return) * Loan Duration * 1/2.

In short it's a double whammy when you borrow, because instead of having the money grow, you're not only unable to invest, you're losing some of it to pay off the loan interest. And you never get this money back.

To beat this over your head, let's say instead you're borrowing with a credit card, which charges 18%. Then, borrowing this $10K (assuming you pay it off after 5 years, which is iffy) would cost you another $1K in lost money or a total of $4500. In reality, by ignoring compounding the numbers come out friendlier. So let's say that you'll really be down an extra $6K in addition to the $10K. Namely, not only are you $10K poorer, you have additionally agreed to dispose of out an extra $100 a month, every month, just to buy the nicer car. How much nicer was that car again?

Case B: you have the money.

Here, it's simpler. If you buy the cheaper car, you can invest that money and earn your 6% (or 8% or 10%) over 5 years, so after 5 years you are $14K to $16K richer. Here, I'm assuming compounding since the money is all there from the beginning.

So in this case the cost is
Principal * (Investment Return) * Loan Duration .

The last whammy

The other whammy is that if you spend more for a car or TV or dinner or most anything "fun", at the end of 5 years, that item usually isn't worth any more than if you just saved the money.
So in most cases, you really are out the $10K + the non-neglible cost of borrowing.

A few more notes

When does the of the interest rate matter? E.g. for a 2 year 6% loan, compounding is neglible but for a 30 year 7% mortgage, most of what you pay is the

Another case which a pesky reader asked about is what if you borrow when you don't have to and invest the money in something with more return than the loan interest rate. Again assuming a lightweight loan that you continually pay down, then your return on paper (aka you are making money, here) is:
Principal * (Investment return - interest rate) * Duration * 1/2.

But if you factor in taxes, things don't look so nice. You always pay taxes on investment gains, but for almost all loans (except mortgages) you get no tax break. Let your overall tax rate be TaxRate, so you get to keep (1-TaxRate) of your investments assuming you sell your investments to pay back the loan.

Principal * [(Investment return * (1 - TaxRate)) - interest rate] * Duration * 1/2.

If the loan was a balloon payment in which you pay back everything at the end, then the 1/2 goes away. This formula also makes intuitive sense.

International real estate funds/REITS/ETFs

The asset class I'm most excited about recently is foreign real estate. I've been waiting for a mutual fund or ETF to invest in a variety of international real-estate instruments (they are not called REITS in other country, but they are the equivalent to REITS). Let me call these investments: "Intl-REIT"s versus "US-REIT"s, even though in all cases you are investing a basket of REIT-like securities.

I'm a big believer in low cost index funds or ETFs and had been waiting for such a Intl-REIT ETF.
And in late Dec 2006, the first low cost ETF based on Intl-REIT opened up: RWX which tries to mirror the Dow Jones Wilshire International Real Estate index. More information on RWX is at this MarketWatch article. http://etf.seekingalpha.com/article/23080 indicates that roughly 18% of the assets are in each of Australia, the UK and Japan, with other well developed (not emerging market) regions filling out the top 10 countries. I first bought this ETF in Jan and will likely add more to my holdings.
And while it has done freakishly well in the first 4 weeks of 2007, so far, I'm don't put much weight in recent short term performance.

However, there are several Intl-REIT mutual funds that have been around for many years. I probably should have looked harder last year to find these. Anyways, here are some links on other intl real estate mutual funds/ETFs.

1) The Kiplinger's article
www.kiplinger.com/columns/balance/archive/2006/balance1226.html
is a good starting point, as it mentions that Intl-REIT correlates with other investment, including US-stocks, better than you (and I) might have expected. It also mentions several worth while funds. I really like the Cohen & Steers Asia Pacific Real Estate Securities (APFAX), but I'm put off by their 4.5% initial fee. Maybe I can get my financial advisor to lower this.

2) This Smart Money article discusses the three well known Intl-REIT funds. I personally just bought some of the Alpine fund today, largely due to its low expenses and long track record. Also from my brokerage (Schwab), it was no-load (no transaction charge or fee).

3) There are apparently more international real estate ETFs in the works

Aggressive asset allocation in a 401K

Investing is only a small part of generating wealth, but it is an area people fixate on because it can be phrase simply "What should I invent in?" and there's a good bit of fear of doing it wrong.

Recently I was asked about this for a 401K in which the following stock funds were available. I'm skipping the bond fund in the aggressive allocation because I'll use the REIT as an income generation (aka bond) replacement. (Apologies about the big vertical space before the table. Stupid blogger puts in a bunch of line breaks automatically. I've created this blog by editing the HTML, but blogger still adds the spacing.)

Fund	Aggressive	Moderate
Bond Funds
Vanguard Total Bond Mkt Index Inv		15%
Domestic Stock Funds
Ariel Appreciation
Third Avenue Sm-Cap Val	10%	10%
Vanguard 500 Index Fund Inv	30%	40%
Vanguard Growth and Income Inv
Vanguard Mid-Cap Index Fund Inv	10%	10%
Vanguard Small-Cap Growth Index
International Stock Funds
Artisan International Inv
Vanguard Total Int'l Stock Index	40%	25%
Domestic Stock Funds
Vanguard REIT Index Fund Inv	10%

My thoughts:

1. I'm a big fan of international investing. I also don't believe that a diversified international investment poses much greater risk than the US market, especially given the low projected growth of US companies (6-10%).
2. I didn't want to pick more than 5 choices, nor did I want to put less than 10% into any one choice. The portfolios are not that sensitive to small perturbations of the allocation.
3. I like REITs a lot. And more and more people are starting to use them as a standard part of their portfolio.

In my personal 401K for this company, which represents only a fraction of my investments, I chose a fearless pedal to the metal allocation in 2006 of roughly 1/3 REIT, total internation index and the small cap growth index. Two out of three isn't bad.

Introduction

This blog is about money. Investing, saving, spending and giving it away.

The general assumptions are:

1. More money is better, all else being equal. Of course rarely are two options "otherwise equal".
   
2. It's your money, so you get to do what you want.

The title arises from the multitude of demands on your financial resources. To buy or to save. If buy, then so many choices. If save, then so many (often scarier) choices.

Another tyranny is the emotional demands investing your money places on you. To reliably invest well, you need to sift through many choices, make reasonable decisions and then be patient. Very patient. Yet at the same time, you have to monitor how things are going. And you have to continually invest any new money that comes in.

But it always comes down to having money now gives you choices now, wich I summarize via:

"The most valuable dollar is the dollar you've got right now."