February 24th, 2009
Here’s an article that shows why index funds are still the best long term solution for taxable accounts.
Although manged funds and hedge funds have higher pre-tax returns - taxes take a huge chunk of the gains making after-tax returns lower. Based on Morningstar’s research, only 3 out of 100 funds will outperform the S&P index on an after-tax basis.
Best strategy I can think of is to increase contributions in recessions to get the bounce when the market rebounds. I have taxable mutual funds too. I have some money invested in American funds and Oakmark. To be honest, they’re doing similar to the indexes. (Just as poor) All my money in my 401k is invested in index funds. And they’re down 42%. So there’s nowhere to escape as of now, but keep on investing and we’ll be rewarded in the long run.
Posted in Misc, Mutual Fund | No Comments »
February 10th, 2009
That is a common phrase people will say when they open their latest 401k statements. It is shocking. Not checking 401k everyday is a good thing. But don’t avoid looking at your account because you’re scared. Looking at your account from time to time can help you assess your risk tolerance and rebalance your portfolio when the time comes. (I recommend once a year)
Here are some reasons why people are surprised at the large losses they incur.
1. They underestimate risk. People were too aggressive. During good times, people over estimate returns and have more money in equities than they can handle. I know I did. I was leveraged at the peak. At least I was investing for the long term, so I have time to recover. But the lesson I learned is a very painful one indeed. It will take a long time for me to recover. I never expected the worse-case scenario to appear.
2. Not diversified enough. Being diversified may have helped a little bit in the previous bear markets, but not in this one so far. All equity asset classes were hit hard. But bonds held up okay, so if you were diversified between cash, bonds and equities, you would have less downside vs someone like me who was over 100% equities.
The good news is, most of the pain is hopefully over. We are near a bottom, and the future expected rate of return looks better than other. Tune out the media who are too short-sighted to see the attractive opportunities out there. Invest more now than you normally would and you will be happy you did in 5 years.
By Loi Tran
Posted in Investing | No Comments »
February 5th, 2009
Here are my three ways to earn a higher investment return. Avoiding mistakes are more beneficial to an investor’s return than scoring home runs, which do happen on occassion, but are negated by even bigger mistakes. People will only remember their winners and forget their losers. It’s done unconsciously to protect the ego so that they can continue on investing.
1.) Lower the amount of fees you pay.
This includes trading less, having lower management fees (expense ratio) and more tax efficient strategies (tax loss harvesting, low turn over mutual funds, using index funds, tax shelters (401k, IRA, Roth). That 1% management fee does not seem like much, but over 20 years, the difference in ending market value can be as much as 50% or more.
2. Stay invested.
Trying to time the market will only lower your returns and make you regret the bad decisions you have made. No one can consistently time the market in the long run. Do you see a lot of rich day traders around? Move to cash now cause make you miss out on the unexpected rebound that will be sure to come.
3. Spend more time researching and less time checking price quotes. I am guilty of checking the prices on my holdings everyday. It is a waste of time. Instead, I can and should be using this time to do some fundamental research.
4. Stay diversified globally. Invest globally, in small, mid, and large cap stocks. It doesn’t have to be complicated. A world stock index fund from Vanguard (VHGEX) will do the trick for those who are lazy.
Utilizing these tips will definitely earn you a higher return in the long run. They are common sense tips that will work if applied, but most do not.
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February 4th, 2009
I’m sick of hearing predictions on the news, in articles, on blogs, and on CNBC. When will people give up on predicting what will happen in the stock market. There are too many variables and the stock market is mostly efficient. It is especially the short term predictions (3 months - 1 year) that are laughable. Most pundits get it wrong over half the time and rationalize their mistakes. Behavioral finance explains a few of their tricks they use.
But I think it is possible to get some longer term predictions right. The Three Questions that Count showed me that it is possible. So have we reached a bottom? I think we’re near one. And it’s a great time to be a long term investor. If I’m wrong and it’s the end of the world, I still have nothing to worry about.
By Loi Tran
Posted in Investing | No Comments »
February 4th, 2009
This website has been down the past few weeks. It turns out I had an older wordpress version installed that is no longer compatible. It took me awhile to figure it out and I apologize for any convenience.
Posted in Misc | No Comments »
January 21st, 2009
I learned that investors should shun pride and accumulate regret instead of the reverse, which is what people normally do.
I’ve been reading The Only Three Questions that Count by Ken Fisher. Ken is a good writer. He has written a column on Forbes for over 20 years. Being the son of the great Philip Fisher couldn’t hurt as well. He’s CEO of Fisher Investments and is #281 on the Forbes 400 list of the wealthiest Americans. It is one of the most entertaining and educational investment books I have read in awhile. What makes this book so great is that it challenges conventional wisdom that we all take as fact.
Some examples of false truths that we do not investigate include:
High P/E stocks are riskier.
America has way too much debt.
Stock markets do better in countries with faster growing economies than slow ones.
A tax cut causes more debt, which is bad for stocks.
Big government budget deficits are bad.
Cheaper stocks do better than less cheap stocks.
Ken Fisher teaches his readers how to think for themselves. Reading Wall Street Journal, Barrons, Bloomberg, blogs or Forbes will not make you a better investor because all of that information is already discounted in the news. An investor must be willing to come to their own conclusion and use the 3 questions to uncover something others do not know. Yet most investors (speculators!) gamble instead of research. They forget their big losers and brag about their winners. It’s the overall performance that matters in the end.
Read The Three Questions that Count if you want to become a better investor.
By Loi Tran
Posted in Investing, Website Resources | 1 Comment »
December 10th, 2008
I still need to sell my mutual fund and stocks to claim the tax losses on my return. The IRS lets a person deduct up to $3,000 per year of losses off their adjusted gross income. My plan is to sell some mutual funds and stocks before the distribution date and buy a different, but similar fund the day after the distribution.
I made several mistakes this year that I regret. The first is buying mutual funds in my taxable account that have large year end distributions. Even though I lost around 40% for the year, I still have to pay taxes on the year end distributions which are about 5%.
My second mistake is leveraging such a large amount at a bad time. I knew that we were near the end of the bear market and the economy is slowing down, but somehow I did not think of the risk involved in leveraging 100% of my portfolio at near the top of the market. The extra leverage cost me close to 15,000 dollars on top of the investments I have already have. All together, I’ve lost close to 50,000, which is close to all of my life savings.
I have confidence in the market and I am planning on investing more and using more leverage. The markets have gone down enough. This is a very good opportunity to invest.
On a separate note, Treasury Bill yields were actually at 0%.
Posted in Investing, Mutual Fund | No Comments »
October 20th, 2008
The stock market has been very volatile for the past few weeks. Markets have been down close to 40% year to date. People are worried and scared. Fear is in the air. Fundamentals are thrown out and people are all speculating on the short-term movements of the market.
Many have sold and others are afraid to look at their 401k or brokerage statements. But now is a great time to buy. I think Warren Buffet’s famous line applies now. “Be fearful when others are greedy and greedy when others are fearful”. This recent article by Buffet called “Buy American. I am is a great read.
Here is an excerpt:
“Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”
Buffet is honest. He knows he cannot predict the market. No one can. There are too many variables to account That’s why it’s usually not a good idea to give out stock advice. It’s a lose-lose situation. People like taking advice from others so that they can pin the blame on others if it does not work out. Or they buy based on articles they read. Admitting a mistake has been made is difficult. It’s hard work doing your own due diligence. Hours of reading and research is the idea of fun for many people.
I know I have made a mistake. I was leveraged too much and at the wrong time. It’s easy to say that I could have avoided it now, but I guess I was too greedy at the wrong time. I’ll survive this downturn, but it has affect my performance more than I would have liked. I will eventually recover, but at least I have learned something while my net worth is still low.
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October 3rd, 2008
It has been a very bad 3 months in the market. I’ve lost a lot of money in the past year and also learned a few lessons.
1. Don’t underestimate risk. I never thought the market would go down as much as it did. I averaged down too early and ran out of cash. I should have some cash available to take advantage of this current market opportunity, especially when I’m using leverage.
2. Use leverage sparingly. Using 100% leveraged looked liked a good idea a year ago, but now I’m see large losses that have wiped out my gains for the past few years.
3. Market timing is tough. I added most of my leveraged investments last October, near the top of the market. I have bad timing and never did try to time the market. I invested a large portion of my investments at the worst possible time.
4. Don’t be scared. I have a long time horizon. The market will recover. It always does. All we need is patience.
Posted in Personal Finance | No Comments »
August 20th, 2008
I got my CFA level 3 results today and passed. My heart was pumping pretty fast as I tried to log in at 6:30 am. The server was down for 30 minutes before I finally got my result. Those 400 plus hours of studying paid off. There was a big sense of relief and I checked my results several times to make sure I actually passed. I did a lot worse than I actually thought I would. CFA level 3 exam was more difficult than level 2 for me.
Now, I might plan on taking my GMATs to see what score I can get. I am thinking about going back to school to get my MBA, but who knows. I need to think things through some more.
By Loi Tran
Posted in Misc | 4 Comments »
