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Five Myths and Misconceptions about Indexing
Vanguard lists five myths and misconceptions about indexing as follows:
- Myth #1: Indexing only works in "efficient" markets
- Myth #2: Who wants to be "average"?
- Myth #3: You get what you pay for—Higher cost + Higher ratings = Higher returns
- Myth #4: Market-cap weighting overweights the overvalued
- Myth #5: Index funds underperform in bear markets
The myths I want to highlight are #2 and #3.
I've had many people say to me that they don't want to "settle" for average returns which are what they believe index investing provides. However, this is not the case. Indexing provides average gross (before expenses) returns, but once costs are deducted, indexing provides superior net returns (which are what you actually take to the bank). Here's how Vanguard puts it:
It Takes $130k to Live the American Dream
We've seen how many Americans find it difficult to make it on much more than this, so I was surprised when USA Today said it takes $130,000 to live the American dream.
How did they arrive at this number? Here's the basic premise:
Podcasts that Provide Great Value
On my post titled Almost Infinite Investment Return, I had one reader ask me what podcasts I listened to (thinking that something we get for free could certainly have an infinite return). I responded there, but also thought it would be fun to post these for all to see and we could each share the podcasts we like. Here are my top podcasts:
Average and Median Net Worths
Here's an interesting article from CNN Money. It has a bit of "down with the rich" tone that I dislike (they say the U.S. has the "top rank in one net worth measure -- wealth inequality") but it lists average and median net worths for Americans, two numbers I don't recall having seen together previously.
The facts:
- Average American Net Worth: $301,000
- Median American Net Worth: $44,900
As they point out, a few very wealthy individuals bring up the average and that's why there's a big difference in the two numbers.
A few other interesting facts:
Real Estate "Profits" and How I Stack Up
Here's an article from CNN Money that hits a few buttons for me.
Why People Have Money Problems
I recently received a GREAT email from an FMF reader that went as follows:
For once a straight shooting article from the mainstream financial press. It basically says people have money problems because:
- They spend too much on housing
- They spend too much on cars
- They spend too much on college
There are other factors, of course, but I agree these are the big ones. The other two that I'd add that nobody wants to touch are:
When It's Wise to Delay Taking Social Security
We've discussed back and forth through the years about whether or not it's wise to delay Social Security payments (or, said another way, not take them early). Ultimately, it most depends on how long you'll live -- a question that no one knows the answer to. Ugh.
But the book The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions offers us a short list of when it's wise to delay payments. Their thoughts (based on an economic study) find that gains from delaying are greatest:
Six Rookie Landlord Mistakes
Money magazine lists six rookie landlord mistakes as follows:
No. 1: Underestimating costs
No. 2: Breaking the law
No. 3: Skimping on vetting prospective tenants
No. 4: Ignoring renters insurance policies
No. 5: Failing to check out the property regularly
No. 6: Going DIY at tax time
My take on these:
How Much Do You Need to be Rich?
This article from the NY Times is interesting for a few reasons:
1. It equates being "rich" with your annual income (at least in part), a frequent mistake by the mainstream media.
2. It verifies something we've addressed frequently here: the more you have, the more you think it takes to be rich.
3. It shows that even those who likely are rich (higher net worths), don't think they are.
It lists what people at various incomes think is needed (in net worth) to become rich as follows:
What Outdoor Feature Would You Most Like for Your Home?
Money magazine asked its readers what outdoor feature they'd most like for their homes. Their responses:
- Pool -- 30%
- Deck -- 28%
- Screened-in porch -- 26%
- Kitchen -- 16%
It's funny to see this question since we're now debating this ourselves (given we have a new home). What do we want most? Not sure yet, but here are some thoughts:
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