Thursday, October 16, 2008

How to Purchase an Index fund with Scottrade

When you purchase an Index Fund it will be under the "Mutual Fund" section.
$3000 is the minimum initial investment.

Reinvesting the cash back into the fund will help it grow faster.

This page is to helping you to remember that this is a long-term investment.
The cost of $17 is higher than the usual $7 because it is an Index fund instead of individual Stock.
I believe if you have a Vanguard account, they don't charge you the $17 cost.

Thursday, September 18, 2008

Index Funds

Index Funds

"Indeed, I have terrible news about brokers and money managers generally - news which I expect you've suspected, but couldn't quite believe, all along. There are no brokers who can beat the market consistently and by enough of a margin to more than make up for their brokerage fees. Or, if there are a few, they are not going to work for peanuts - and any account under $500,000 is peanuts. By and large you should manage your own money. No one is going to care about it as much as you."

"This is a very simple concept but profound: just by investing all the money you have earmarked for the stock market in the Vanguard Index Trust, you will generally do better than most bank trust departments, mutual fund managers, and private investors--with far less effort!"
Andrew Tobias "The Only Investment Guide You'll Ever Need."

Example Portfolios with multiple Index funds

VTSMX - (Vanguard Total Stock Market Index Fund)

First, hold a portfolio that's diversified across market caps and industries. One way to do this is to anchor your portfolio in a broad market index fund such as Vanguard Total Stock Market (VTSMX) -- a low-cost option that holds more than 3,700 names and includes heavy exposure to stalwarts such as Microsoft, Intel (Nasdaq: INTC), and Google (Nasdaq: GOOG). Thus, when your micro caps inevitably dip and dive, the effect on your portfolio will be muted by the relative stability of your index.

Buffett on Index vs ETF

Other Vanguard Index funds

Monday, September 15, 2008

Saving & Investing

Here are the notes of a class I taught today.
More detail is found within the blog.

Saving & Investing

1) Emergency Savings – 3 to 9 months of monthly costs.
• HSBCDirect
• EmigrantDirect
• INGDirect
Avoid credit card debt and using retirement account.
Reduce stress with job loss, car accident, and natural disaster.

2) Retirement Account - matching.
• 401k, TSP, 403b, Roth IRA
"By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals." ~Warren Buffett

The miracle of Compounding Interest:

3) Education - the fun way!
iTunes - Podcasts
• Dave Ramsey - Basics
• Ric Edelman - Advanced
Expert Opinion – Great Articles

4) Take Action!
If you know you are going to have 7 years of plenty what decisions will you make before the 7 years of famine?

My blog:

Dave Ramsey classes taught to 60% of high school students in Utah, sponsored by Zions Bank.

Wednesday, June 25, 2008

Financial Experts

I find it very interesting to compare advise from financial advisers.

Dave Ramsey
If you have $300,000+ of debt listen to me to get motivated and make the required sacrifices to get out of debt by selling the second car and getting a second job. "Out of debt" includes your mortgage. Then buy a mutual fund but keep it simple or you won't do anything.

Ric Edelman
Once you are out of debt get diversified with all available asset classes, stocks, bonds, ETFs, Index Funds, International funds, real estate, natural resources and cash; but stay away from evil 3% annual fee Mutual Funds.

Suzy Orman
Get out of debt and diversify for women. And once you are as rich as me, buy Munibonds.

Robert Kiyosaki
Nothing works but real estate investing and silver. The US dollar will never be worth anything again because US is going broke due to Social Security and Medicare.

Jeremy Siegel
Macroeconomics tells us to keep investing for the long-haul and I've created my own ETFs called Wisdomtree to help you get there. (Economist for Wharton.) Economists always will give you a reason as to why their earlier predictions were so wrong.

Larry Kudlow
Always optimistic about America no matter what!

Buy! Sell! Buy! Sell!

At the end of all of this, I find I like listening to all of them because they do help somebody. When I try to help people most tend to be strapped with debt, then they slowly move to buying a house and getting a few mutual funds with their retirement account. Emotions and bad ideas from the media will drive them in and out of bad investments with even worst timing.

Most people will hopefully be realistic about their financial life, get out of debt, eventually pay off their house and stick with Warren Buffett's "Buy one or two low cost Index funds" idea and they will probably be fine. Unfortunately most won't make it this far.

Amazingly most of this list of financial experts admit to having made extremely large financial mistakes. Experience is what they have to share. Perhaps the best thing to happen to you will be an extremely bad choice early in life.


Saturday, May 17, 2008

Inve$tment Club - Final

1. Closing Costs

Here is an article that talks about all the closing costs.

As we learned first hand from one of our members it can cost as much as $12,000 of closing costs for a $280,000 home. Make sure to take the time to know the fees and know that everything can be negotiated.

FICO -Fair Isaac Corporation was developed in 1956 by two guys named Fair and Isaac. This is the mostly widely used credit scoring system but not the only one. Some creditors will use their own system.

Improving your FICO credit score will entitle you to a better interest rate on a home.
Just because you are entitled to the rate, doesn't mean they will give it to you, so show around when it comes to financing a home.

Congress passed a law to allow everyone to view their credit "report" for free once every year. If you want your FICO credit "score" at the same time it is usually around $10.

Here is the site for your FREE report.

The Three credit reporting agencies are Experian, TransUnion and Equifax.

3. Warren Buffett

I finished reading a compilation of some of Warren Buffett's annual reports and here are some quotes I feel pertain to our investment strategies.

"Another situation requiring wide diversification occurs when an investor who does not understand the economics of specific businesses nevertheless believes it in his interest to be a long-term owner of American industry. That investor should both own a large number of equities and space out his purchases. By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when "dumb" money acknowledges its limitations, it ceases to be dumb."

"If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes."

"The most common cause of low prices is pessimism--sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer." (Translation: When everybody thinks stocks are a bad idea, is when you can buy them cheap. Buy low, sell high.)

4. Scams and Schemes

A wise man once told me that half of investing is knowing what NOT to invest in.

If somebody "guarantees" you 20% a month or a year.
It's not a good investment, it's a scam.

One of the most convincing, and still used, large scale schemes is called a Ponzi scheme which is also very similar to a Pyramid scheme.

State of Utah, top 10 investment scams for 2008.

Monday, March 24, 2008

Buying a House?

Just bought a place!

A big Thank You to Ross for going over how he just purchased a foreclosure.
  • He figured out what he could afford and asked for referrals from people who had great experiences with a Realtor and great experience with obtaining a mortgage.
  • He visited over 40 foreclosures before deciding.
  • He purchased his home for six figures lower than comparable houses.


Everyone will have an opinion.
  • It's time to buy.
  • It's time to sell.
  • It's time to wait.
At some point everybody is right.
You need to figure out what is right for you.

Personally I think it is a time to wait.
Ross has proven it's a time to buy.

Everyone is at a different point in their life.
To play it safe you should:

  • Buy when you intend to stay in the home for at least 5 years.
  • Have a good credit score of above 700.
  • Have at least a 10% down payment.
  • Six months worth of your costs in cash.
  • Make sure you aren't stretching yourself too much.

Here is a Spreadsheet to help you figure out what you can afford.

Monday, February 25, 2008


This month Ross was kind enough to put together information on government TSP (Thrift Savings Plan) accounts.

He recommends diversifying your investments by putting your money into 3 Funds.
C Fund - Stocks of large and medium-sized U.S. companies.
S Fund - Stocks of small to medium-sized U.S. companies. (not included in the C Fund)
I Fund - International stocks of 21 developed countries.

Here is the comparison of the different plans:
Their costs (total expense ratio) is extremely cheap at below .05%

Historic Returns:

Feb 22-March 2 is National Save Week. (No I did not make that up.)

Calculator to give you a ball park of how much you have to save now to have a comfortable retirement.

Article giving some reasons why you should not take a loan with your 401k:
The 5 biggest 401k mistakes

Three reasons not to take a loan from your 401k: (Ric Edelman version)

1) The money you borrow isn't not borrowed.
It is removed from the plan so it can no longer grow inside the tax shelter.

2) You have to repay the loan, that means you have to pay taxes twice on the same money.

3) You think you have 5 years to repay the load, but if you lose your job you have to replay the loan within 90 days.
Otherwise you get hit with taxes and a 10% penalty.

If you can absolutely avoid it, do NOT borrow from your 401k.

Thursday, January 31, 2008

Want a $100,000?

It is extremely important for your financial future to understand fees.
If you are giving to your 401k, they are probably putting you in Mutual Funds.

Congress is trying to force 401k providers to disclose all of their fees because Wall Street is completely taking advantage of us.

Historically the Stock Market has averaged around 10% return over a long period of time.
The more fees you pay to buy the stock market the less money you will have when you retire.

In some situations all of your fees put together actually become higher than 10%.
Which means you aren't making any money.

Here is an example of American Mutual Fund (AMRMX) fees:
1) Total Expense Ratio - .55%
2) 12b-1 fee (Advertising) - .22%
3) Front Load (Sales charge) - 5.75%
4) Managers fee - .26%
5) End of year distribution - 1.29%
6) SAI fee (Statement of Additional Information) averages - 1.25%

Total if bought in 2007: 9.32%!!!
Total each year after: 2.28% minimum.

Note that using a financial planner could cost you a flat fee or 1% of your entire investment.
When you are ready to retire, the difference will be hundreds of thousands of dollars!

There are currently bills on Capitol Hill that are trying to force Mutual Funds to show all of their fees:

"[Education and Labor Committee Chairman Rep. George]Miller's bill, the "401(k) Fair Disclosure for Retirement Security Act", also would force companies to offer plan participants at least one low-priced index fund.

Sen. Herb Kohl, D-Wis., chairman of the Special Senate Committee on Aging, is expected to introduce a version of the Miller bill..."

While the House is expected to pass 401(k) fee disclosure legislation, the bill is not expected to make it through the Senate.

And the response of one of the Lobbiest:"...the proposed rules "would dramatically increase the administrative costs paid by plan participants while overwhelming them with information that is of little practical value as they make the decision to participate in the 401(k) plan and the decision of which investment option to select."

If we tell people how much it costs we will have to charge them more.
And they won't understand it anyway.

Image if you went into a store and bought some milk. At the cash register they say they can't tell you how much it costs because then they will have to charge you more and you won't understand it anyway. (No it doesn't make sense.)

Why does making something complicated make money for businesses?;_ylt=A9j8aqaG0KFHGLcA1J27YWsA

"By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals." ~Warren Buffett

We may never know all the fees associated with Mutual Funds because they don't have to tell us.
Mutual Funds hide their fees and the fact that most of them can't beat an Index Fund.

Friday, January 25, 2008


The main point of our discussion was the different between Index Fund Fees and Mutual Fund Fees.

I compared S&P 500 (SPY) vs American Funds (AMRMX)

In this picture you will notice that both funds have many of the same stocks.
Holding the same stock should give you the same returns.

One reason Index Funds do better long-term is their lack of fees.
The Index Fund (SPY) has a fee called "Total Expense Ratio" of .08%.

Mutual Fund AMRMX has many other fees:
1) Total Expense Ratio - .55%
2) 12b-1 fee (Advertising) - .22%
3) Front Load (Sales charge) - 5.75%
4) Managers fee - .26%
5) End of year distribution - 1.29%
6) SAI fee (Statement of Additional Information) averages - 1.25%

Total if bought in 2007: 9.32%!!!
Total each year after: 2.28% minimum

What is the difference between a few percentage points in fees?

Diversify means putting your eggs in multiple baskets instead of all your eggs in one basket.
Instead of buying one stock you are buying one index fund that has many stocks.

First you become diversified by buying an Index Fund that owns a lot of different stocks.
Then you become more diversified by buying multiple Index Funds.

Later in life you become even more diversify by buying Multiple Index Funds, Bonds and other things.

Ric Edelman's Guide to Portfolio Selection (GPS) gives an example of what a well diversified portfolio looks like for someone who has over 75,000 to invest.

It's good to read through the questions.
You do not have to put your personal information in when they ask for it.

For the rest of us, just start with a few well diversified Index Funds.
SPY - US Large Cap - Index Fund
EFA - International Large Cap - Index Fund
EEM - Emerging Markets - Index Fund

Here is some very detailed information about Index Funds:

In conclusion: a Warren Buffett quote to backup our thinking:
Index funds are appropriate for inexperienced investors. In response to a question about why Buffett recommends index funds to investors, he said that for "a know-nothing investor, a low-cost index fund will beat professionally managed money." He also said he had a standing offer to anyone who could name 10 hedge funds that will beat a low-cost index fund. No one has taken him up on his offer.