What credit crunch?

All the press these days talks about how the people who lied to themselves about how much house they could afford and the mortgage lenders who signed people up for loans they had no business being approved for is going to cause credit to dry up and send our economy into recession and cause the markets to crash in a fiery blaze of glory.

If credit is tightening so much, how come home loans are still at such low rates? Around the city of Boston, I could get a loan for $400,000 at 6.25%.

A friend of mine used this company to refinance and then I did the same a few years back. They are legit and their fees are reasonable.

If credit is tightening, how come I can still find credit cards offering 0% on new purchases and or balance transfers for up to and sometimes over a year?

Another friend of mine found this one, which offers 0% balance transfers with no transfer fee.

I said a little while back that I love this market. Truth is, I wish it would go down more so I could invest even cheaper. The trouble is, too many people see it like I do and are buying which is keeping things from getting downright ugly (or pretty depending on what you like).

The poll on this site had over 50% saying the sub-prime hype was overated with less than 10% thinking we are in real trouble.

Top Executives are buying stock in their own companies at a pace not seen since 2003.

I have been investing during the recent volatility and will continue to do so as fast as I can save money to invest (not fast enough!) but I am not making a major move nor would I. Morningstar shows that stocks are undervalued:


But look back at 2001 and 2002 and you can see that things can get a whole lot worse. that said, I feel better about investing now than I did earlier this year!

Etrade fixed the problem again...

...but they still have not contacted me to let me know.

Basically, the minimum investment amounts for some mutual funds was not correct in their online interface.

More importantly, no one has explained to me what happened and why it happened. So I have no way of knowing if it is likely to happen again.

Perhaps they are too busy ending the program that reimbursed 12b-1 mutual fund fees.

Or maybe they are distracted by all the talk with Ameritrade about the possible "same-sector" marriage they are contemplating.

Regardless, I reported the issue in mid July and then again on August 7th. It was fixed around August 10th. But I have not heard it was or if I should expect that it will remain fixed. So I'll have to hope that next time I want to add to one of the funds I invested in, I will be able to...

Weekly Update: WylieMoney Ties For First

Wyliemoney takes the lead by $2. But we'll call it a tie with the 3 Fund Index.


The corresponding Mostly Index Portfolio is in the red since May, but the WylieMoney mostly managed portfolio has turned a very small profit as has the 3 Index Fund portfolio. All told, the spread is pretty small.

How Many Mutual Funds is Too Many?

Some folks over on Morningstar's discussion board tossed around the question:

"How Many Mutual Funds is Too Many?"

My answer is, "It depends."

“On what?” you might ask.

Well, a number of things.

Let's explore!

I have almost 60 funds. I can safely say, that is a ridiculous amount, but I don't mind. That brings me to point one.

1) If you don't mind how many you have, you don't have too many.

If you can't keep track of the funds, or feel overwhelmed when trying to manage your investments, you have too many. My tolerance for spending time keeping track of my funds is very likely higher than average, as evidenced by the fact that I write a blog about it. I do not recommend, doing what I do, to anyone else.

I find tools like Yodlee and Morningstar's free portfolio tool as well as the interface in each of the accounts I hold the funds in, makes it pretty manageable, for me. This brings me to my next point.

2) You need enough to achieve your goals for the money in each investment account.

My wife and I both work and we both have employer sponsored retirement plans and IRAs and we share a brokerage account. Our situation is not a-typical and that adds up to 5 accounts. Not all five are with the same brokerage and that means that funds available in some accounts are not available in others. Since the retirement accounts will remain invested until we retire and we are many years away from that, the funds best suited for very long term growth are not always the same as what we choose in our non-retirement account as we hope to use funds in that account before retirement (which is the reason we have it). Furthermore, we likely won’t tap the Roth IRAs at the same time as the 403(b)s depending on our tax situation at the time. Given all that, I choose to balance (Stock vs bond, Large Cap vs Small Cap, Domestic vs International, etc.) each of the five accounts as independent accounts. That way, as we access them at different times, I won’t have to re-balance one account because I drew down on another.

3) You need enough to attain diversity in fund companies.

I like to pick funds from different fund companies (Janus, Bridgeway, Artisan, T. Rowe Price, etc.) on top of picking funds that cover different categories (Large Cap Growth, Intermediate Term Bonds, Real Estate, Small Cap Foreign, etc.) A fund company might cover different categories, but they have one corporate culture and a pool of analysts who all work in the same environment, so there can be serious overlap in the companies that their analysts are recommending to their fund managers. Also, no one fund company has all the best managers in every category. When I picked the 20 funds for my hypothetical portfolio through Etrade, I ended up with a wide mix of fund companies without really trying.

4) You may end up with more than you need, depending on your employment history.

My employer used to allow me to use Janus for my 403(b) contributions so I had a portfolio of Janus funds. Then we switched to a company that picks top funds in each category regardless of fund company. I gladly signed up with the new, more diverse program, but I left my investments at Janus instead of rolling them over. Janus is strongly growth oriented overall and I liked having an investment at a pretty young age in a more aggressive portfolio than the new plan offers. This means I have 2 403(b)s with 8 funds at Janus and 12 in the other account. Our IRAs are held at Etrade and I cannot buy most of the funds available to me through my non-Janus 403(b) even if I wanted too. I do not want to add more in Janus funds for retirement so I am left looking for alternatives. Typically each year as I contribute to my IRA, I look for categories that I am not invested in that have been lagging, and then pick a good fund or ETF with a low minimum purchase amount (for funds) so I can diversify as much as possible. Having done this for several years and finding options that let you invest relatively small amounts, I have 14 funds in my IRA.

5) You need enough to diversify across sectors and/or categories.

You’ve heard the advice: “Invest in stocks and bonds.” And certainly you can buy a couple of index funds that broadly cover the stock and bond markets. Throw in a broad international index fund for good measure and you are pretty darn diversified with very little effort or upkeep. That approach may well be ‘enough’ to diversify across sectors. But if you want to invest systemically and try and follow a strategy of investing in categories that are down, presumably in the short term, you will need to pinpoint more specific categories or sectors. Real estate, small cap value, financial services, and precious metals have all struggled lately. To invest in these specifically you need to own funds that have these categories as their focus. How detailed you want to get will depend on your tolerance, your interest and your goals. The more detailed you get the more funds you probably need. For example, you probably would not want a portfolio of just the four sectors above unless you like to gamble.

6) You may not need any, if you have enough time and money to diversify in individual companies.

Mutual funds aren't for everyone. If I had enough money to invest in enough individual companies to feel adequately diverse (I kinda obsess over diversity so it would take a lot) and I had the time and expertise to stay on top of each company's performance and prospects, I might forgo funds and choose another path. Afterall, why pay fund managers year after year to do what you can do yourself!

7) If your time horizon is short, one may be too many.

If your time horizon is short, mutual funds or ETFs are probably not the best place for your savings. Note that portfolios of 20 funds spread across 20 sectors, 20 ETFs invested likewise and even the simple three index fund approach all lost money since May... with the 20 ETF portfolio down over 4%! Of course if you choose a money market fund, that might do well...

In summary, don’t invest in more funds than you can manage, but don’t avoid investing in a fund that interests you, if investing in it would help you meet your goals.

Recap- things to consider when trying to decide how many mutual funds is enough:

1. If you don't mind how many you have, you don't have too many.
2. You need enough to achieve your goals for the money in each investment account.
3. You need enough to attain diversity in fund companies.
4. You may end up with more than you need, depending on your employment history.
5. You need enough to diversify across sectors and/or categories.
6. You may not need any, if you have enough time and money to invest in individual companies.
7. If your time horizon is short, one may be too many.

Weekly Portfolio Update: WylieMoney Loses Lead

Both the S&P 500 and the Three Fund Index portfolio pulled ahead of the WylieMoney 20 Mostly Managed.

Despite all the craziness of the past week, my benchmark for the S&P 500, SPY, ended the week exactly where it began. Since all the other portfolios lost ground, SPY pulled ahead by going nowhere!

SPY- S&P 500

Three Fund Index

WylieMoney 20 Mostly Managed

WylieMoney Mostly Managed One Fund per Month

Lazy 20 Mostly Index

ETF 20

Some weeks the weekly update will come on Saturday. Last night I was suffering over at Fenway Park...

Poll: Is now a good time to invest?

If you haven't voted yet, take you pick! The poll is on the menu on the right.

Ben Stein's view gave me a chuckle...

...the stock market is cheap on a price-earnings basis, profits are fabulous, Mrs. Clinton and Mr. Giuliani are far from being socialists and in the long run, both here and abroad, stocks are a lovely place to be. I have no idea what the S&P will be ten days from now, but I am confident it will be a lot higher ten years from now, and for most Americans, that's what we need to think about. The subprime and private equity and hedge fund dogs may bark, but the stock market caravan moves on.

Of course my poll does not include anything you would actually want to consider when investing. Things like:

• how long can you leave your investments alone?
• what is your risk tolerance?
• ummm, invest in what?
• etc

But that's ok, its only a poll on a blog!

I told you I loved this market!

At the end of my post yesterday, I said "I am loving this market these days." Today, on my lunch break, I invested a little more (real money, not hypothetical). By 4 pm everybody else jumped on the bandwagon and the market recovered from another huge loss to close basically flat. I had hoped it would stay down, but oh well.

Now, I'm no expert, but what I see is continued strong profits, largely due to increased productivity, which I attribute to companies finally making good use of faster computers and decent software. The economy is chugging along, overseas markets are doing great, emerging markets still have tons of room to grow as more jobs land there, building new generations of workers with money to spend, etc, etc.

A certain number of our neighbors lied to themselves and their mortgage brokers about how much house they could afford. Many of them signed up for adjustable rate mortgages that they were told would go up in a few years. A few years passed, and their loans went up- probably on the low end of what they were told, given that interest rates are still very low,- and now they can't pay. To them I say, deal with it.

I'm sure there was some fraud, and I understand much of the concern around how mortgages are sold to Wall Street so fast that brokers have no incentive to confirm that buyers aren't lying. This is not cool and something should be done.

I'm also sure there are some who stretched just a little and bad things happened- layoffs, sickness, life, etc. and now they can't afford their homes. To them I say, I'm sorry. I hope they can turn their finances around and get back on their feet.

The question investors have to ask is- how much of an impact will all this have on global markets?

My guess is, not as much as the recent sell-off would suggest, and that is why I invested. Also, my sense is that valuations on stocks are reasonable, overall. Morningstar calculates that the markets are undervalued:

but you only have to look back to the early 2000's to see that things can get a whole lot worse...


But I think that the steep decline after 2000 was a reaction to ridiculous valuations and I do not believe that valuations are ridiculous or where earlier this year, so I see the recent quick sell-off as a good opportunity to invest. If only I had some extra cash!

Off course, I could be wrong.

New Orleans Satellite Photo!

I wrote a note on Zillow's blog and got some feedback about the New Orleans pictures on their site. Here is my earlier post about what I was looking for.

They noted the company that provides their imagery so I went to their site and dug around a bit and found a more recent image:


Compare the image above with the older one I took from Google maps- all the houses on the big field in the middle are part of the Musicians' Village.


The houses we worked on are not visible on these images, but over time, they will show up.

So I will try and get a post up soon about why I am loving the market these days. The 2 second summary is that when the market goes down for reasons largely unrelated to the earnings of the vast majority of the individual companies that make up 'the markets' this screams -to me at least... buy!

So I did. And I bought into the fund I was unable to add to in small amounts through Etrade, because Etrade fixed my problem. Strangely enough, they have yet to let me know. I just stumbled across it, when I went to buy some funds.

Finally, a WylieMoney fan asked for specifics about 0% credit cards with no balance transfer fees. It just so happens, I need one myself so I will be doing some research on that as well.

More soon!

WylieMoney Weekly Portfolio Updates!

The WylieMoney 20 Mostly Managed Portfolio took the lead. All the hypothetical portfolios lost money since May 1st, but the funds I hand picked have held up the best.


It was interesting to note that the 20 ETF Portfolio held up better than the Vanguard 20 Mostly Index Portfolio for the week. The trend of the Index Funds not holding up as well during downturns has continued...

WylieMoney 20 Mostly Managed
Click for larger view

Lazy 20 Mostly Index
Click for larger view

JAGIX added to "WylieMoney Slowly"

As promised, I added JAGIX to the hypothetical portfolio I am tracking. I will add the next fund, a Small Cap Value fund, on the first significantly down day in September.

I will give the weekly update for all the portfolios tomorrow. Believe it or not, both Wyliemoney portfolios were down less than 2% and every other portfolio I track was down more than 2%. This portfolio is 1/4 bonds as of today, so it makes sense that it did not decline as much as some of the others, but the WylieMoney 20, Mostly Managed portfolio continues to hold up much better than the Lazy 20 Mostly Index portfolio.

I'm adding JAGIX to my hypothetical portfolio today

I'll write more later tonight, but today is the day I will add $2500 in JAGIX to the WylieMoney Slowly portfolio.

Keeping an eye on the Musicians' Village in New Orleans

Earlier this year I was fortunate enough to be part of a team from Berklee College of Music that traveled to New Orleans to volunteer with Habitat for Humanity to help build a Musicians' Village.

I wanted to track the progress of the Musicians' village and the surrounding area so I took some screen shots of the area we were working in from Google Maps and from Zillow.

These sites update their satellite images infrequently so the last shots they have do not even show the houses that were already built when we were there. When they update their images, I'll zoom in and report back.

It will be interesting to track Zillow in particular as this site tracks home value information. I am not sure how much info they will gather on the Ninth Ward but I hope they track data from this area and I hope the value there grows!

Click here for the Google Maps View of where we worked in New Orleans!

This row of houses...


...are on the block indicated below:


Click here for a view of a nearby house in zillow.com.

The houses we worked on at the end of our week...


...are here:


The large cleared area is fast filling up with homes. Note the house showing $0. Directly across the street in the image, there is only grass, but there are already dozens of homes there worth a lot more than $0!


Here is a view from the middle of the field, back in June.

Trying to get a response from Etrade... again.

Ever since Etrade became my brokerage, I have encountered problems with the allowable dollar amounts their interface permits.

Back in May, the minimum allowed amounts for subsequent investments through an AIP plan changed in Etrade's interface for two of the funds I own despite no changes at their respective Mutual Fund companies.

Then Etrade fixed the issue and I was pleased.

Then one day I logged in and it was broken again, for one of the funds.

So I called the local Branch in Boston many weeks ago and have heard nothing but crickets.

Today, I sent a request in through my account.

As always, I'll keep you posted. Below is the issue, as I reported it.

----
The mutual fund WFIVX has a minimum additional investment amount of $100. Your web site has the minimum set at $1000. You actually fixed this for me over a month ago but now it is broken again.

You can see right here where the fund company states that any additional contributions allow $100 minimum:

http://www.wilfunds.com/fees_minimums_dow_5000.html

You can see here where morningstar.com advertises that you offer this fund with an AIP allowing $100 contributions:

http://quicktake.morningstar.com/fundnet/Purchase.aspx?Country=USA&Symbol=WFIVX&fdtab=purchase

I have called the representative at the Boston Branch who coordinated this issue when you fixed it the first time over a month ago and have yet to hear back. I have tried to invest on two separate occasions but due to this bug, have been unable to execute my transactions.

You can read about this issue on my blog at http://wyliemoney.blogspot.com/

Please let me know if you have any questions.
----

What happened Friday?

Beats me! One guess would be that a lot of active traders did not want to go into the weekend holding long positions, assessing that the risk of more bad news- relating to credit liquidity, commodity prices, the value of the dollar, etc. could have cropped up over the weekend and sent the markets down even further today.

Well, Friday would have been the perfect day to add to the WylieMoney slowly portfolio, but I missed out on it. If I do not note that I want to invest in a mutual fund by 3:30 give or take, so I could actually place the order to buy through a brokerage, then I do not add it to my hypothetical portfolio. Since I work a day job, I am not always in a place I can see where the market is heading and take a break for a few minutes to note the decision.

I don't sweat the details though. If this style of investing is not easy and low maintenance, then it is not serving its purpose.

Today looks like an up day, so I will continue to wait to add JAGIX to WylieMoney Slowly.

I'm actually on the ferry back from Martha's Vineyard right now- had a wonderful long weekend with some friends!

In the coming weeks I have a lot of research to do as some folks over at the Morningstar.com discussion boards have been looking at my little experiment here and pointing out some issues, making recommendations and asking great questions.

I'm also thinking about putting the portfolio updates on a regular schedule. Let me know if you have any suggestions. I'll probably make it a Friday feature.

More soon!

Index portfolios recovering quicker but...

...they have a way to go yet. WylieMoney is still in the lead.


When I put together a portfolio of 20 funds, one fund in each of 20 different fund categories, and then picked the 20 Vanguard Index funds that covered the same 20 categories and started tracking their performance, I assumed the hand picked funds would not keep up. I also assumed that the index funds would be better from a capital gain/ tax perspective. So both assumptions, have turned out wrong.

I limited myself so the funds I picked are not the best funds out there. My criteria:
* Open to new investors
* Available through one brokerage (I used Etrade)
* Had to be a NTF- No Transaction Fee fund. So no fees, no loads.
* An initial investment minimum of $2500 or less
* A subsequent AIP investment minimum no greater then $100

Some of my best choices are rated 2-3 stars (ACFFX for example). But during the recent assault...

...my WylieMoney portfolio wupped up on the "Lazy Vanguard Index Portfolio" like nobody's business.

I picked an equally weighted portfolio of three Vanguard total market funds covering Domestic and International Stocks and bonds in equal weight by category of the 20 fund portfolios and it has fared better than the 20 Vanguard funds, but WylieMoney is still in the lead. At least it is back above $50,000!


Over the last two days, the WylieMoney portfolio has not risen as much as the Vanguard portfolios, but it remains ahead. When the markets tanked, the index portfolios really suffered.

More surprising to me was the realization that Morningstar shows that the WylieMoney portfolio has 11.96% Potential Capital gains exposure and a 35.85% Average Turnover Ratio compared to the Lazy 20 which has a higher Potential Capital Gains exposure of 15.13% and a Turnover Ratio of 36.20%. And the 3 index fund portfolio has a Potential Capital Gains Exposure of 20.83% with a lower 12.35% Turnover Ratio. Since I was thinking of this as a non-retirement account- that makes a difference.

I admit I do not understand in great detail all the complexities of how to accurately assess tax impacts of all the individual funds- international funds, REITs, etc all of which are in these portfolios. But if portfolios turn over a lot- meaning the fund managers are selling stocks and buying different stocks more often, and the capital gains exposure is high, meaning tax is owed on profits, then when the taxman comes, you take a larger hit.

And everything I have read in the press has led me to believe that index investing is MUCH more tax efficient than picking a bunch of low (relatively low!) barrier to entry managed funds.

So all in all, a good week. Plus, I saw the Police at Fenway Park last Sunday!


The details (click for a larger view):