Beat Market Volatility by Being Boring

by Guest Contributor · 3 comments

riding the bear

This is part one of a guest post series from Monevator, a personal blog that provides money tips and motivation for private investors. You can find:

Stock market volatility scares many people off equities – especially in a bear market like this one.

Yet the vast majority of financial advisors agree that investing long term in the stock market is the only way an average person can secure enough capital to pay for a comfortable retirement.

To stick with equities through bad times as well as good:

  1. You need to believe in the long-term case for investing in equities.
  2. You need the right mindset to be put your commitment to investing in equities into practice.

Too many people discover that their intellectual belief in equities defers to their churning stomachs when they see their net worth rise and fall by thousands of dollars in a single day due to market movements.  As a result, they sell their stocks at the worst possible time when the market is down. Then, when the market has recovered, they regain their faith and buy at the peak. This pattern, like we know, will hugely cap your returns over the long-term.

To avoid it, I’d like to suggest three slightly counter-intuitive techniques to help you ride out, or ignore, volatility in your portfolio.

I’ll look at two strategies in follow up posts in this series. Today, I’d like to send you to sleep…

Strategy 1. Pick a boring online trading broker

Whether you invest through ETFs that track the markets or you buy specific shares in small growth companies, you don’t want your trading account to influence your decision making.

It’s all down to investor psychology. These brokers can damage your wealth by:

  • Flashing prices changes
  • Using color aggressively to show your gains or losses
  • Emailing information to you about your stocks performances

These are all dangerous features because they can encourage you to trade shares more frequently than you otherwise would. And several studies have shown that the more frequently you trade, the worse your returns.

To pick one report from the mid-1990s, Terrance Odean of the University of California, Berkeley, concluded that:

The poor performance of those households that trade frequently is generally consistent with the implications of recent theoretical models of investor overconfidence. Our central message is that trading is hazardous to your wealth.

It’s worth remembering that execution brokers make their money when you trade, not when you hold. It may be in their interests to design a platform that encourages you to buy and sell more shares, even if it’s not in your own interests.

So try to avoid brokers with too many bells-and-whistles.

My ideal trading account would look like a spreadsheet from the mid-1980s.  I haven’t found one as plain as that one yet, but we can all dream.

Editor’s Note: I totally agree.  Boring is good in investing.  What do you think?  Are you a flashy trader?

Everbank Review w. 90+ User Opinions

by David@MoneyNing.com · 109 comments

Everbank is another short term saving account option. Unlike others I’ve discussed before, this is a money market account instead of a high yield savings account but for most intends and purposes, it makes no difference. Is EverBank worth the trouble of opening an account? In particular, is the Everbank Yield Pledge Money Market Account up to par? Let’s find out in this review.

Click here to open an account with Everbank

A Little About EverBank

everbankWhile I was searching for news on this bank, I was happy to see that unlike many of its peers, EverBank pretty much avoided the whole mortgage mess. In fact, the third quarter of 2008 for the bank (when many other banks were in the middle of scrambling to keep afloat) meant record year-to-date earnings, record deposits, and record capital. It’s nice to know that the online bank is firing on all cylinders because while most of these types of accounts are FDIC insured, I really don’t want the emotional stress of having any companies I deal with go bankrupt.

What’s a Everbank Yield Pledge Money Market Account?

EverBank’s Yield Pledge Money Market Account is a money market account offering, and there is a minimum balance requirement of $1,500 when opening an account. Traditional money market also limits withdraws per month, but since the limit is six for EverBank, it is a non-issue as online savings accounts are also limited to six per federal regulation. In addition, features include:

  • FDIC Insurance
  • High Yield
  • The Ability to Write Checks (3 a month) – A nice feature that the competition doesn’t have

EverBank Awards

EverBank received numerous awards through the years for its online innovation and product offerings like:

  • BauerFinancial Star Rating “4-Stars” (2008)
  • VERIBANC “Green/*** Rating” (2008)
  • Money Magazine “Best of the Breed” (2007)

While I’m not familiar with all these different awards, it’s nice to see whenever a company wins anything. Furthermore, Money Magazine is certainly a trusted name so winning the best of breed award certainly inspires confidence.

Is EverBank Right For Me

The introductory rate of 3.00% is unbeatable in this market, and 2.00% thereafter is still very high.  In fact, EverBank pledges to keep the yield of your account in the top 5% of competitive accounts as tracked by Bankrate.com.

Also, while the bank only limits you to three checks per month, I find that it is plenty in this day and age where I seldom write checks.  For those that have at least $1,500 and want a safe place to keep your funds that offer one of (if not the) highest yield available, EverBank is definitely a bank you should seriously consider for your funds. I certainly would.

Note: They also have a checking account and certificates of deposits which are great.  If I were you, I would go check them out.

Resources:

Everbank is just one of the online banks we reviewed on MoneyNing.com. Click here for the list of high yield savings accounts we recommend.

Avoiding Confrontations Will Cost You

by David@MoneyNing.com · 7 comments

Many of us try to avoid confrontations like a plague. Especially in the Chinese culture, we were taught not to challenge our teachers. We were told not to question authority and we learned never to question our boss.

Yesterday, I witnessed a reckless kid opening his SUV’s door and subsequently hitting my car’s side view mirror. Instead of doing the right thing and confronting the whole family about it, I walked away. I walked away thinking “This happens all the time and I wouldn’t see anything normally anyway. It’s fine. Let it go.”

I convinced myself that not facing the situation is correct. Well, I paid for it.

When I came back out, I noticed that the kid didn’t even snap the mirror back to the original position. Worst of all, there was a pretty big scratch on the back side. It’s amazing how the full car of people never said anything to me when they hit my car. It’s even more amazing that I thought it was okay to avoid confrontations.

I chose to walk away and I will live with the consequences. Don’t be like me because confrontations are apart of life. If you are right:

  • Alert your boss of your views
  • Tell the teacher that perhaps there’s another point to consider
  • Explain to your parents why you did what you did.

Show respect but there’s no need to back down. Present your points or else it will be you that pays the price.

I did.

Frugal Shopping Secrets Discovered from Buying a Chair

by David@MoneyNing.com · 10 comments

shopping chair
Last week, a frugal shopping event for an office chair satisfied me as a learner, frugalist as well as a consumer. What am I talking about? Let me explain.

I’ve been discussing with my wife about a new chair for a while. Mine is old and ripped but more importantly, I was getting back pains from all the time that I was playing charting writing working hard at my computer.

First, we went to an office furniture store and sat on office chairs that costs over $1,000 dollars. “Yikes.” I thought. Maybe next time. After putting it off for a while, my wife takes me to Office Depot and to my surprise, they got amazingly comfortable chairs. Best of all, they were $150 a piece.

At the end, I came out a happy customer, save a boatload of money and learned a few things about shopping as well. So without further ado, let me share with you what the experience taught me.

  1. Have an Open Mind – When I was looking for a desk chair, I had completely crossed off places like Office Depot and Staples. I got my current chair at those stores, and it sucked. Luckily, my wise wife dragged me there anyway and we saw chairs with comparable quality for 20% of the price of offerings from office furniture stores.
  2. Online Doesn’t Always Mean Bargains – I’m so used to shopping on the net that I almost immediately believed online stores will yield a better price. In actual fact, the store was selling it at $149. The online website? $199. A quick search came up with a $30 off coupon, but I got a $15 off version in the mail for my brick and mortar purchase.
  3. Price Isn’t Everything – Actually, there are certain products that just makes more sense in an offline environment. Being able to try the chairs is much more important than the raw price. Other items like shoes and clothing would also fit in this category.
  4. Resist the Temptation of Extended Warranty – I thought only electronics had these but the salesperson was trying to sell me extended warranty on the office chair. It was only $15 but I can’t see how it made sense. Please, for the 100th time you’ve heard it this week, do not buy extended warranty, especially for something like an office chair.
  5. Details Could Cost You – While black is my preferred choice, I ended up with an dark brown chair. It turns out that the brown version had superior leather and was much more comfortable. Why did the manufacturer do this when all color schemes were the same price is beyond me but I will take whatever advantage I could find.

    Note: Actually, the leather on the chair that I got is comparable to ones that are sold for $500 – $1,000 elsewhere.  I should just buy a few and open up an office furniture store.

  6. Extreme Frugality May Not Make Sense – In certain cases, saving every last cent may not make sense. While my old chair was still working fine, I was starting to get back pains after hours upon hours of sitting in front of the computer typing away. For me, investing for a comfortable chair made perfect sense. Other items that fit in the same category? Computer monitor for your eyes, beds and pillows etc.

If saving money means using your health or well being as a trade off, just say NO.

The Impending Retirement Crisis

by Guest Contributor · 10 comments

We haven’t even gotten through this crisis yet, and we have another one on the way? Seriously?

That’s what John Bogle–the founder of Vanguard and the creator of the first index fund–would have us believe. And, distressingly enough, the case he makes is pretty convincing.

Last month, Bogle testified before the House of Representatives about the upcoming crisis of failed retirements. His testimony included a number of noteworthy statistics:

We’re not saving enough

The median IRA balance is just $55,000, and the median 401k balance is just $15,000. Sure, if you’re in your twenties or thirties, having $70,000 saved up is excellent. But given that the largest portion of the investing community is the baby boom generation (who are now retired or retiring soon), $70,000 is nowhere near enough.

In short, most people simply aren’t saving enough. In fact, they’re not even close.

An asset allocation nightmare

One of the best things about 401k plans is that we’re allowed some options in terms of how we want to invest our money. Unfortunately (and perhaps unsurprisingly), a significant portion of investors are making rather poor decisions:
Nearly 20% of investors in their twenties have literally zero exposure to equities (stocks) in their 401k. In other words, they’re invested entirely in bonds and money market funds. With no access to the long-term growth provided by equities, it’s practically impossible for an investor to accumulate the money necessary to retire.
At the other extreme, more than 30% of investors in their sixties have greater than 80% of their 401k invested in equities. Such a high equity exposure is dangerous for somebody so close to retirement. I can only imagine how these investors are feeling after the last year in the market.

Delayed gratification? No thanks.

When changing jobs, 60% of all 401k participants cash out at least a portion of their 401k and use it on something other than saving for retirement. Not only are these investors hampering their ability to achieve long-term growth, they’re subjecting themselves to an extra 10% tax that comes with early withdrawals from retirement plans.

Apparently we just can’t wait to spend our money.

What can we do?

You and I aren’t John Bogle. We don’t have a free ticket to speak to the U.S. House of Representatives anytime we want, so we’re unlikely to play a major role in any system-wide investment industry changes. That’s the bad news.

The good news is that we can certainly make efforts to ensure that we don’t become a part of this mess.

  1. Check your asset allocation. Make sure it’s in line with your age, your goals, and how much you’re going to be able to invest each year.
  2. Make sure you’re saving enough. In the past, finance experts tended to recommend investing 10% of your gross income. In recent decades, that number seems to have jumped to 15% as a result of longer average retirements and increased late-in-life medical bills.
  3. Get used to the idea of delayed gratification. Money in your 401k is not meant to be spent before you retire. No exceptions.

What about you? What retirement-savings pitfalls are you taking extra care to avoid? And what are you doing to avoid them?

About the author: Mike writes at The Oblivious Investor, where he reminds readers that long-term investing success has nothing to do with short-term fluctuations in the market. Subscribe to his blog for daily updates.

Lending Club Review – Peer to Peer Lending Site

by David@MoneyNing.com · 55 comments

Lending Club promises high returns for the average investor through peer to peer lending. With every other asset class doing so poorly during the last few years, this review takes a look at this investment option to see if it’s a better option for our money.

Lending Club Sets Fixed Interest Rates

Unlike other peer to peer lending companies, Lending Club automatically identifies each loan with a fixed interest rate that is tied to historic trends, current market conditions as well as the individual borrower’s credit history. This takes a huge variable out of the investor’s decision, an advantage that I welcome.

Lending Club’s Investing Mechanism, LendingMatch

Peer to peer lending isn’t new, but Lending Club is claiming that 93% of investors are getting a return between 6% – 18% (as of August 2012).  In order to get those returns though, you need to invest (or lend) through the system.

Lending Club provides two main ways to invest: picking each note (loan) one at a time or in bulk through its LendingMatch technology.

LendingMatch takes your investments, divides it up into $25 dollar chunks and diversify it across different grades to achieve the average rate of return that you specify. While this method doesn’t really take into account the purpose of each loan, it is a quick way to diversify across many different loans as well as take subjective decisions out of the investment equation.

Rate of Default

With peer to peer lending, the inevitable question of risk comes to mind. Lending Club tries to address this by only approving borrowers that have a FICO score of at least 660. In fact, Lending Club borrower’s average FICO score is well above 700 (at time of review, it’s 713 as taken on their website).

In my personal opinion, the best way to mitigate the risk of default is through diversification across as many loans as possible.  This is because the effect of each default on your individual portfolio is reduced with every additional note that you carry. This bodes well for Lending Club, because the LendingMatch tool allows us to diversify our investments quickly and objectively.

Reinvesting

lending club reinvesting

In order to maximum our returns, Lending Club offers an automated way to reinvest your monthly payments based on the criteria that you set. A minor detail that I like about this is that I can set it to alert me through email either daily, weekly or monthly for true hands off investing.

Is Lending Club Right For You?

The Lending Club website makes many comparisons of bank savings and CDs with its lending program, but I believe that the lending club model is more directly competing with money we have for investing in securities like stocks and bonds. Savings and CDs, while having a low return, is virtually risk free while any other investment carry the risk of capital.

However, peer to peer lending with Lending Club is a very strong contender for our money compared with other investments because of the potential high returns and passive nature (if you let it automatically invest your funds). If you are enable to diversify your investment across many different loans, the potential return seem to be worth the risk.

Click Here to Get A Free Account

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