diy money

William Bernstein speaks!

Indexfundfan points to an article drawn from a recent e-mail interview with William Bernstein.  Bernstein's  book, the Four Pillars of Investing, is what I use as my investing b*ble.  I will talk about it more later in this blog.

This is classic:

"I recommend a passive approach," he said the other day in an e-mail exchange. "That is, I do not believe that there's such a thing as skill in security selection, and I favour vehicles that transact as little as possible."

But the writer trumps up Bernstein's abilities a bit with this quote:

His "no-brainer" portfolio of indexed funds regularly beats the market by a wide margin. Why? "Because it's well-diversified, biased towards small and value stocks and passive."

The statement that Bernstein "beats the market" makes him sound like an active manager and is at odds with his own philosophy.  Bernstein's strategy is to rely strictly on index funds in order to earn the market return with the least extraneous costs.  The bias towards small, value is a result of splitting the market and recognizing the unique risk/return characteristics of each segment.

A more complex quote:

"I recommend very few adjustments in allocation - very small changes opposite very large changes in valuation. For example, if the market rises or falls by a factor of two over a short period, you might consider lowering or raising your equity allocation, by a few per cent."

Here, Bernstein is almost certainly talking about "dynamic asset allocation," a more a sophisticated tool that I don't think he'd recommend for beginning investors.

Read more in the book.

Closed My TD Ameritrade Account, Opened A Cheaper One With $5 Trades!

A few weeks ago I closed my TD Ameritrade account, transferring all its assets to a different one.  Why?  The new account gets $5 trades because it is an iZone account:  www.izone.com.

For all intents and purposes, the iZone account looks and feels just like the regular old Ameritrade account.  In fact, as far as I can see, it doesn't even mention iZone anywhere.  Same snappy Ameritrade interface, from positions to trading to rapid order entry.  But when I make a trade, it only charges me $5!  I also retain my Apex status in the new account.

Transferring assets between TD Ameritrade accounts is easy, using their Web-based internal transfer form.  Customer service is limited to phone and e-mail, but those were the only two venues I was using anyway!

This is part of my plan to reduce the number of accounts I have, while seeking out better deals.  I gave the iZone account a shot, and it turned out to give me the same exact Ameritrade experience I enjoy, while bringing cheaper trading commissions to the table.  So it was an easy switch.

You might be asking why I have a TD Ameritrade account at all.  Well, I use it to trade individual stocks.  The reason I do that will have to be saved for a later post.  For now, let me just say that I am keeping at least one Ameritrade account open because they simply have the best reputation for trading execution and low costs.  My experience with them has done nothing but corroborate that.  Their customer service is pretty good too.

New Year's Resolution: A Complete Financial Re-organization

I've set two big financial goals for myself as we go into the new year:

• Simplify my finances.  There are two parts to this:
  • Close old accounts.  I want to do this as we roll into the new year, so I can deal with the extra tax forms (1099's) this year, rather than next year, by which time I may well have forgotten about all the accounts I might have had.
  • Consolidate into a Wells Fargo PMA account.  The Wells Fargo PMA account will let me consolidate many of my accounts into a single low-cost provider:  IRA, brokerage, high-yield savings (using a money market fund).

• Maximize my returns by pursuing better deals.  One of the main reasons I want to close my old accounts is so I can open up new ones!  I can only keep track of so many things at once and closing those old accounts frees up some headroom to open new ones.  These new accounts are all for the sake of getting better deals:
  • Tax-exempt money market savings.  I currently hold cash in an E-Trade Complete Savings account, currently yielding 5.05%.  I've come to realize however that I'm much better off in a tax-exempt money market fund, given my tax situation.
  • Fidelity checking.  This will allow the floating balance in my checking account (about $1500) to actually work for me a little bit (3.5% yield, or higher if you move the money into a money market fund).  There are higher-interest checking accounts out there, but this one has a few perks, like highly automated money movement features (automatic self-funded overdraft), and a 1.5% cash back credit card...
  • Credit card rewards.  My main credit card is currently a 1% cash back Citi Dividend Platinum Select.  You can do a lot better than 1% these days.  Not only do I plan on moving to the Fidelity 1.5% cash back card, but I am currently researching a good 3% cash back card like the Chase Freedom card.

That's it!  I've been planning and researching these changes for a while now.  Setting them all down here, I realize what a huge change these will amount to:  a complete financial re-organization!

I plan on covering all of these steps in upcoming blog posts.  Check back for more!

Not Maxing Out My 401(k), Oops!

I took a look at my paycheck today and realized that I misunderstood how the company match works with the annual 401(k) contribution limit.  I'd assumed that my company's match counts against the annual limit and had adjusted my contributions downward as a result.  But it turns out that the company match doesn't count against the contribution limit at all!

That means I should again aim to contribute this year's annual limit of $15,500.  So I'll be making a significant adjustment to my contributions for the next two paychecks to make sure I max it out!