Financial Planning

The Dangers of Commission-Free ETF Trading

January 14, 2021 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on the dangers of commission-free ETF trading. Recently, custodians have been offering commission-free trading on ETFs, but many believe this can encourage misbehaving. Matt lays out the big picture in regards to the market and the opportunity. During this episode, he highlights the benefit and the behavioral risk of commission-free trading. The benefit is that those paying commissions will experience a leveling of the playing field. On the flip side, the behavioral risk is resisting the temptation to trade more frequently. Just because you can trade something doesn’t mean you should.

The adage, “There’s no free lunch” continues to ring true today. Custodians will make money somehow, and it is important for you to understand that. Investors should be grateful for the recent drop in commissions, but there is a behavioral risk that is attached to commission-free trading. You can learn more about these dangers and the need for having an investor behavioral coach by visiting our philosophy page.

Matt Hougan Bio

Matt Hougan is one of the world’s leading experts on crypto, ETFs, and financial technology. He is Global Head of Research for Bitwise Asset Management, creator of the world’s first cryptocurrency index fund. Hougan is also Chairman of Inside ETFs, the world’s largest ETF conference. He was previously CEO of ETF.com, where he helped build the world’s first ETF data and analytics system. Hougan is co-author of the CFA Institute’s Monograph on ETFs. He’s also a crypto columnist for Forbes, and a three-time member of the Barron’s ETF Roundtable. For more resources from Matt Hougan click here.

How To Invest In A World Of Negative Interest Rates

January 6, 2021 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Larry Siegal, the director of the CFA Institute Research foundation on how to invest in a world of negative interest rates. Most environments feel unprecedented, but until 2019 there have never been negative interest rates. What does this mean? Essentially, it means locking in a guaranteed loss over long periods. How does one invest when the riskless rate is negative? Larry suggests that investors could either take more risk or budget for lower returns. According to Jack Bogle, the better of those options is to budget for lower returns. This requires one to save more and spend less.

We’ll be interviewing Larry on upcoming Intelligent Money Minute podcast episodes, so be sure to subscribe if you haven’t already. Larry mentioned that the world’s population growth explosion looks to taper off this century, leading to more prosperous countries and individuals, which should allow us to solve some of the environmental enigmas that we currently face.

History doesn’t repeat, but it often rhymes. You can either take more risk and hope equities goes up, or you can budget for lower returns. The prudent investors will save more and spend less, and these are the principles we teach our clients. We’d be honored to have you consider becoming a client. To learn more, please visit Get Started.

Larry Siegel Bio

Laurence B. Siegel is the Gary P. Brinson director of research at the CFA Institute Research Foundation and an author, consultant, and speaker on investment management and economics. Before retiring from full-time work in 2009 he was director of research at the Ford Foundation and, before that, head of research at Ibbotson Associates (since acquired by Morningstar). He attended the University of Chicago (BA 1975, MBA 1977). His book, Fewer, Richer, Greener, has been published by Wiley and is available, along with his other work, at http://www.larrysiegel.org.

The Secret of Endowment Success

December 16, 2020 by Hans Blake, CFA, CPA

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Larry sheds light on the secrets of endowment success. First, he encourages investors to be long-term investors in behavior rather than claiming to be one. Another endowment principle to consider is avoiding performance chasing. Third, keep your investment costs low. Fourth, don’t do what everyone else is doing. Fifth, don’t fear boards and committees. Finally, liquidity is something to consider for your long-term investment strategy. Larry encapsulates his thoughts with a witty quote, “You are not so smart, and other people are not so stupid.”

We agree with Larry’s advice on Investment success. Two of our wealth management principles are patience and discipline. Patience is the decision not to do something wrong. The more often you change your portfolio–actually, there’s evidence that the more often you even look at your portfolio–the lower the return will be. We want to be patient and let investment themes and strategies play out. The second principle is Discipline. Discipline is the decision to keep doing the right things. Discipline says, “I don’t care what’s working now; I care about what’s always worked, and I’m going to persist in doing the things that have, most reliably, always worked.” To learn more about our wealth management principles, please visit our website.

Larry Siegel Bio

Lessons Learned From The ETF Flash Crash

December 2, 2020 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on lessons learned from the ETF flash crash. You’re right to realize that ETFs have different risks than mutual funds. Unlike mutual funds, ETFs trade like stocks so like all equities that day, ETFs traded down during the Flash Crash. There are ways to protect against those sharp downturns by avoiding sleeping limit orders which is true for stocks at ETFs. Once again, Matt Hougan reiterates that ETFs can have a lot of unique advantages compared to mutual funds, but it still requires sensible practices.

There will always be trade-offs in life, and the same thing is true when it comes to trading, risk, and your financial plans. At Intelligent Investing, we have the ability to show you your financial plan and let you choose some of the trade-offs to see how it impacts your plan. For example, what if you were to retire a few years early, what if you wanted to increase your spending in retirement, or perhaps you want to leave a larger bequest as a lasting legacy. We have the ability to show you how changing each of these factors will impact your financial plan’s success rate, and we’d be happy to have a coffee or call to discuss this in detail.

Matt Hougan Bio

Fewer, Richer, Greener with Larry Siegel

November 18, 2020 by Hans Blake, CFA, CPA

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Larry credits the inception of his new work to a book written in 2004 by Ben Wattenberg called “Fewer” detailing the end of the population explosion. As a result of Wattenberg’s book, Larry put together a more extensive thought on what will occur when this massive population does indeed decrease. This concept inspired the theme of his new book: Fewer, Richer, Greener. During this episode, Larry explains that population reduction isn’t necessarily a negative thing when coupled with increased wealth. He states that as areas become wealthier they will invest further in their current children rather than adding.

Larry’s book, “Fewer, Richer, Greener” reminds me of one of our wealth management principles, which is to have faith in our future. We regard optimism as the only realism. There will always be something to fear, but we think that progress continues to increase. We want to maintain a positive outlook on life, even when things appear dark or grim. When you are fearful or panicking, please don’t make a foolish mistake you will regret in the future. Let us be your financial accountability partner and emotional ballast through the storms. We are here to serve you.

Larry Siegel Bio

Reasons Mutual Funds May Make Sense in Your Portfolio

November 11, 2020 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on whether mutual funds make sense in your portfolio. Despite being the Chairman of Inside ETFs, Matt Hougan still believes mutual funds have great value in portfolios. For example, mutual funds can be great investments in the retirement space. His reasoning is due to the fact that tax efficiency isn’t as important during retirement and more privacy than ETFs. The inherent transparency of ETFs presents multiple trade-offs like less liquidity and the risk of daily disclosing of one’s portfolio. Some non-transparent ETFs exist, but they are relatively new.

At Intelligent Investing, we currently use mutual funds and ETFs in our portfolios. Since we are independent, we are able to build our own portfolios which drives out a lot of costs. One of our unique factors is to minimize fees, especially portfolio costs. To learn more about our firm and philosophies, visit here and consider scheduling a complimentary coffee or meeting.

Matt Hougan Bio

Elections Matter?

October 26, 2020 by Hans Blake, CFA, CPA

Reading Time: 3 minutes

2020 has been a year filled with uncertainty. From a global pandemic to heated political contention, this year has left the nation spinning about what will happen next. Amidst all this unrest, the most significant presidential election in modern American history is taking place in a week, Trump versus Biden. This year’s election dominates every network cycle and newspaper headline detailing the supposed predicated effects the results will have on the economy. Any financial investor too glued to their television may begin to question their investment strategies. This reality naturally begs the question, “How much do elections impact individual portfolios?” The truth is elections matter but not so much to your investments.

Elections Matter (But not so much to your investments)

Despite what the news cycles spout daily, A lengthy history of empirical research paints a different picture. Vanguard recently published a study regarding the stock market history concerning presidential elections. The first question posed was whether market returns change drastically during an election year. The graph below maps out market returns from the year 1860 to 2010. The average return difference between election years and nonelection years is a measly .8%.

Markets Ignore Election Years

The following question was how volatile the market gets in the months leading up to the election. Based on headlines and overall social reactions, one would assume the market becomes highly volatile as the election comes closer. In actuality, the results are quite the opposite. The graph below shows the S&P 500’s volatility 100 days before and after the election. Believe it or not, the volatility was 13.8% both 100 days before and after. Truth be told, markets tend to ignore elections.

At Intelligent Investing, we minimize financial stress to maximize your life. We attempt to be a buffer between headline news and your portfolio. It’s understandable to feel uneasy during a presidential election season especially in 2020. That’s why it’s important to have a financial advisor guide you through these seasons. We believe that by investing prudently through market cycles while managing risks, controlling our own emotions, while coaching you to control your emotions, we may provide a smoother path as we travel together on this journey called life. We can help you remove the emotions out of investing, and help you maintain the course towards your financial goals. Consider joining us and making us your financial accountability partner.

Need more convincing?

Read this perspective from Dimensional Fund Advisors to see how much impact a President has on stocks.

Disclosures:
Returns Graphic: Vanguard calculations, based on data from Global Financial Data as of December 31, 2019. Data represents the 60% GFD US-100 Index and 40% GFD US Bond Index, as calculated by historical data provider Global Financial Data. The GFD US-100 Index includes the top 25 companies from 1825 to 1850, the top 50 companies from 1850 to 1900, and the top 100 companies by capitalization from 1900 to the present. In January of each year, the largest companies in the United States are ranked by capitalization, and the largest companies are chosen to be part of the index for that year. The next year, a new list is created and it is chain-linked to the previous year’s index. The index is capitalization-weighted, and both price and return indices are calculated. The GFD US Bond Index uses the U.S. government bond closest to a 10-year maturity without exceeding 10 years from 1786 until 1941 and the Federal Reserve’s 10-year constant maturity yield beginning in 1941. Each month, changes in the price of the underlying bond are calculated to determine any capital gain or loss. The index assumes a laddered portfolio that pays interest on a monthly basis.
Volatility Graphic: Vanguard calculations of S&P 500 Index daily return volatility from January 1, 1964, through December 31, 2019, based on data from Thomson Reuters. Note: Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Notes:
Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. All investing is subject to risk, including possible loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss. Investments in bonds are subject to interest rate, credit, and inflation risk.

The Creation and Redemption Process of ETFs

October 21, 2020 by Hans Blake, CFA, CPA

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On this episode of Intelligent Money Minute, we interview Matt Hougan, Chairman of Inside ETFs on what ETFs are and how the ETF creation and redemption process works. ETFs have a unique creation and redemption process that differs from mutual funds. An ETF publishes a list of all the securities it wants to own at specified desired weights. A group of authorized participants will go into the market and buy all the desired stocks the ETF has listed at the desired weight. The beauty of this from an ETF perspective is that it essentially sits still with effective little effort and still receives the desired outcome. According to Matt, It’s an efficient batch process with potentially less risk.

Matt said you don’t need to know how wifi works, as long as it works. However, you may be the “engineering” type who likes to dig into how things work. At Intelligent Investing we work with engineers and other executives and professionals who take time to understand our philosophy and processes. We’d love to let you open up the hood so we can show you exactly how our Intelligent Investing engine runs and how we’ve integrated over 30 technologies into the firm. To learn more, go here to schedule a complimentary call or meeting. We are excited to be interviewing Matt Hougan, and we have several more episodes where we explore the ins and outs of ETFs, bitcoin, and blockchain, so be sure to subscribe to our podcasts to hear all the interviews.