Weekend reading

Good reads from around the Web.

Unlike most blogs, I don’t pay much attention to who linked to me in the past week when I choose what to put into Weekend Reading.

Instead the articles are mainly drawn from a stable of regulars, plus a few gems I come across on my travels.

And that’s good news for Rick Ferri, who I feature almost every week here, and who to the best of my knowledge has never linked once to Monevator.

Yes, it smarts a bit – not that he doesn’t link to my stuff, but that he hasn’t even patted the poor old Accumulator on the head.

Imagine! It’d be like David Beckham hollering “great pass” from the sidelines of your first born’s five-a-side football match!

Analysis paralysis analyzed

Mr Ferri writes such consistently excellent stuff that his position here is pretty secure. (Your need for quality reading is more important than my ego.)

Take his recent article on how some passive investors swap divining the future of individual companies for the equally elusive hunt for the perfect portfolio.

The result, he says, is “analysis paralysis”, where a would-be investor ends up sitting on his or her hands (or worse, spending their savings) when they should be getting on with investing and life.

Happily Ferri has a cure for analysis paralysis:

First, come up with a couple of portfolio choices that make sense, given your long-term goals.

Second, pick one.

It doesn’t matter which choice you pick because the probability of being right is the same for both. It’s not possible to know if a 70% U.S. stock and 30% in international stock portfolio will beat a 67% U.S. stock and 33% international stock portfolio. We do know the difference in returns will be negligible. So don’t become paralyzed over the decision.

What matters in successful portfolio management is deciding upon a sensible allocation based on your needs, filling those allocations with low-cost investments such as index funds and ETFs, and then staying the course through all market conditions.

I made a similar point the other week when I featured a post from the other titan of US passive investing, Larry Swedroe.

I wrote:

Be sceptical whenever you see anyone presenting ‘proof’ that you should put 2.33% in Spanish equities or 1.72% in the utility sector or anything like that.

This sort of fine tuning reveals that they’ve mined a database for specific and unrepeatable outcomes in the past. It tells you little about your future.

Instead, favour logic and simplicity over spurious accuracy.

Here’s another thing to consider. Besides the futility of seeking a ‘perfect’ asset allocation, you’re also wasting a lot of time and energy.

Yet passive investing is supposed to be simple and less stressful.

It’s a free side benefit that comes with doing better than most investors who try to chase outperformance, and it’s a shame to give it up to long, pointless nights with a calculator.

From the blogs

Making good use of the things that we find.

Passive investing

Active investing

Other articles

Product of the week: Nationwide’s FlexDirect current account will pay 5% on balances of up to £2,500 for a year. It’s a great deal, says The Telegraph.

Mainstream media money

Note: Some links are to Google search results – these enable you to click through to read the piece without you being a paid subscriber of the site.

Passive investing

  • Checking in on eight lazy portfolios – WSJ
  • What’s in my multi-asset ETF? – ETF Database
  • Time to say goodbye to the ‘lost decade’ for US stocks – Vanguard
  • ‘Formula X’ beats the S&P 500 – Roth/CBS

Active investing

Other stuff worth reading

  • In defence of working from home – Slate
  • What low interest rates mean for stocks – Swedroe/CBS
  • Beware if the inflation genie escapes [Search result]FT
  • The case of Brussels and banker’s bonuses [Search result]FT
  • Bank of Ireland triples tracker rate mortgages – The Guardian
  • How to protect your cash from the falling pound – Telegraph
  • Commuting has always been a P.I.T.A. [Old photos]TIME

Product of the week: Oh dear, I stayed with friends the other week and fell in love with their super high-end coffee machine. The only thing missing was an Italian exchange student/barista with a winning smile. Of course, after 20 minutes trying to justify the cost with a spreadsheet (I rarely buy High Street coffees, so no easy win there) I resigned myself to my £10 caffettiera. But if you’re one of Monevator’s surprisingly numerous super-wealthy readers, this is one indulgence I envy you and I don’t think you’ll regret!

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