Busy week this week. Anticipation of the Fed hiking interest rates, active mutual funds vs. index ETFs, and attractive commodities.
Financial Reads Star Wars Edition
This is quite an important week for financial markets, as the Federal Open Markets Committee (FOMC) started their meeting today in order to decide the United States’s monetary policy fate. The FOMC, led by my girl Janet Yellen, will announce tomorrow afternoon whether or not they will raise interest rates. Well… they won’t raise interest rates until September at the earliest; so the meeting tomorrow will be analyzed by geeks (like myself) to see if their wording or language suggests that they will hike rates in September or December. It is in my opinion that they will not raise rates until December, but hey who knows. Sith Lords do what they want….
We miss you Mr Bernanke
For the record, I think Bernanke did a gnarly job during his time at the Federal Reserve. I’m just pumped for Star Wars.
Moving on. I’ve looked at a couple family member’s 401k’s recently, and they have asked me what I think about actively managed mutual funds. I believe that actively managed funds among certain asset sectors have their benefits, like international stock or bond funds. Then I came across this article in the WallStreet Journal. I’m all for the 80’s mindset of stock-picking to beat the market. This article outlines how a lot of actively managed mutual funds have outperformed their index….. through May 2016. I’m sorry, but in the raging bull market stocks are in right now, it is not difficult to outperform benchmarks by 0.2% (on average). If I were in front of a Bloomberg Terminal, I could tell you the few stocks in each mutual fund that lead to this 0.2% over-performance. Unfortunately, I’m stuck with my 5 year-old laptop with a malfunctioning pointing stick. Who ever used that instead of the mouse-pad anyways?
If you read that article, you’ll notice that it briefly mentions fees. Only briefly because it’s no big deal? Right?
Wrong. Fees can kill your portfolio. What blows my mind is how “advisors” actively manage their clients’ actively managed mutual funds… and then charge them hefty fees for it. Just ask about fees people.
Another advantage to passively-managed ETFs over active mutual funds are that when they under-perform, the law of averages and historical performance says that they will rebound! If you invest in a stock, and the price declines by half: a smart investor buys even more of the stock. Have you ever heard of “Buy low. Sell high”?
So why is this an advantage for index-tracking ETFs? Because it doesn’t have some big-headed Wharton graduate actively managing the fund, to the point that you miss out on some of the rebound upside.
Now you’ve all heard my rants before about investing in water as a commodity, and then me bragging about my call a year and a half before California declares water insolvency (booo). But I’m really liking some other commodities right now, especially lumber. Read so’mo about it from WSJ.
I would also like to officially announce my candidacy for the 2016 Presidential Election. Although I do not reach the required age 35 candidacy restriction, I believe that if a businessman is to run for President, then I am a strong candidate. I’ve had almost 4 years of business classes, I would look less foolish than half of the people running, and also because I have real hair.
I’m sure there are other jokes that Trump that sorry attempt, I am waiting for more material to surface and for Mr. Trump to say more hilariously foolish things before making a more comprehensive attempt.
Only 184 days until Star Wars episode 7 drops. In case you didn’t already notice; I’m pretty excited for it.
Thanks for stopping by friends.
Note: I do not own any of the illustrations above.