Laptop My Take on a Controversial Topic

Index Funds Are Considered a Good Choice by Many

Many people, including such investment luminaries as John Bogle and Warren Buffet, say that most retail investors would do best investing in low-cost index funds and holding them for a long time.

This advice hasn’t gone unheeded. According to CNBC, “Index funds held 41% of U.S. mutual fund and ETF assets as of March 2020, up from 3% in 1995 and 14% in 2005…”

I respect this opinion, and freely admit there’s ample research supporting it (as often mentioned by Ben Le Fort).

However, I personally never use index funds. Here are 3 reasons.

My Portfolio of Actively Managed Funds Has Beaten the S&P 500 for 18 Years and Counting

Almost all my portfolio is invested…

I completely agree with your points, and have actually made some fairly significant defensive moves in my portfolio following a rather remarkable 2020 (see https://medium.com/makingofamillionaire/my-portfolio-had-a-spectacular-2020-now-its-time-to-change-winning-strategies-3fe8ec055c21).

I especially agree with you (and Jason Clendenen) that it may take a good long while for the bubble to burst (though it may start happening tomorrow too). That's why while it's important to be more defensive than you'd normally be, that doesn't mean exiting the market altogether. Just trying to find assets that aren't as ridiculously overpriced.

Over time, growth and value investing move in and out of favor with each ascendant about half…

There’s a Bull Run, and then There’s Beyond a Bull Run

My first retirement investment was in the early 1990s, in a high-flying aggressive growth mutual fund that had averaged nearly 15%/year for years.

For a while, it made me look like a genius.

Then it tanked, and worse, turned out to have misbehaved toward retail investors like me.

That’s when I realized that having a few quarters or even a few years of outsized performance is often a matter of luck (if not outright fraud — recall Bernie Madoff’s Ponzi scheme).

Having learned that lesson the hard way, I started investing just in mutual funds run with great corporate governance…

Great piece, Ben. I completely agree with most of what you say, as usual.

Also as usual, I disagree with the implied message - that the only rational thing is to invest only in index funds (or ETFs).

Over the past 5 years, the S&P 500 returned an annualized 17.5% (see https://finance.yahoo.com/quote/%5ESP500TR/). That's remarkable compared to the really long-term result of about 10%.

However, in the same time, my portfolio of actively managed funds returned an annualized 20.8%, more than 3%/year higher return.

Sure, if you can't or won't learn how to pick good funds, investing in index funds is…

Rental Real Estate Investing Done Right

I’d always heard about people who start investing in rental real estate on the side, and over the years build that up to the point that it lets them stop working for others, and have much more flexibility and leisure in life.

Then, I met someone like that in real life.

A neighbor six houses down the street from us built up his portfolio each time he moved from one house to the next. He’d keep the old house and add it to his rental portfolio.

That gave me the idea of doing the same when we moved out of…

Data Analysis Can Teach Us Valuable Lessons

There are several reasons why I write on Medium.

The most important of those is making an impact, helping others learn from my mistakes and successes.

In 2020, I published 80 articles on Medium, just under 7 per month on average. Most showed mediocre performance, some did really well, and some did so poorly that I cringe. But they all taught me valuable lessons.

Why You Should Look at Your Medium Earnings (and Why I Look at Mine)

The best proxy Medium gives us to measure our impact, as of October 2019, is how much our articles earn.

That’s because even more than number of claps, reads, or even minutes read, earnings tell us…

How What You Know Can Hurt Your Finances

I love a great debate, and personal finance is a most fertile ground for those.

It’s why they call it personal finance. Because the right answer almost always starts with, “That depends…”

My most recent debate was with Jason Clendenen, about whether your home should be counted as an asset or a liability. In short, I hold that it’s an asset, while Mr. Clendenen cites Robert Kiyosaki and insists that it’s a liability.

Read on, and decide for yourself. It could save you hundreds of thousands of dollars.

Clendenen’s Position and Argument

Clendenen argues that you should “beware of mainstream financial advice,” arguing that…

It’s Smart to Have an Emergency Fund, but Can You Invest It?

You must have an emergency fund!

So say almost all financial professionals. And I agree, for most people.

But what if you really don’t need an emergency fund, at least not in the conventional sense?

Why Most People Need an Emergency Fund (Does this Include You?)

Unless you’re still fully dependent on your parents, you probably have at least some financial obligations.

It may be something as small as your share of the rent for that place you’re living in with several housemates. It may be a car loan payment. It may be paying full rent for your place. It may be paying your mortgage. …