Money & Investing - Banks.com

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As you might know, I am something of boring investor. Nothing too fancy for me. In fact, I am a huge fan of the index fund. So I was very interested to have the opportunity to review the book The Complete Guide to Investing in Index Funds by Craig Baird.

Index Funds truly is a complete guide. It starts out providing you with background into what an index fund is, and how they came to be. It also provides helpful information on what an index is, versus what the market is. If you are looking for a solid foundation and some good education, this book will start you out right. It even covers the different stock indexes in the U.S., as well as other stock indexes, and an overview of bond market indexes, indexes that track commodities and currencies, and mortgage-backed securities.

Baird also makes it a point to describe the advantages of mutual funds and index funds, and what you can gain by investing in them. He also compares index fund investing with stock picking, and compares index funds with more traditional mutual funds. After providing you with a solid understanding of index funds, how they work, and the available options, Index Funds moves on to the more practical aspects.

The next portions of the book are devoted to helping you set goals and plan your investment portfolio. Baird offers some insight into putting a portfolio of index funds together, as well helpful hints on asset allocation and managing your index fund investment portfolio. To finish up, the book includes profiles of a number of low-cost index fund providers, as well as case studies and a helpful bibliography.

Overall, this is a very good book for those who are interested in investing in index funds. It is a great resource for taking you through the stages of education, helping you understand how you can earn decent returns with a relatively low risk investment (nothing is risk-free), and what you can do take charge of your own investing future.

Today, I read something profound over at Bargaineering. I guess it’s not super profound, but it really made me think. And served as a good reminder of smart investment planning. Here is what a guest post, Neal Frankle, pointed out about tax-advantaged accounts:

In my experience, people often accumulate most of their wealth in tax-advantaged accounts - not tax-advantaged investments. This isn’t an accident. Within tax-advantaged accounts, most folks evaluate investments on their own merits so they invest smarter. It also doesn’t hurt that the tax penalty for invading these accounts acts as a barrier and keeps you from spending the money.

Tax-advantaged accounts are those with special tax policies that allow you to keep more of your money. Most retirement accounts — 401k, IRA, SIMPLE, 403b, etc. — are tax-advantaged. You either get to put money into them before you are taxed, lowering your taxable income, or they grow tax-free. In any case, you can keep more of your cash when you take advantage of these types of investment accounts.

If you want to maximize your tax advantages with your investment accounts, it is a good idea to max out your retirement accounts. Get both an IRA and a 401k. Also, when possible, get these accounts for your spouse. You can get some help in deciding which to fund first. But if you can, max out all of your tax advantaged retirement accounts before turning to individual tax advantaged investments and investments without tax advantages.

Even with tax advantaged investment accounts, there are other fees to pay. This means that you need to carefully consider your investments, and choose funds and other investments that come with low costs and commissions. Check any funds you add to your accounts for turn over (since fees can come when a stock is sold out of a fund), and double check other costs. Just because Uncle Sam is getting less of your money doesn’t mean that someone else isn’t trying to get some more of it.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Last month, there was a Group of Thirty meeting at Davos to try and figure out some way to change the way things are done in terms of various monetary regulations and taking care of a number of financial entities. Of course, most of the focus was on regulation of capital markets — since the deregulation of capital markets was one of factors (but not the only) that led us to where we are right now. However, there was also a little bit of talk over what to do about money market mutual funds, reports MarketWatch:

Tucked into three paragraphs amid an 82-page report was a suggestion that money-market funds should either let their net asset values float freely or convert to “special-purpose banks” — steps that fund-industry representatives say would effectively kill money-market funds in their current form.

At issue is the fact that there are banking services (such as check writing ability) that some money market mutual funds have. Some contend that money market funds should be subject to the same organization as banks. Unfortunately, organizing them like banks would effectively destroy any advantage money market mutual funds have over banks. Besides, points out Mercer Bullard in the MarketWatch article, money market mutual funds are in a much better place than banks:

“It’s an offense to money-market funds to call them any kind of banks,” said Mercer Bullard, assistant professor of law at University of Mississippi and founder of consumer group Fund Democracy.

 

“Banks have lost billions of dollars,” he added, “and money-market funds have proved them to be wasteful and inefficient. One IndyMac costs us more than all the money-market fund failures in the past and future combined.”

It does seem a little foolhardy to change up these money market mutual funds for the sake of regulating them, when things seem to be going well. We’re far enough into the global financial crisis to see that these mutual funds are completely different from derivatives and other rather opaque investments.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.