There is so much great information on personal finance forums. I regularly participate on several message boards, including Bogleheads, White Coat Investor, and Rockstar Finance. This is a roundup of my favorite discussions happening around the internet.
1. White Coat Investor: Bulls Make Money, Bears Make Money, Pigs Get Slaughtered
Question: Donnie was wondering what is the origin and meaning of the Wall Street adage, “Bulls make money, bears make money, but pigs get slaughtered. Given the nice run in the stock market over the past few years, he notes that even bullish pigs have been getting quite fat recently.
WSP’s Take: I don’t know where the precise origin of this Wall Street adage, but I’ve been aware of this trading adage for as long as I can remember. Jim Cramer has used the term and said the rule saved him in 2000. Gordon Gekko used the phrase in the 2010 movie Wall Street: Money Never Sleeps.
The premise of the quote is that traders can make money in all types of markets, including rising (bull) or falling (bear) markets. But to succeed, you need to maintain trading discipline. If you get greedy and start taking excessive risk or don’t take profits at the right time, you’ll be one of the pigs that get slaughtered.
Long-term investors need not follow this advice — it is designed for short-term traders who will be in positions for only days or weeks. The long-term trend of the stock market is up, but some traders will work with more exotic securities that don’t exhibit a particular trend, such as commodities or currencies.
2. Rockstar Finance: Finance Camp For Kids
Question: Mamafishsaves shares this interesting article and video from the Wall Street Journal, which describes a summer camp for children where they learn the basics of finance and trade, for $235/week.
WSP’s Take: I think this is a fantastic idea. If you watch the video, the kids are engaged and having fun. It’s unclear how much “capitalism” politics is being integrated into the curriculum, which may turn off some people depending on their political views. Regardless, I think it’s a great way to introduce basic finance and business concepts to children at a young age. At a minimum, it is a way to mix up their summer learning experiences after doing more traditional camps like sports, Boy Scouts/Girl Scouts, or art.
And depending on whether the camp is full-day or half-day, $235/week for this camp sounds like a pretty good deal to me.
3. White Coat Investor: Paying Cash Or Financing New Car
Question: LizOB is trying for baby #2 and plans to upgrade her 2005 Toyota Corolla to a $40,000 minivan when the new baby arrives. She has an emergency fund + $30,000 sitting in a checking account, and is deciding between three options for paying for the new car:
- Leave the money in a checking account and pay cash when the new baby comes
- Invest the money now, and cash out when it’s time to buy the car
- Invest the money now, and finance the car
WSP’s Take: From a strictly financial perspective, option 3 would maximize her net worth. By financing her car at a low rate while investing the $40,000 in the stock market at a higher expected return, she would be using leverage to boost her returns.
However, life is not all about maxing out every single dollar from your finances. The risk in investing the money now is that the stock market could fall in the next year, requiring her to wait longer to get her new car. Of course, once she is expecting, there will be a firm due date on when she will need that new car.
In her specific scenario, since she does not have the flexibility of even waiting a few months to buy that new car, I would recommend taking option 1 and keeping the money in cash. If she is willing to draw into her taxable account investments to pay for her car in the event of a market downturn, then I would choose option 2. And if she also wants to leverage her investments and try to maximize her returns, then I would take option 3. Like most things in personal finance, the decision is personal.
4. Bogleheads: How High Is Too High With Expense Ratios
Question: Neveragain has an IRA with an eclectic mix of mutual funds selected by his Edward Jones advisors, with expense ratios varying from 0.05% up to 1.18%. He has decided to move his IRA to Fidelity and do it himself. He was wondering what should be the highest expense ratio he should pay for his mutual funds.
WSP’s Take: I’m obviously a huge proponent of index funds when investing, as expense ratios eat away so much of your portfolio with little benefit. Fidelity has many index fund options to build a three-fund portfolio or one of its variants. In 2017, 0.10% should be the standard benchmark for the expense ratio of a portfolio. This should be easily met at any of the major brokerages, including Fidelity.
Wall Street Shares: 5 Articles I Enjoyed Reading This Week
- Physician Couple: Selling Out — the husband in this dual-physician household is soliciting opinions on a hypothetical scenario where a specialist group sells their private practice partnership for a cash payout of $1.6-$2 million per physician partner. In return, he would get a lower salary for at least 5 years and much less autonomy. Would you take such a deal?
- The Boss MD: Three Keys to Physician Negotiation — great article about negotiating contracts, from a physician executive who sits on the other side of the negotiating table from you.
- Dads Dollars Debts: A letter to my widow — no one wants to think about possibly dying early, but it’s important to have a plan and share how you would want your finances handled in such a scenario. Dads, Dollars, and Debts shares the letter he wrote for his wife.
- My Curiosity Lab: I Have SCS: Smartphone Checking Syndrome — Dr. Curious discusses our unhealthy obsession with checking our smartphones. I have it. Dr. Curious has it. I bet you have it too.
- Future Proof MD and Vital Physician Executive: DEAL: The Smart Physician’s Guide to Negotiating Salary Ebook – FREE — I downloaded this book and have started to read through it. Go check it out, it’s free through Future Proof MD’s website!
What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?