There is so much great information on personal finance forums. I participate on several message boards, including the Bogleheads and White Coat Investor forums. Here are some of the discussions happening around the internet.
1. White Coat Investor Facebook Group: Tilting to Defensive Sectors
Question: A reader on the White Coat Investor Facebook group recently attended a conference where the speakers were recommending overweighting defensive sectors such as healthcare, financials, and consumer staples. He was wondering whether others thought this was a good idea.
WSP’s Take: Presumably the reason for a recommendation of shifting a portfolio towards traditionally defensive sectors such as healthcare, financials, or consumer staples is a concern that the stock market is heading for a correction or bear market. As I’ve said many times, timing the end of the bull market is very challenging, and people have been predicting the end of this bull market for years. Those who have pulled money out of the market or moved to defensive sectors in the past few years have missed on a large chunk of the current run in the stock market.
If I knew that there would be a bear market beginning tomorrow, I would just sell my stocks. I wouldn’t move towards defensive sectors such as healthcare or utilities, because all sectors will fall during a bear market. Defensive sectors may fall less than other sectors such as technology in a bear market, but they are still likely to fall in value.
2. White Coat Investor Forum: Autopaying Credit Cards
Question: Each month, White Coat Investor forum regular Craigy logs into each of his credit card accounts and manually pays off the balance. He is never late on payments, and does not pay any interest on his credit cards. He was wondering whether he should just autopay his credit card accounts.
WSP’s Take: There are pros and cons to autopaying your credit cards. The benefit of autopaying your credit cards is that it ensures that you will never miss a payment (assuming you have sufficient funds in your bank account to pay the credit card bill). The downsides of autopayment is that you will not notice how much you are spending if you do not check your credit card statements. Additionally, if there are any fraudulent transactions on your credit cards, you may miss them if you are not regularly checking your statements.
One trick to minimize the (small) effort required to manually pay off your credit card bills is to set your statement ending date for each of your credit cards to the same day. That means you can pay off all of your credit cards at one time, rather than having to log in multiple times during a month to pay off each individual credit card.
3. Physicians on FIRE Facebook Group: Too Many Credit Cards?
Question: A reader on the Physician on FIRE Facebook card asks if there is such thing as having too many credit cards.
WSP’s Take: For someone who is responsibly using credit, there is nothing wrong with holding additional credit cards. In fact, your credit score is often improved by holding more credit cards. Two important components that factor into your credit score are credit length history and total credit. The more credit cards you have, the higher your total credit. And if you choose not to close old credit cards that you are no longer using, you’ll have a longer credit history.
Of course, if you are holding a balance on any credit cards, you should not be opening additional credit cards to gain access to additional credit. In addition, if you are paying annual fees on credit cards that you are neither using nor deriving any benefits, then you should close those cards.
4. Bogleheads: Tilting To Less Volatile Stock Sectors Instead of Holding Bonds
Question: Bogleheads reader MrBeaver asks whether it is appropriate to tilt your equity allocation away from that of the total stock market to match your risk/reward tolerance. Most individuals tailor the volatility of their portfolio using their stock / bond allocation, but he does not see why bonds are necessary for this purpose. He postulates that you could simply hold less volatile stock sectors if you are more risk-averse and more volatile stock sectors if you want higher expected returns.
WSP’s Take: This is a good thought, but it ignores one of the primary benefits of holding bonds, which is that it is relatively uncorrelated with the stock market. This is a major diversification benefit that cannot be replicated by tilting towards less volatile stock sectors.
Wall Street Shares: 5 Articles To Read This Week
- White Coat Investor: WCI Scholarship 2018 Winners — Congratulations to the winners of the 2018 WCI Scholarship essay contest! Here are links to the 1st place, 2nd place, 3rd place, 4th place, and 5th place essays.
- Full Time Finance: A Letter to My Wife Upon My Demise — It may be beneficial for all of us to write a letter like this, as it not only reminds us about what’s most important in life, but also helps our spouses manage the family finances if we were to pass away unexpectedly.
- Passive Income MD: How to Avoid FOMO When Investing — How to resist the urge to chase the investment returns your friends may (or may not) be getting.
- The Physician Philosopher: The Business Man and The Fisherman — I first read this story at a Jimmy John’s, a place whose walls are full of wisdom.
- The Boss MD: Employed Physicians Must Be Flexible — the many conveniences of hospital employment come at a cost.
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?
Thanks for the mention, WSP! A great collection as always. I really enjoyed the WCI scholarship articles (and helped judge them, too! Lots of pressure there).
And the full time finance post is fantastic.
TPP
I don’t have many credit cards so this might be easier, but I time off paying the entire balance with each paycheck (I get paid bi-monthly). That way it never will have a late payment and somehow my timing works so that on my credit report I typically have under $200 balance.
Thanks for another great list.
I don’t shift my stocks to make them more defensive. I have bonds, cash, and real estate that help with that.
I also don’t think financials should be listed in the defensive sector list. Staples and health care have done better in downturns than the average but financials can crash big time especially in the GFC 2007-2008
Great advice. In terms of credit cards… I have a ton of them. The count is now up to 30. I have autopay turned on as a safety net so that I never miss a bill payment that is due. However, I manually check my accounts on Friday. I usually pay buy using my mobile apps for Chase, Citi, and Amex. It only takes 10 minutes out of my day. Simple. In addition to checking for fraudulent transactions and tracking your spending… manually paying your credit cars also ensures that you’re making sure you have enough money in your bank to pay for those bills. I have so many automatic bill payments and withdraws coming out of my checking account (mortgage, life insurance, disability insurance, deposits to taxable accounts, etc.) that I always have to make sure I have enough money in there to pay for the credit card bills. If it’s running low, I make sure to transfer money from my money market savings account to my checking account.
Thanks for the shout out.
I always manual pay my cards. It forces me to keep an eye out for fraudulent charges and upcoming annual fees.
Credit cards are a fine way to use OPM (other people’s money) for living expenses while your encumbered cash earns a little bit of interest. Cards with no annual fee and rewards programs are a favorite; I let rewards pile up to cover the cost of a personal want or need, or defray the cost of gift-giving. In addition, credit cards that offer reports on spending allocations are helpful for budgeting and make tax time simpler. That being said, there are a few tricks to using credit wisely that should not be ignored, and foremost of these is to never spend what you can’t pay in full when the statement comes due. Of almost equal importance – never use more than 10% of available credit on any one card per statement cycle; this will keep your FICO score in excellent shape. However, using credit effectively takes time and effort, and therefore, I’d never have more cards than I could easily monitor and manage. I do not autopay anything but the minimum (to avoid late fees, in case I get hit by a bus or something) because this forces me to review the statements each month and enter the full payment for the balance due – which keeps me aware of spending as well as possible fraud. Once a year I take stock of the cards I have, rewards and benefits, etc. When a particular card just isn’t working for me, I close the account and ask for the closure to be notated as “closed by consumer request”; closing an account in this way does dink your FICO score, but only for a few months. Many companies will close an account that hasn’t been used in a year, without notification to the cardholder – and when an account is “closed by creditor” it stains your credit report for years; so if a “break-up” is due, it’s better that you make the decision and set the terms.
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