Foros de la Plataforma por una Vivienda Digna

[netodyssey]

Only 2 lessons: save regularly, invest lazily

What we learned from readers the past ten years of column writing



ARROYO GRANDE, Calif. (MarketWatch) -- What a great trip it's been: Ten years ago this month MarketWatch started publishing my columns. And my fourth book was also released, "Mutual Funds on the Net." Internet investing was new (some people still thought "browser" was the family pooch).

We've come a long way, now up to 1,400 columns and working on book No. 10. And loving it every minute!

So it's time for a little trip down memory lane. What I just realized was that the first two columns defined a surprisingly consistent path on two key issues for investors. The May 27, 1997 column was about "do-it-yourself" investing: How to build a successful portfolio with just three to four funds. That planted the seeds of our "lazy portfolios."
And the first column of May 20, 1997 examined one of America's biggest problems, our declining savings rate, down at 4.5%. Unfortunately it's worse today. Investors didn't listen, wouldn't buy Wall Street's "educational" propaganda. So we're saving less, and less and less. Read the first Paul B. Farrell column.

We opened reviewing Merrill Lynch's fourth annual "Baby Boomer Retirement Index," a "wake-up call. Although it focused primarily on the baby boomers -- the 76 million Americans born between 1946 and 1962 -- the index was one of many loud alarm bells encouraging not just boomers but Americans in general and investors worldwide to start planning for the future, shifting from current consumption and borrowing to savings and investing for the future."

The facts were disturbing: "Back in 1980 Americans were in the habit of saving about 8% of their disposable income. However, in a relatively short 17 years, the savings rate had dropped to about half the 1980 level. By 1997, we were only saving 4.5% of our disposable income, about one-third the savings rate among other industrialized nations."
Today, 10 years later, our savings rate has collapsed below zero. We're consuming even more, saving even less. One expert said this was "slow-motion bankruptcy."

Public policy favors spending not savings

We added this prophetic remark: "Eventually this emphasis on consumption could impact not only individual investors but the nation as a whole, creating a debtor nation short on investment capital." We are addicted to consumption.
Yet life today is far more uncertain than the go-go '90s: So why are we obsessed with immediate gratification and short-term consumption, blissfully ignoring long-term savings for retirement? "As incredible as it seems, you need to triple your savings rate if you want to retire at 65. You have to become a millionaire if you want to retire with a modest lifestyle!"

But nobody listened. Why? Turns out Wall Street was actually targeting a narrow market: America's 8 million "already-millionaires." Wall Street has little interest in the masses, the 292 million Americans with portfolios averaging under $50,000. Wall Street is targeting the rich, the folks who control 85% of America's assets, because they can pay big fees.
There's a second reason: Public policy actually encourages spending over savings. Forget the propaganda and spin: The truth is Washington, Corporate America and Wall Street want Main Street as short-term consumers to pump up corporate earnings and keep stock prices advancing.

Unfortunately that's also sinking America deeper as the world's No. 1 "debtor-nation."

Early hints 'lazy portfolios' work best

The second of the first two 1997 columns triggered our first flashing insight into what later became the "Lazy Portfolios." We reported on an article in Kiplinger's 1997 Mutual Funds Annual, with a show-stopping title: "9,111 Funds You'll Never Have to Own!" (I doubt if Kiplinger's advertisers appreciated that title much.)

Our column expressed doubt: "You Only Need 3 Funds, Maybe 4. But Can You Really Forget the Other 9,111?" We were searching: "In this age of information overload, with over 600 new funds being launched into the financial stratosphere annually, any solution that'll help investors navigate quickly through this growing junk pile deserves attention."

Kiplinger's strategy was remarkably simple: "Organizing your investments into a coherent portfolio of funds is easier than you think. ... A sensible solution for many investors requires as few as three mutual funds. And the other 9,111 funds? You can soon forget they ever existed."

Yes, 11 funds is enough and 9,111 is too many

Get it? An "ideal" portfolio needs only three to four funds: "Thank God for small miracles. But can you really forget 99% of the funds? Totally ignore all 9,111 funds? Hardly. But Kiplinger's editors got my attention with their chutzpah." I was so excited I suggested that readers could "replace your live planner with this $6 magazine."

The seeds began sprouting. We collected portfolios until 2002 when we picked our first " Winner of the Laziest Portfolio Oscar Contest." Since then we've updated it regularly, including the most recent: " Lazy Portfolios 1Q update (still winners)." And if you want more read my "Lazy Person's Guide to Investing."

The 1997 Kiplinger's Annual did include three "Best Funds" lists with many actively managed funds: one of 20 no-loads to build that ideal portfolio, another of 200 load fund winners in 14 peer groups and a third with major funds from "the other 9,111."

"Best Funds" lists also grew in popularity. We filled a filing cabinet of them from Forbes, Fortune, Money, Smart Money, Mutual Funds, Consumers Reports, Working Woman, even Playboy had a list. "Best funds" lists were a growth industry as fund assets grew from $3 trillion in 1997 to $6 trillion in 2001 to $11 trillion today.

'It's the portfolio stupid' not the individual funds!

Since 1997 we've seen flaws in "Best Funds" lists. We've also learned that "Lazy Portfolios" -- well-diversified portfolios of 11 or less low-cost, no-load index funds -- are a better choice than randomly picking from "Best Funds" lists.

For example: In 2001 InvestmentNews, a newspaper for professional advisers, reported on a study; "Publishers 'Best' Prove Average: Lists of the 'Top' Mutual Funds Beat a Path to Nowhere." I-News concluded: "If you had bought virtually any fund recommended by the various 'best of' lists published last year, you likely would have lost money [and] underperformed the market."

And yet today, "Best Funds" lists are even more popular, even though I-News reported in 2004 that over 75% of actively managed funds underperformed their benchmarks the prior 10 years. And in 2007 I-News reported that only 13% of funds consistently repeated in the top star ratings. Still, advertisers love "Best Funds" lists because they love seeing advertisement so well disguised (be forewarned).

Bottom line: For 10 years we've been delivering two consistent messages: Save regularly and invest lazily. Do they work? Apparently so from the 40,000 or so e-mails we've received. Readers tell me they tire of the relentless confusing noise about fickle markets, 8,000 stocks and 18,000 funds. They tell me that focusing on rock-solid basics is the message they need to hear over and over and over.

So thanks again folks. This has been a real exciting trip ... and come back for more next week as we push into decade No. 2.

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