Investing - Index Funds, ETFs, Advisors

Investing - Index Funds, ETFs, Advisors

Indexing vs Active Management for Mutual Funds

A quick definition - for an actively managed mutual fund, a manager or management team selects stocks or bonds to put in the fund. It is hoped that the stock selections will perform better than whatever index there might be for the chosen strategy. For an index fund, the choice of stocks or bonds matches an index such as the S&P 500 (and is kept in sync).

Typically, index funds trade assets less than active funds, have lower management fees, are very diversified, and aren't subject to management changes. The choice of assets in the index is subject to strategy and how they are chosen.

Choosing what index fund to invest in was once easy. Just find the lowest fee S&P 500 fund. No more. Now the question is - what segment of the market do you want to invest in. Big company, medium, small, growth, value, dividends, capital weighting or equal weighting, market segment (health, tech, utilities, ...), what part of the world.

I have always had a philosophical bias against indexed mutual funds. A corporation gets into an index by being successful. But it stays in the index by having a high stock value. And the stock value is enhanced by being purchased by index funds. So once a corporation is in an index, it stays in the index because it is in the index - index funds must buy it. I'm not saying that this is the sole support of the stock price, but it is a factor. And as index funds take over the market, it becomes a bigger factor.

Index funds trade very little. VFINF (Vanguard S&P 500 Index) lists turnover at 4%. Low turnover active fund are typically 25% to 50% (much higher for speculative funds). In addition to trading costs (which I would think are close to zero these days), this incurs taxes. Mutual funds must distribute capital gains and dividends every year, so with active funds in taxable accounts, you will be paying some of the taxes now instead of later.

But performance is what counts. I haven't tried to verify this statistic, but it is commonly reported that 80% of active funds underperform their benchmark index. So 20% of active funds equal or outperform their benchmark index. Can you choose a fund that will outperform? Yes. Will it continue to outperform long term? Maybe.

But performance isn't all that counts. If the funds are in an IRA or Roth IRA, taxes don't matter - yearly distributions and capital gains from sales are not taxed (but of course anything that you take out of an IRA is taxed as income). For tax un-advantaged accounts taxes are critical. Dividends are taxed and capital gains caused by turnover or selling to cover redemptions are taxed. You can't control this. In a down market, redemptions may cause big capital gains right when you can't handle them. If you don't need the distributions for income, you are paying taxes now instead of later. And if you need to sell the fund because of underperformance, capital gains can be prohibitive. This is where index funds are far superior - there is little capital gain from turnover and the fund won't crash due to bad management, so you shouldn't need to sell it.

Exchange Traded Fund (ETF) vs Indexed Mutual Fund

ETFs started in the late 1990s and have become very popular. They are baskets of the stocks, usually chosen from a stock index, that are traded on the stock market. They cover the same investment area as indexed mutual funds. (Actively managed ETFs exist, but not a lot so far).

ETFs have two important advantages over indexed mutual funds. First, you can buy or sell shares whenever the stock market is open, rather than only at the end of the day.

Second (this is my understanding), when someone trades ETF shares, they are usually buying or selling to other people, via the market. Since the fund is not selling stocks there is no tax event for other shareholders. And when someone wants to sell shares but there is no buyer, rather than selling the stocks that comprise the share and paying the seller in cash, the fund gives stocks to the seller who is responsible for the tax event. So no tax event for the fund. This is all transparent to the shareholder. This makes holding an ETF significantly more tax efficient than a mutual fund.

Advisors

I am not going to take a position on whether or not you need an advisor. But here are a couple of things to consider.

A fee based advisor takes a fixed fraction of your assets every year, typically 1%. They like to advertise that they are incentivized for you to make money - as your assets grow their advisor fee grows. This is true. But they still make money even if your assets shrink. They are taking a fraction of your assets, not a fraction of your asset growth.

So is the advisor management going to cover the cost of the 1% fee? Apparently active mutual fund management generally fails to deliver above index performance. So why expect an advisor to do better?

But without an advisor, it's all up to you - choosing a strategy, implementing the strategy, monitoring the implementation, adjusting to the current situation. And this is through distinct investment phases, each having different rules -

• before retirement
• after retirement but before taking Social Security payments
• after taking Social Security payments but before RMDs
  
• after RMDs start.

Samsung Galaxy S22

Samsung Galaxy S22

I've had my Samsung Galaxy S22 phone for about a month now, having replaced a Google Pixel 4a.

The Pixel 4a is a very nice phone, but riddled with bugs, due in part to constant updating of the operating system. For example the always on lock screen works well for months, then after a monthly OS update, I pull it out of my belt pack and the screen is black. This happens regularly until another OS update. Gmail crashes once every few days, then an OS update and it's crashing multiple times every day. My Airpods (wireless earphone) work well for over a year, then an OS update and they will not work on a phone call (but work upon ending the call). Google doesn't seem to understand the importance of basic function.

My search for a reasonably sized phone led me to the iPhone 13 Mini - returned for lack of important function (always on lock screen, clock with current time zone). And there is no 14 Mini. On to the S22.

The S22 is slightly larger than the Pixel 4a, but much heavier. It has an aluminum frame and glass back. It baffles me why plastic isn't the standard - light and tough.

Because of the very narrow screen bezel, a case is needed that lets you hold the phone without accidentally touching the screen (this is common these days). Spigen make a nice one. Of course it covers the back glass, so what was the point of using glass?

It has wireless charging - very handy. I got a phone stand charger (holds the phone upright). Set the phone down a half inch from centered to avoid charging it - the extra half inch should be built into the stand. I added a Magsafe compatible steel ring to the case. This lets you use a Magsafe compatible car phone holder/charger. Very handy.

   

The cameras (3 of them) are on the side of the back of the phone, raised by about a millimeter. When you lay the phone on a table, and touch the screen, the phone inevitably wobbles. Very annoying. I drilled and tapped a hole in the case for a 3mm screw, got a nylon screw and ground the head down to 1mm, cut the thread to 1mm length, screwed it in - no more wobble. I should have paid the extra for black nylon.

   

The fingerprint reader is on the display. If your finger is too dry, it doesn't work - touch it to your tongue to make it work. The Pixel 4a location, on the back of the phone, is much easier to use. But Google decided that Samsung was right and changed their newer phones.

Samsung left off the next alarm time from their lock screen. The next alarm is important since I use my phone as my alarm clock. I would like to glance at it to verify that the correct alarm is set. Sigh.

I installed Nova Launcher, Gboard, Gmail, Calengoo, Talking Alarm Clock Beyond, True Phone Dialer, and my own clock widget, weather widget, calculator, MP3 player. Everything worked. My Airpods work, Gmail hasn't crashed, the lock screen works correctly.

Android 13 came along in early December. Everything still worked!

The camera(s) work well. Nice zoom. I don't use it very much.

So, a successful new phone, but could be better.

Thankfully, Samsung gave up on the rounded display edge. I didn't ever try one, but it must have been torture trying to avoid unintended screen touches. And it made no sense at all if the rounded screen was buried in a case. The vertical elevator control that went along with it is still there, but useless with a case, and I don't know what use it ever had anyway.

I think Google has given up on their squeeze cover. But they shouldn't have given up on the back fingerprint reader.

Why is there a camera bump? On (almost?) all new phones. Why not have the rest of the case as thick as the camera and use the extra volume for a bigger battery?

There is a neat case with a sliding camera cover for the S22 (and others). But is too bulky for me, and the slide is too hard to operate.

A long time ago, I complained about phones not improving. This one has two major improvements since that time - the always on lock screen and wireless charging. Better camera if that's important to you. Better water resistance if that's important to you. 5G maybe a little faster than 4G.

Google - you have lost a customer because of a constant stream of bugs.

Apple - you have lost a potential customer because of basic function. A clock that doesn't tell you what time zone it's displaying the time in isn't telling you the time. An OLED screen that doesn't give you an always on lock screen is not taking advantage of the technology.

Samsung - the next alarm time should be on the always on lock screen. Right now, my screen reads "Sun, December 18". Why abbreviate "Sunday", but not "December"? And the fingerprint symbol has a lot of wasted on pixels. Just a dot would get the job done.

Apple and Google - not everyone wants a monster sized phone.

Lyrical Thoughts

Lyrical Thoughts

It's tough to find good topics to write about. I often have an idea, write about it, then throw it out - maybe not enough to write about, maybe it sounds uninteresting after I see it in writing, maybe I decide it makes me sound too strange. I will take a bit of chance today.

I listen to songs for the music, not the lyrics. I like the voice as a musical instrument, but I don't much care about the lyrics. (Occasionally the lyrics will be so disturbing that it ruins the music.) I love many of Schubert's songs and the singing that is integral to them, even though I don't understand the German lyrics. And I like much instrumental music - symphonies, piano pieces mostly, but that's incidental to this post.

(At last - I have reached the point of this post.)

Sometimes a phrase from a song, along with its melody fragment, sticks with me and makes me think. Here are a few.


"Obladi, Oblada, life goes on, brah, Lala, how the life goes on" - no matter what happens, life goes on (so far). (In my head it's "Lalalala life goes on".)

"All that you have is your soul" - my new philosophy as I get older.

"A line from a poem of my childhood has said that visions of sugarplums were gonna dance in my head" - ideas are always good, even bad ideas.

"Going to the candidates' debate, laugh about it, shout about it, when you've got to choose, every way you look at it, you lose" - why can't we put "none of the above" on the ballot?

"And wept when it was all done for bein' done too soon" - whenever I finish a project - it's the journey, not the destination.

"And the first one now will later be last" - whenever things change.

"Today can last another million years, today could be the end of me" - live in the present.

"Oh lord above, you gotta save the fool" - whenever I do something stupid.


In case you want to quiz yourself on where these came from -
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In order (which was just the order that they came to mind as I wrote this) -

Ob-La-Di, Ob-La-Da - Paul McCartney
All That You Have Is Your Soul - Tracy Chapman (for me, Emmylou Harris' cover)
Leftover Wine - Melanie Safka
Mrs. Robinson - Paul Simon
Done Too Soon - Neil Diamond
The Times They Are A-Changin' - Bob Dylan
11:59 - Jimmy Destri (Blondie)
Sweet Misery - Melanie Safka

(The internet can be very useful. The lyrics for just about any song are a quick search away.)

Just Desserts

Just Desserts

It's dessert time of year. America has some strange concepts of sweets. You can dream of your favorites while reading this.

Cookies, in general, should be crispy. Why do people like soft cookies? It baffles me. But this post is more about specific cookie types. Chocolate chip cookies - the ultimate recipe is Nestle's Toll House. Nothing else is close. Big chocolate chunks, M&Ms, chips made of milk chocolate, pecans, walnuts, all degrade perfection. I do like to add raisins - baked raisins are sweet and chewy and compliment crispy, buttery Toll House cookies.

Many years ago, maybe before 1980, a common cookie was a sugar cookie. Delicious. You can still get sugar cookies, but they don't taste the same. They removed all of the flavor except sweet. Snickerdoodles have some of the flavor, maybe they are the same as the old sugar cookies. But if they are not crispy - blech.

Fruit pies can be delicious. Cherry pie is far preferable to any other fruit. It MUST be served HOT.

Pecan pies are good, but there is too much of the gooey stuff. It should look more like a pizza - flat crust, thin layer of goo, pecans.

Frosted cake - grocery store cake is garbage - there is no flavor, just sweet. Fancy European cakes - dense, not sweet - blech. I don't understand chocolate cake. Chocolate must melt into your tongue to taste right. Cake does not do this. Frosting does. I don't expect to ever make a cake from individual ingredients, so looking at mixes - Ducan Hines Butter Golden or Betty Crocker Butter Recipe Yellow mixes use butter instead of oil. Use a chocolate frosting. The butter from the cake and the chocolate from the frosting hit your tongue to provide a wonderful chocolate/butter flavor.

Brownies - use butter instead of oil. Brownies impart a much better chocolate flavor than chocolate cake. Adding chocolate chips does not improve brownies, it just adds calories. I've want to try using brownie dough to make cookies. These would be crispy/chewy like the edge of ordinary brownies. Sounds good. I hate to bring that many calories into my home.

Chocolate bars, M&Ms - as noted above, chocolate must melt onto your tongue to give a good flavor. High cacao levels prevent this. I like Dark Chocolate M&Ms (50% cacao I think). But they must be heated. I use 58 seconds in a microwave. Plain M&Ms and most milk chocolate bars are too sweet.

A side note - I had to look up the spelling of blech or bleck. Blech is an expression of disgust. Bleck is shoe blacking, black grease, or soot. Same thing I guess.

Caramel should not melt in your mouth. It should be chewy. America's obsession with melt in your mouth caramel has ruined it. I wish I could find consistently chewy caramel/pecans/chocolate pieces, I would love it. With melty caramel - blech.

Toffee seems to be a solid crunchy form of caramel. Toffee, almonds, chocolate make a great combination. Almond Roca is one example, but I think it too sweet.

Cheesecake should melt in your mouth. Otherwise you don't get the sweet cheese flavor. It is not easy to find good cheesecake. And a lot of it is now contaminated with chocolate, caramel, coconut, apple, cinnamon - blech. Strawberries on top are good, especially in a sweet strawberry gooey sauce.

Ice cream - chocolate, banana, or butter pecan. Nothing else is worth the calories. Baskin-Robbins is the only place that understands chocolate ice cream. You have your choice of chocolate or chocolate fudge. Chocolate has more chocolate flavor than anything you can get anywhere else. Chocolate fudge has even more. Chocolate ice cream is meant to melt on your tongue. Adding any kind of chunks ruins it.

Baskin-Robbins makes a wonderful Banana Royale Sundae - ice cream (specify chocolate), banana slices, choose hot fudge topping, whipped cream, crushed almonds, maraschino cherry. And good milkshakes. Milkshakes should be just ice cream and milk, blended. But once, on a trip in Tennesee, I stopped at a B-R to get a chocolate milkshake. I watched as the server loaded the canister with chocolate ice cream and put it in the blender. No milk. Tasty result, but not quite a milkshake. Since then I specify "made with just milk and chocolate ice cream". Adding malt flavor or real banana is good.

Cinnamon buns can be wonderful - full of butter, brown sugar, cinnamon. (This is not a breakfast - it is a dessert.) Wonderful aroma. A butter cream frosting can be a nice addition. A sweet but flavorless frosting is not. I read a book called The Choice by Nicholas Sparks, long ago. At one point the main character wants to surprise his new girlfriend by bringing coffee and cinnamon buns to her in bed. He covers them and walks in. What's under the cover? Anyone that can't smell hot coffee and cinnamon buns from across the room is dead. (Apologies to people with no sense of smell.) (And I'm eternally grateful that Covid didn't take smell and taste from me.)

Crème brûlée and strawberry custard tarts - wonderful custard desserts. (But flan? The texture is awful.)

But the vast majority of desserts are not worth the calories. My mother used to look at restaurant dessert menus delighting on just about every item. I would look at the same items and say "blech".

That's my survey of desserts. Sweet Dreams.

Adventures with MVNOs

Adventures with  MVNOs

Mobile Virtual Network Operators are mobile phone carriers that use the big three networks and provide a reduced price phone service. There are many of these - search on verizon, t-mobile, or att and add "mvno".

I switched from Verizon to Reach Mobile a few months ago after Verizon added a surcharge to my bill. My monthly bill went from about $59 with 2Gb data to about $20 with 2Gb data. Reach uses T-Mobile's network which worked well for me. All was well.

Then a few days ago, around 4:00pm, my voice, text, and data stopped working. I informed Reach and the next morning voice and text worked. I can live without mobile data if I am not on a trip (using Maps). So I informed Reach of the situation, started researching other services, and waited.

US Mobile looked good - low price, Verizon or T-Mobile network, SIM or eSIM. eSIM would let me connect immediately. A SIM would take a couple of days to deliver, but handy to easily switch phones. I ordered a SIM. Then I found some reviews that made US Mobile look very bad.

Ting was recommended to me on Facebook. T-Mobile network, no eSIM support, three days to deliver the SIM, good price, good reviews.

T-Mobile - $50, including taxes and fees, for unlimited data, for old people (55+), using auto pay. Immediate connect with a SIM, supports roaming (MVNOs do not).

Next morning, no data. Since they handled voice and text, I decided to give them another day.

Next morning, no data. I lost my patience and decided that I needed to get past this issue as quickly as possible. Off to the T-Mobile store (just a mile away). The parking lot was almost full - 40 cars. I found a spot and went in, expecting a huge crowd. A couple of minutes to get someone to help - grand opening next door had filled the parking lot. 20 minutes later I had a functional phone. My stress level dropped 90%.

T-Mobile data is a lot faster than Reach/T-Mobile data. Maybe I will try Ting some day when I have forgotten the hell of having no phone.

So from my very limited experience - an MVNO can save you a lot of money, perhaps with noticeably slower mobile data speed, likely with noticeably longer problem resolution time, and with no domestic roaming.