Investing 
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Rebalance Your Portfolio

Welcome to Spring Cleaning Week! This is the first post of the week and something I think too many people overlook – rebalancing your investment portfolio.

Rebalancing your portfolio is important because the key to investing is establishing a plan and following it. You can’t predict the bubbles before they happen in the hopes you can buy on the upswing. You can’t predict the sharp drops in the hopes you can sell before they hit. What you can do is establish a reasonable plan, adjust it as needed, and follow it to prosperity. With that in mind, the goal of rebalancing is to get your investment reality back in line with your plan.

This post is part of the 2011 Spring Cleaning Week!



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 Investing 
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Remember to Comparison Shop Index Funds

For as long as I’ve been reading and writing about personal finance, index funds have been popular because they offer a low cost way for investors to get diversified into the market. I’ve long been a customer of Vanguard and index funds have always been popular with its founder, John Bogle.

Lately, index funds and index ETFs have exploded in popularity because people are starting to buy into low cost investing as the best way forward. Active funds remain popular but index funds usually win out, after expenses are considered.

So when you start looking at index funds, does it really matter if you invest with one broker or another? Surprisingly there is a little variation with mutual fund companies and it really pays to do your homework.

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 Investing 
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2011 Kiplinger’s Best Online Brokers

Every year Kiplinger’s magazine puts out a survey of the best online brokers. Every year, I take a look at the list because I’m curious how the different brokers stack up. I’d like to know if anyone has made any big changes or improvements to their service, it might change my mind about who I do business with.

Usually the lists don’t change all that much. As you scan this year’s list, you’ll see the same ones near the top, the same ones near the middle, and the same ones near the end. The meat is in the article detailing the different categories (like commissions and fees, investment choices, etc.) because it adds a little color to an otherwise robotic list.

One important thing to remember as you peruse this list: the best online broker is the broker that satisfies all of your requirements. All the bells and whistles in the world don’t matter if they don’t offer exactly what you need. With so many brokers, many of which are inexpensive, you should be able to find your best broker, online or offline, if you’re diligent.

Let’s get to the list…

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 Investing 
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How Vanguard Calculates Historical Growth

If you’re a long time investor with Vanguard, chances are you’ve taken a look at their “Hypothetical growth of $10,000″ chart included with each of their mutual funds. If you’re like me, chances are you take a peek but never spend much time digging much deeper. I tend to focus on expense ratio, average annual performance versus a benchmark, risk potential, and some other metrics like SEC yield, portfolio composition and characteristics.

Reader Javier looks a little more closely and found something that seemed, at least initially, distressing. He took a peek at Vanguard’s Short Term Treasury Fund (VFISX) and found the nice upward trending chart a little at odds with the one at Yahoo. At first glance, it looks significantly different (stretch it out to start in 2000).

So he emailed Vanguard to ask what was up… and this is their reply:
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 NEWS 
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Vanguard Lowers Fees on Mutual Funds

Vanguard LogoVanguard has always been known for their low mutual fund fees, one of the reasons why so many experts celebrate their services. However, in order to get the lowest prices possible, you had to invest over $100,000 into a single mutual fund in order to get Admiral Shares. Today, they announced that the minimum required to purchase Admiral Shares would drop from $100,000 to $10,000 for index funds and to $50,000 for active funds.

Here are a few stats:

  • 17 index funds and 35 active funds were affected.
  • Nearly 2 million clients will save on expense ratio decrease by qualifying for Admiral shares.
  • Range of admiral shares expense ratios – 0.07% for Total Stock & S&P 500 to Capital Opportunity (0.41%).


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 Investing 
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Vanguard Mutual Funds vs. ETFs: Which Are Better?

Vanguard LogoWhen Vanguard lowered its stock and ETF trading fees this week, I received an email from Eric, one of the long time readers of Bargaineering. He wondered if this made Vanguard ETFs superior to their mutual funds, to which I was pretty sure the answer was “Yes.”

You have to make the assumption that the mutual fund and the ETF will track the underlying index in the same way. If they’re run by the same company, in this case Vanguard, I think this is a fairly safe assumption to make. If there is no tracking error, then it comes down to costs. Whichever investment is cheaper, wins.

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 NEWS 
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Gartenberg Standard and Mutual Fund Fees

It’s not often that the Supreme Court takes on a case with such a key personal finance subject, mutual fund fees, so when the highest court in the land made a ruling last week, I perked up. The case was Jones v. Harris Associates and it concerned Harris Associates’s Oakmark funds. Shareholders owned Oakmark funds through their employer’s plans and were charged a management fee of 0.88%, versus the 0.45% fee charged to Harris Associates’s institutional clients. The plaintiff’s argument was that they were being charged an excessive fee compared to Harris’s clients, in this case almost twice as much.

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 Devil's Advocate 
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Don’t Invest In The Stock Market

Devils Advocate Logo
This is a Devil's Advocate post.

We are led to believe that the best place to invest our money is in the stock market. Low barriers to entry, low barriers to exist, plenty of information, high probability of success in the long run and a lot of success stories. We also hear some of the horror stories of people who day traded tech stocks in the early 2000s, gamblers who lost it all on penny stocks, and all the chop shop, pump and dumpers like in the movie Boiler Room. However, through it all, we’ve been taught, over and over again, that if you buy for the long term, you will always win.

For today’s Devil’s Advocate post, we’re going to break down the stock market and show why we really are just little guppies hoping not to get eaten by the sharks.

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