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Municipal Bonds Belong in Your Taxable Portfolio

There has been a lot of ink spilled in the last few months about the perilous fiscal state of some US cities. After Detroit declared bankruptcy in July, bond maven Meredith Whitney was quick to point out the seriousness of the event. “The aftershocks of the largest municipal bankruptcy in US history will be staggering,” she said. Such doomsaying has brought broader attention to the Muni bond market and the question of whether Munis still deserve a place in a diversified portfolio. Even with the Muni market down for the year, we think they do.  Before we talk about why, let’s provide some context about Muni bonds more generally. What are Muni bonds? Municipal bonds are debt instruments issued by state, […]

Differentiated Asset Location For Young Investors

In real estate, the three most important factors are location, location, location. Location is a surprisingly important consideration in investing, too, though I can’t boil it down to an aphorism. Asset Location What I mean by location in this context is Asset Location, or how you should distribute different asset classes across your taxable and retirement investment accounts to minimize the taxes you pay across all your holdings. Traditionally, asset location has been done by segregating tax-inefficient asset classes (generally those that produce income taxed at ordinary income tax rates, such as REITs and taxable bonds) into retirement accounts, and tax-efficient asset classes (those with lower tax rates) into taxable accounts. This is a pretty simple approach to reducing taxes […]

Why You Shouldn’t Just Invest in the S&P 500

Investors often think they have a diversified portfolio when, actually, they don’t. We know this because our clients sometimes ask us things like, “Why don’t I just invest in the S&P 500?” They seem to believe investing in an index that gives them exposure to a broad selection of assets means they have a diversified portfolio. But that’s only one of the dimensions of diversification. A good portfolio is actually diversified across three different dimensions: assets, markets and time. [...]

529 Plans and Saving For College

When it comes to saving for college, there are five important questions: How much should I save? On what schedule?  In which kind of plan?  Which state 529 plan?  What underlying investments should I pick? Based on the fact that you’re reading this blog, you likely already know how important it is to save for your kids’ college education. You may have already started the process. If you have a newborn daughter, you’ll need roughly $490,000 to pay for her engineering degree at Stanford, or $240,000 for a poli sci degree at UCLA, assuming higher education costs increase by 4% a year. Multiply that by two or three to take into account your other (future) children, and the amount seems […]

If ETF Fees Are Falling, Why Do Advisors Cost So Much?

In the last few weeks, there have been two new developments in the ETF price wars that are important to Wealthfront clients and investors in general – moves by Vanguard and BlackRock that will significantly lower ETF fees. At the same time, we’re starting to see the media raise the question that’s been on my mind lately: Why do traditional advisors charge so much when the underlying investment products (the ETFs) are getting cheaper and cheaper? Two weeks ago, Vanguard announced it will change the indexes it uses for 22 of its index funds and ETFs. For instance, it will now use FTSE for international indexes in place of its previous index provider, MSCI. Most people don’t realize the publishers […]

The Schwab and Vanguard ETF Price War

There they go again … Last week, Vanguard announced another reduction in its ETF and index fund fees. It was the Valley Forge, Pa.-based company’s 3rd such announcement since the beginning of the year. Four of the ETFs Wealthfront uses (VTI, BND, VWO and now VNQ) have seen their fees lowered in that series of announcements. The steadily falling fees have brought down the average ETF fees for a Wealthfront portfolio to 0.14%. We love this, of course, because it lowers our clients’ overall costs and provides better performance after fees. (See our previous post on Keys To Picking An ETF.) But why would Vanguard lower fees on products that were growing rapidly under its old fee structure? I don’t […]

How To Tell If Your Advisor Eats His Own Cooking And What John Bogle Has To Say About It

A recent study by research firm Morningstar Inc. found that just 40% of mutual fund managers were doing with their own money what they want you to do with yours: invest in their funds. After the report came out, the digital ink flowed on the question of whether mutual fund managers should “eat their own cooking.” I don’t think there’s much doubt about it. Except in a few well-thought-out cases, money managers should be required by their companies to invest in their own products. I’d go one step further and say that financial advisors ought to have money in the same products they recommend to you. For years, the savviest investors, top tier endowment managers and the best financial advisors, […]