ETF or mutual fund? Aside from the terribly annoying procedures involved in buying/selling mutual funds (at net asset value at end of day), there are tax reasons to prefer ETFs (reduced cap-gain distributions). You should be able to eliminate trade commissions on ETFs by using a favorable platform (e.g., buying Vanguard ETFs through a Vanguard brokerage account), and any marginal price inflation due to bid-ask spreads on ETFs will be overcome in a fairly short time horizon (see WSJ graphic).

This isn’t to say that mutual funds are bad–if your preferred index is only available in mutual fund form, then don’t switch to an ETF just to get the preferred wrapper (that would be letting the tail wag the dog). And all of this is mostly moot inside of a tax-advantaged account, subject to an analysis of the varying underlying expenses for the competing securities.

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File under: total waste of time and energy. Crap like this shows up in the financial press every single day. That’s fine; they have to produce content every day, and I’m free to ignore it if I choose every day. But see the text of the “memo to clients” by the big Wall Street investment shop. They say “we think the turn is in,” meaning that the outperformance of growth over value was likely to change in the near future. But here’s the reality folks: they don’t have any idea what’s going to happen tomorrow, or the next day, or next month (let alone next year). But they convince everyone that they’re the smartest guys in the room, and that you should pay them exorbitant fees for periodically issuing opinions that justify moving your money from one sector to another. And then back again.

The takeaway: if you want to accelerate your trip to Freedom, think and act like an investor, not a trader. That means you’re in for the long-haul, and you can ignore all of this noise. You’ll sleep much better at night, and accelerate your wealth accumulation by eliminating the deleterious effects of performance chasing, the behavior gap, and transaction fees.

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Just plain common sense: If your industry requires reams of paper to (ineffectively) disclose all of the conflicts of interest that it has with its clients, something is not right. And if you’re a client of that industry, well, you probably shouldn’t be. Don’t trust your money (and your Freedom) to an industry that can’t figure out how to effectively disclose to you all the ways that it plans to make money at your expense.

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Total shocker! Whistleblowers report that Wells Fargo “wealth advisors” moved clients into inefficient products that generated larger commissions! Who could have predicted this type of self-interested behavior?!

Human nature is very predictable folks. If you are not willing to spend the time to understand every single detail regarding the arrangement by which your “financial advisor” or “stockbroker” is compensated, you probably shouldn’t be trusting your money with one.

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This just in to the FI REport: relying on advice provided by a “financial advisor” that is paid a big commission for placing you in an investment product is hazardous to your financial health and your prospects for financial independence.

“[These products] illustrate the problems with the financial services industry selling opaque, high-commission private investments”

You don’t say.

Here’s a thought: don’t look to someone that has an inherent conflict of interest to provide you with objective financial advice.

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Merrill Lynch previously decided that it made good business sense to stop offering commission-based advice for retirement accounts including IRAs. Now, in light of the demise of the fiduciary rule that would have required them to act in the best interests of their clients, they are “reconsidering” that decision. They assure the public that their objective remains to “keep clients’ best interests front and center.” Something seems a bit inconsistent here.

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The most valuable asset this legal secretary had in building a $10mm fortune? Time. She invested and stayed invested. You can do that when you don’t suffer from a compulsion to display status.

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Burton Malkiel discusses wide-spread index investing and the potential impact on market-making. The upshot: active managers are paid enough to keep at it, so the markets will keep on operating as they should. Which is good for us indexers. So as long as there are enough suckers out there that keep paying 1%+ for underperformance in their active funds, the indexers can continue to outperform through laziness. Excellent.

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I presumed the data regarding college savings using 529 accounts was bad, but did not know it was this bad: (i) only 32% of US parents even know what a 529 plan is (let alone that it can give them a huge tax advantage in saving for college); (ii) only 14% of parents plan to use a 529 to save for college; (iii) only 16% of investors (relatively affluent ones with more than $100k in liquid assets) have funds invested in a 529 account. And here’s the coup de grace:

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Many money managers use obfuscation tactics to avoid letting their customers know how much they are really paying in fees. If you ask your advisor how much you’re paying in all-in fees and you don’t get a straight and clear answer THE FIRST TIME, fire them immediately.  Hidden fees can eat up fully 1/3 of portfolio value over a 40-year period!

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If you are paying Morgan Stanley to manage your money, you are paying too much. And now they want to keep you from the best product–Vanguard funds–because Vanguard refuses to bribe them with kickbacks that they demand. Fire them.

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It’s now common and accepted knowledge that index investing is the mainstream norm. That means something. I just don’t know what it means right now.

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And here’s a theory that blames current market euphoria on indexers.

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The data regarding active v. passive performance over long periods is now so compelling that I have a hard time conceiving of the group of people that still pay exorbitant fees to try and achieve over-performance. I suppose it must be that 50% of the population that irrationally believes they are in the top 8%. This data is damning, and bound to lead to a glut of money in index funds (which I’m concerned will in the long run lead to fundamental changes in how the broad market behaves).

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As a confirmed and devout contrarian, I have little doubt that mass acceptance of index investing as the default will change the character of the markets, and ultimately not for the good. Here’s an interesting theory: by reducing diversification costs, index investing will result in protracted elevated market valuations and ultimately lower returns from re-invested dividends.

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One of the most critical decisions you will make in your quest for financial independence: choosing a spouse.  Get this one wrong and you might as well have spent your life investing through a “stock broker.” (I have no data to support that conclusion.)

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It is now clear that the question of what impact wide-spread index investing will have on the markets is on everyone’s mind.  There is a lot of talk, but very few answers (and no real consensus).  My thought: still plenty of active players to make markets efficient.  And true to form, many retail investors will succumb to their psychology and flee to the prospect of market-beating active management returns during the next correction.  Stay tuned.

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This topic continues to trend: what happens when passive investing becomes the default?  My current thought: there will always be a big enough set of Type-As that are compelled to try and beat the market to make an efficient market.  Long live indexing!