Tag Archives: Personal finance

Let’s Make Our Own Index Fund!

November 5, 2021 tremendousblog Leave a comment

The Problem

Bonds are a big part of many investors’ portfolios. But yields today are close to nonexistent.

Since 2009, rates have been at or below the rate of inflation. Two bond funds I own pay 1.88% and 1.45% respectively.

Inflation is currently running at about 4.8%. This means I’m paying about 2.9-3.4% per year after inflation for the privilege of owning these funds.

Not fun, right?

An Unlikely Solution

So I’ve been exploring building a portfolio of high dividend stocks to replace the bonds and provide income. The stocks I’m interested in have paid high dividends for decades straight.

They represent the highest payors amongst the Dividend Aristocrats. Call them the Dividend Royals.

What if I had my own index fund of these companies? Each stock could be automatically weighted in the portfolio based on its market cap.

So, since Exxon Mobil has a much larger market cap than Federal Realty Investment Trust, for example, it would be a proportionately larger piece of the index fund.

A sophisticated solution could even automatically rebalance the fund on a regular schedule. This would keep the stocks in correct proportion to each other.

But who can provide such a service?

The Hunt

Not many companies, it turns out. Here are the biggest providers of “direct indexing”, or DIY index funds, per Bloomberg:

Vanguard also has such an offering via its recent acquisition of Just Invest.

I’ve requested demos from Vanguard, Parametric (part of Morgan Stanley), and Aperio (part of BlackRock). If I see anything good, I’ll report back!

There’s also an interesting offering from Interactive Brokers called BasketTrader. While I didn’t have the time to dig deep into it today, it looks like it may provide a solid tool for direct indexing.

Do you know a good direct indexing provider? Please leave a comment at the bottom.

There will be no blog on Monday or Tuesday. An old friend is coming to visit!

See you on Wednesday. Have a great weekend everyone!

How Did High Dividend Stocks Perform In the Last Crash?

October 25, 2021 tremendousblog 2 Comments

The Problem

I don’t know about you, but I’m starting to lose patience with bonds. The yields are rock bottom. Inflation is high.

And the interest rate outlook is pointing in one direction: up. This would mean substantial losses for bonds.

So I’ve been looking into high dividend stocks as an alternative. And not just any high dividend companies: the Dividend Aristocrats.

The Dividend Aristocrats

Ultra high dividends are nice, but if the company quickly depletes its cash and has to slash them, it doesn’t do us much good. That’s why Dividend Aristocrats are so attractive.

To get on the list, a company has to raise dividends for 25 years. Straight.

As of 2021, there are 65 Dividend Aristocrats.

The Experiment

Today, I wanted to see how some of the highest yielding Dividend Aristocrats performed in the last stock market crash. It lasted from February 19 to March 23, 2020.

The S&P 500 index lost 33.9% of its value in a matter of weeks. Not gonna lie, it was interesting. 🙂

I focused on companies currently yielding above 3%. I figured there wasn’t much point in replacing bonds with stocks that yield only slightly more.

Only 17 stocks made it into this illustrious group. Call them the Dividend Royals.

The Results

So how did the Dividend Royals do in the last crash?

Not terribly well. On average, they dropped 36%. That’s slightly worse than the S&P 500’s 33.9%.

Why did the Dividend Royals do worse? The fact that a small number of energy and real estate companies in this group suffered huge losses is one major factor.

Bonds, boring and frustrating as they are, did much better. The long-term Treasury fund actually gained 11.7%. The bond market index fund I own lost just 1.2%.

But today, they yield just 1.91% and 1.41% respectively.

Conclusion

Despite being solid, mature companies, high dividend stocks fell further than the market in the most recent crash. However, these creme de la creme of the Dividend Aristocrats all kept paying their fat dividends.

If you can stomach the capital loss, they may be a better bet.

Starting a Financial Plan from 0

October 4, 2021 tremendousblog Leave a comment

One of my oldest friends just got his dream job! He’s found fulfillment, accomplishment, and a lot more money.

But what should he do with it?

Matt* wanted to know how he could set himself up for a strong financial future, now that he’s finally making good money. I find a lot of friends and family in their 30’s asking me this question lately.

They come to me because I invest for a living and they want guidance. And I’m honored by that.

So I decided to sketch out a financial gameplan starting from zero, for them and for you.

Soon, you’ll be able to afford jewelry like Mr. T’s! 🙂

Step 1: Save 6 Month Emergency Fund

What if you lose your job or get sick? You don’t want to have to worry about being out on the street or unable to afford food.

And if you’re counting on unemployment, you’re putting yourself at serious risk. That check can take a very long time to come.

So I suggest saving six months of basic expenses in a high yield bank account (this is what I use). Basic expenses include rent or mortgage, utilities, and groceries.

You’ll get a little interest, but the real payoff is in financial security.

Why not just invest this money in the stock market? Because if the market drops by half all of a sudden, as happens from time to time, you won’t have six months of basic expenses anymore. You’ll only have three.

And that may not be enough.

Step 2: Pay Off Debt

It’s heretical to tell people not to pay off their debt first. But the reality is that lenders can often be stalled for a while. Your need to eat can’t.

Yes, your credit card or auto debt could accumulate for a bit while you save up your emergency fund. But it’s better than having an empty bank account if you lose your job.

I suggest keeping expenses down so you can save up that emergency fund and zap your debt ASAP. Once you have an emergency fund and no debt, you can relax a little.

When you’re ready to start paying off debt, choose the highest interest loans first.

If a loan has a lower interest rate than the stock market’s typical 10% return, it may make sense to invest instead of paying that loan off. This is often the case for mortgages.

Step 3: Start Investing

Yay! This is the fun part. This is when you go from just getting by to building wealth.

But investing is so confusing! Tons of companies, countless possibilities.

Here’s where to start: open a Vanguard account and just start buying the Vanguard Total Stock Market Index. On day 1, you’ll own almost 4,000 stocks.

And you’ll only pay 0.04% in management fees per year. On a $3000 account, that’s just $1.20.

Low fees are really important because high management fees can kill your returns.

I’ve used Vanguard for years and the service is outstanding. It forms a core part of my portfolio to this day.

To begin with, you’ll want to max out your 401k and IRA. Afterward, keep investing as much as you can!

It’s ambitious, but I suggest saving half your income if at all possible. It provides a wonderful cushion in tough times and can ultimately free you from working for others.

Step 4: Advanced Investing

You now own several thousand dollars worth of the Vanguard Total Stock Market Index. Congratulations, you capitalist fatcat!

Now, you may want to add other types of investments to your portfolio. Those could include international stocks and real estate, both of which Vanguard offers.

A portfolio with more diversification across parts of the world and asset classes (stocks vs. real estate, for example) tends to perform better over time.

Step 5: Ninja Level Investing

Once you’ve mastered the Vanguard game and built up a considerable balance, you may consider investing in private real estate (I use Fundrise) or tech startups.

These asset classes can provide higher returns, but they have a lot of risk. You often don’t get your money back for years, if ever.

If you’re just starting out, ninja level is a long way off. Crawl and walk before you try to run!

Wrap Up

I like seeing people take control of their lives and their money. That’s why I wrote this post.

If you follow this plan, you can go from an empty bank account and big credit card bills to a growing investment account paying you money.

You just have to take that first step!

Leave your questions in the comment section at the very bottom of the page!

Where Can We Hide in a Financial Crisis?

September 27, 2021 tremendousblog Leave a comment

Markets are booming today, but just 18 months ago, things looked like this:

Ouch.

I lost about 22% of my portfolio in less than five weeks. It certainly made life interesting.

Today, markets sit near all time highs and jobs go begging. It’s a far cry from the darkest days of the COVID disaster.

But the next financial crisis is coming. It could be in a month, a year, or ten years. But as investors, we need to be prepared.

One of the best ways to protect ourselves is to own assets that are not correlated with stocks. That way, when the market is falling off a cliff, a part of our portfolio is preserved.

People often look to overseas stocks or real estate to diversify. I own those myself. But although they can deliver nice returns, they are highly correlated with US stocks.

Global stocks have a 0.97 correlation with the S&P 500, a near perfect match. Even Real Estate Investment Trusts (REITs) show a very strong correlation (0.70).

Investment grade bonds (-0.06) and cash (-0.17) show low correlations with stocks. But the yield to maturity on that Bloomberg investment grade bond index is just 1.42%, way below inflation. And cash in a bank account returns about enough to buy a candy bar at the end of the year.

So where do we go? Here are some options:

Litigation Finance

This arcane corner of the financial world gives plaintiffs and lawyers money to sue people. The lawsuits usually involve a small company suing a larger one.

Returns can be eye popping. But it’s difficult for those of us who aren’t lawyers to understand what we’re investing in. Are these good cases likely to win? Or suckers’ bets?

It probably only makes sense as a small portion of a portfolio, at most. And minimum investments can be high, making it less attractive to many.

Farmland

Ya gotta eat, right?

New platforms have sprung up to help people invest directly in farmland. Returns can exceed those of stocks, and correlation with US stocks is almost nonexistent (-0.05).

This could be an attractive area, but it’s quite unfamiliar to me, and probably to most other investors. I’d have to research it a lot more before jumping in.

Dividend Aristocrats

Dividend Aristocrats are blue chip stocks that have increased their dividends every year for at least 25 years. They’re household names like Coca-Cola, Exxon, and IBM.

They generally have higher returns than the S&P 500 with lower volatility. That’s a win-win.

But they’re highly correlated with the rest of the index (0.9). That said, they’re still better than overseas stocks in this respect, and not dissimilar to real estate.

Wrap Up

We have some interesting options for keeping our portfolios safer in the next bear market while preserving yields today. I encourage you to dig deeper into your favorite categories.

What asset classes do you favor in a crisis? Let me know in the comments at the very bottom.

Should Anyone Own Bonds?

September 14, 2021 tremendousblog Leave a comment

I used to love bonds. Especially government bonds. Guaranteed income, easy liquidity, and stability in a crisis.

What’s not to like?

But my old flame hasn’t done much for me lately. And I’m not the only one.

The Problem

Bonds have hovered at or below the rate of inflation since 2009:

Just barely keeping up with inflation might be enough, given that I have much riskier positions in stocks, real estate, and tech startups.

But if an investment pays a yield below the rate of inflation, you’re essentially paying someone to hold onto your money. Instead of getting even a modest return, you lose a little of your cash every year, like clockwork.

Today, I own long term treasury bonds and medium term treasury and mortgage bonds. The long term bonds pay 1.73%, and come with a big risk of decline when interest rates increase. Which they’re just about bound to do, given that that they’re are sitting near 0.

The shorter duration bonds pay even less: 1.28%.

What Kind of Return Do We Need to Keep Up With Inflation?

Recent inflation numbers have been scary: over 5% a year. But, if we look at the longer run averages, the picture brightens a little.

Over the last 20 years, inflation has averaged 2.16%. Over the last 10 years, the figure is 1.89%.

I don’t know how long the sudden higher inflation of the last couple of months will last. But it appears that a floor for a return that will keep up for inflation is no less than 2%.

Where Can We Get Our 2%?

The attractive features of government bonds are liquidity, stability, and a modest income. Let’s review a few alternatives, with that in mind:

1) Corporate bonds. Returns aren’t much better than government bonds, at around 1.7%.

2) Fundrise. Love it, but not a good substitute for bonds. Real estate development just isn’t as stable. It’s not very liquid either. However, returns are good. I’ve notched around 7% since I started investing.

3) Single Premium Immediate Annuities. A rather exotic choice. Rates can be good at around 3.5% in some cases. And the income is guaranteed. But they’re not very liquid: there’s a 10% IRS penalty for withdrawal before age 59.5. But if you’re older, they could work well.

4) Dividend Aristocrats. These aren’t just any high dividend stocks. These have a history of paying higher dividends every year for at least 25 years. That’s a surer bet than many stocks with even higher dividends, because those huge payouts may not last.

The yield on some of these large, stable companies is impressive:

ExxonMobil: 6.5%

Chevron: 5.5%

IBM: 4.8%

Consolidated Edison: 4.2%

Of course, the stock prices could go down.

But if you’re buying for income, and the company is large and stable and has increased its dividend of decades on end, you don’t care. You just collect your check and head to the golf course.

What’s more, you can buy a basket of these stocks, rather than just one, insulating yourself from the chance that one of them cuts its dividend.

Wrap Up

Dividend Aristocrats seem like one of the best options to replace the income bonds no longer offer. They are also less likely to fall with higher interest rates.

What do you think the best option is? Leave a comment at the very bottom of the page and let me know! I just might use your idea. 🙂

AMC Fails to Deliver Up 1088% in Latest Data

September 1, 2021 tremendousblog 1 Comment

Major new data just came out today from the SEC. It shows fails to deliver in AMC Entertainment Holdings, Inc. up 1088% in the first half of August:

These fails to deliver sometimes happen for benign reasons. But when massive fails to deliver occur in a stock over a sustained period, it’s often a sign of naked short selling.

Naked short selling is the illegal practice of intentionally selling shares short (betting against them) without ever borrowing the shares as required. This is a powerful tool to distort markets. Since you never have to actually obtain any shares, you can sell as much as you want, pushing down the price.

The fails to deliver in AMC are truly enormous. And after falling significantly last month, they’re back with a vengeance. As of August 13, the last day in the series, AMC’s fails to deliver were 157 times larger than Apple’s. Apple is the largest stock in the market, at 113 times AMC’s market cap.

How could there be so much questionable activity in such a small stock? I strongly suspect illegal trading, likely on the part of hedge funds.

Maybe they’re trying to make back some of their losses.

More on AMC:

AMC #3 on Robinhood for September, Behind Only Apple & Tesla

For Retail Traders, AMC Has Become the Only Meme Stock

Short Sellers Lost $1 Billion Yesterday in AMC and GameStop

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog!

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

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AMC #3 on Robinhood for September, Behind Only Apple & Tesla

September 1, 2021 tremendousblog Leave a comment

The seasons are changing but one thing is not: the incredible popularity of AMC Entertainment Holdings, Inc. among retail investors.

Robinhood lists AMC at #3 on its leaderboard for September, behind only Apple and Tesla:

Apple is the largest stock in the entire market, with a market cap of $2.6 trillion. That’s 113 times larger than AMC. Tesla is 32 times larger.

AMC is more popular than massive companies like Amazon, Microsoft, or Walt Disney. It’s also significantly hotter than Robinhood Markets itself, at #12.

Even more incredible is that AMC has held the #3 position for six months straight. AMC also holds the #3 spot on Fidelity.

My understanding is that the Robinhood leaderboard reflects how many users own a particular stock, not the total amount held. So the amount of money in Apple, Tesla, or Amazon held by Robinhood accounts could be much greater than the amount in AMC, given those companies’ massive size.

Nonetheless, when a $23 billion business is more widely held than some of the most powerful companies on earth, I stand up and take notice.

More on AMC:

Charting The Huge Drop in AMC Fails to Deliver

For Retail Traders, AMC Has Become the Only Meme Stock

Short Sellers Lost $1 Billion Yesterday in AMC and GameStop

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog!

Photo: “Robin Hood sai à noite” by freddie boy is licensed under CC BY-SA 2.0

Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

iHerb

Use this link to save 5%!

Misfits Market

Use this link to sign up and you’ll save $10 on your first order.

Business

Short Sellers Lost $1 Billion Yesterday in AMC and GameStop

August 25, 2021 tremendousblog Leave a comment

Short sellers have been fighting retail traders all year. Yesterday, they took a major hit:

“Heavily shorted stocks have, for the last month, been less volatile than earlier this year. Today we saw an end to this,” said Ortex co-founder Peter Hillerberg.
The share price gains in AMC and GameStop generated losses for close to $1 billion for short sellers, Hillerberg said.

AMC Entertainment Holdings, Inc. was the most active stock in the entire options market. This is remarkable for a company whose market cap is only $23 billion. Apple, the biggest stock in the market, is over 100 times as large.

The options activity in both AMC and GameStop Corp. was strongly bullish, with call options (the right to purchase shares in the future) going like hotcakes.

No obvious news propelled these stocks upward. Yet hedge funds maintain their risky short positions.

This means using investors’ money to bet against stocks that gyrate wildly at the whims of retail traders. I find that to be irresponsible.

But, to quote one of my favorite movies:

Well, it could’ve been worse, right? Could’ve been my money.
Marv, Wall Street

Charting The Huge Drop in AMC Fails to Deliver

August 24, 2021 tremendousblog Leave a comment

There appears to be some fishy activity going on in shares of AMC Entertainment Holdings, Inc. The stock has long had huge “fails to deliver,” or trades that aren’t completed.

This can be a sign of illegal naked short selling, which is selling shares short without borrowing them first. Naked short selling is a sophisticated and powerful tactic that can drive share prices down, fast.

Last week, we talked about the huge drop in fails to deliver that occurred in the most recent SEC data, from the second half of July. Today, I decided to chart all AMC’s fails to deliver for July (above.)

As you can see, the number was staggering at the beginning of the month. As of July 1st, little AMC had fails to deliver 35,000 times as large as Amazon, one of the biggest companies on earth.

Exchanges whittled that number down substantially over the course of the month. (Note that the figure is cumulative, rather than just reflecting fails to deliver that occurred that day.)

Perhaps moves by the SEC, New York Stock Exchange (NYSE), National Securities Clearing Corporation (NSCC), and others to clean up the failed trades had an effect.

AMC still has massive fails to deliver for a stock its size. It ended the month with 160,233 fails to deliver, still 239 times the end-of-month figure for Amazon and 351 times Apple’s.

Regulators have made progress, but there’s a lot further to go.

More on AMC:

NEW DATA SHOWS BIG DROP IN AMC FAILS TO DELIVER

AMC HAS 35,000 TIMES THE FAILS-TO-DELIVER OF AMAZON

HEDGE FUNDS HIT HARD BY MEME STOCK LOSSES, BADLY BEHIND S&P 500

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog!

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Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

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New Data Shows Big Drop in AMC Fails to Deliver

August 16, 2021 tremendousblog Leave a comment

The Securities and Exchange Commission (SEC) has just released new fails to deliver data for the second half of July. It shows that fails to deliver in shares of AMC Entertainment Holdings, Inc., dropped substantially in the last two weeks, but remain elevated.

In the first half of July, AMC had over 3.5 million fails to deliver. Here is the raw data from the SEC from July 1st. The fails to deliver are the number right before the company name:

20210701|00165C104|AMC|3519354|AMC ENTMT HLDGS INC CL A COM S|56.68

The most recent data, from July 30, show a significant decrease:

20210730|00165C104|AMC|160233|AMC ENTMT HLDGS INC CL A COM S|38.13

Let’s back up for a second: what are fails to deliver and why do they matter? Fails to deliver occur when a trade in a stock doesn’t clear properly. Sometimes the cause is benign, but AMC’s fails to deliver have been large and persistent.

Such a pattern is often associated with the illegal practice of naked short selling. Naked short selling involves selling shares without actually borrowing them first, pushing down the price artificially.

Perhaps recent moves by the SEC, New York Stock Exchange (NYSE), National Securities Clearing Corporation (NSCC), and others to reduce fails to deliver and prevent illegal trades are having an effect.

That said, AMC’s fails to deliver remain 238 times larger than those of Amazon (671 on July 29th, the most recent date available). Amazon has a market cap nearly 100 times AMC’s. AMC’s fails to deliver are 351 times the size of Apple’s (456 on July 30), the largest stock in the market.

Trading in AMC stock still looks fishy. Regulators may be making progress but there’s still a long way to go.

More on AMC:

AMC HAS 35,000 TIMES THE FAILS-TO-DELIVER OF AMAZON

AMC ON THE THRESHOLD LIST: STRONG EVIDENCE OF NAKED SHORT SELLING

HOW AMC CRAZY IS YOUR STATE?

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog!

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.

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Tremendous

Tag Archives: Personal finance

Let’s Make Our Own Index Fund!

How Did High Dividend Stocks Perform In the Last Crash?

Starting a Financial Plan from 0

Where Can We Hide in a Financial Crisis?

Should Anyone Own Bonds?

AMC Fails to Deliver Up 1088% in Latest Data

AMC #3 on Robinhood for September, Behind Only Apple & Tesla

Short Sellers Lost $1 Billion Yesterday in AMC and GameStop

Charting The Huge Drop in AMC Fails to Deliver

New Data Shows Big Drop in AMC Fails to Deliver

An angel investor's take on life and business