Consumer Reports: Feb 2007 "Simplify Your Financial Life"

[ZMAN]

I just got the new Consumers Report with the cover articles on money: 1) 10 Easy Steps to the simple financial life 2) 60 funds you can count on, and 3) What to Watch for in '07.

I am a long term reader of CR and use it for many decisions including for a while the beer I was drinking (to the great ridicule of all---calling it "safety beer"). You are a great and knowledgeble group and I was wondering your take on the articles.

 

[kaudrey]

The 10 easy steps seemed like pretty good suggestions, and the what to watch for was pretty logical, but you can't see the mutual funds unless you subscribe, which I don't.

Did you have a more specific question we might be able to help with?

Karen

 

[ZMAN]

The idea of listing best performing mutual funds strikes me as a sub-set of chasing best performing stocks. A way to end up with a disorganized portfolio. I know the text is good and they have the Vanguard comparison but the charts look like an invitation to having your money all over the place making it hard or impossible to get a handle on the total allocation.

 

[samclem]

Sorry, I can't see the CR article you are referring to. In the past, Consumer Reports has done a terrible job in rating mutual funds. Unlike toasters or cars, last year's "best" mutual fund is entirely likely to be next year's worst since the "best performing" funds are likely to be an exotic sector that is extremely unlikely to repeat.

Investors need good advice in constructing a diversified portfolio across asset classes at minimum cost (to include taxes). In the past, CR's emphasis on the "best performing" mutual funds has not been a service to the majority of investors. I also know that they have received detailed information concerning the error of their approach, but they had not changed. Maybe I'll be surprised to see everything is different this year, but I doubt it.

 

[Rich_by_the_Bay]

Investors need good advice in constructing a diversified portfolio across asset classes at minimum cost (to include taxes). In the past, CR's emphasis on the "best performing" mutual funds has not been a service to the majority of investors. I also know that they have received detailed information concerning the error of their approach, but they had not changed. Maybe I'll be surprised to see everything is different this year, but I doubt it.

They added a "consistency" rating, but did not provide enough details; looks to me like it measure how frequently they beat the closest Vanguard index fund. Most are managed funds.

So, it looks to me like they isolated those funds that beat the index most often; of the total they rated, most obviously did not beat the index (Vgd) and didn't make the list. Since there are always some funds that will beat the index, and since most did not, it reinforced my impression that over the long haul, why not just buy the index?

They did provide some sample asset allocation models: .3 big, .3 small/mid, .3 international .1 cash, for example.

 

[cute fuzzy bunny]

Its a perfectly good article for people who need the basic guidelines.

As far as the funds, the same caveats I always apply to consumer reports ratings applies: they pick the categories they think are important and weight them with what they feel are the best ratings.

These may not be the categories important to you, and you may have very different ratings.

They also lump things together where "one of these things is not like the other...". Good example is lumping the 35/65 wellesley fund with a bunch of 60/40's and then dropping it to the bottom due to lower returns. Gander over to the largest gain/loss category and you'll see that wellesley has the smallest period loss of the funds.

So if not losing money is whats most important to you when buying a balanced fund, you might find that what CR rates at the bottom is the best buy for you.

I hit the same thing with their ratings all the time. On vacuum cleaners they rate units with better 'tools' and lighter weight higher. I dont use the tools much and the thing could weigh 50lbs as far as i'm concerned. So a cheap heavy one with great suction and lousy tools from the middle of their ratings is the one thats right for me.

So they're providing some good data points, but perhaps in the attempt to simplify things for the common person, they instead cloud the matter a bit.

 

[FinanceDude]

Its a perfectly good article for people who need the basic guidelines.

As far as the funds, the same caveats I always apply to consumer reports ratings applies: they pick the categories they think are important and weight them with what they feel are the best ratings.

These may not be the categories important to you, and you may have very different ratings.

They also lump things together where "one of these things is not like the other...". Good example is lumping the 35/65 wellesley fund with a bunch of 60/40's and then dropping it to the bottom due to lower returns. Gander over to the largest gain/loss category and you'll see that wellesley has the smallest period loss of the funds.

So if not losing money is whats most important to you when buying a balanced fund, you might find that what CR rates at the bottom is the best buy for you.

I hit the same thing with their ratings all the time. On vacuum cleaners they rate units with better 'tools' and lighter weight higher. I dont use the tools much and the thing could weigh 50lbs as far as i'm concerned. So a cheap heavy one with great suction and lousy tools from the middle of their ratings is the one thats right for me.

So they're providing some good data points, but perhaps in the attempt to simplify things for the common person, they instead cloud the matter a bit.

DW HAS to have her Consumer Reports mag.............. I really don't like their financial articles and their car reviews........... For cars, I stick to Car and Driver and for financial stuff...........there's lots of better places.............

 

[Rich_by_the_Bay]

So if not losing money is whats most important to you when buying a balanced fund, you might find that what CR rates at the bottom is the best buy for you.

I hit the same thing with their ratings all the time. On vacuum cleaners they rate units with better 'tools' and lighter weight higher. I dont use the tools much and the thing could weigh 50lbs as far as i'm concerned. So a cheap heavy one with great suction and lousy tools from the middle of their ratings is the one thats right for me.

I agree - you need to substitute your priorities for theirs in any given purchase. Fortunately, they usually provide enough information to do that, and are quite responsible in their reports, if not perfect.

Regarding the Wellesley thing - I am not sure that they rated it last. My take is that each asset category had the Vgd fund listed at the bottom (in different font and format) to serve as their benchmark to compare the others against for consistency. It was a little unclear, but my take was that the Vgd benchmark was not actually "ranked" like the others. At least the numbers are provided for comparison.

 

[kcowan]

I have been a subscriber for 30 years because I support the concept of an independent consumer voice. I think they have been right on the mark with reliability records and recalls. I have especially been glad to see them rate Porsches and Lexus rather than dismissing them as overly expensive as in the past.

I have found most of their health and wealth focus unsatisfying. Their strength has been product evaluations. Taking those strengths and applying them to health and wealth is misguided. These areas require an entirely different skill set.

So I skip over large sections of the magazine now. But I still subscribe for the cause.

 

[cute fuzzy bunny]

Rich - CR 'rated' each fund by scoring it with a 'consistency' number, which is some formula they didnt disclose for how often the fund beat its benchmark. Wellesley rated the worst consistency at '75' (whatever that means) and was at the bottom. The benchmark as far as I can tell is the "total stock market index" which seems a poor comparator for asset allocation funds. Quite certainly a 35/65 bond/stock fund would have trouble consistently beating a 100% stock index. What information that provides a casual reader? Your guess is as good as mine.

Kcowan...indeed...when a magazine wanders from their area of expertise the results are generally not very helpful. Although I'll give CR the benefit of the doubt as they launch their new "money lab" I'll have to say that I've seen plenty of other mags blow it. I remember one of the financial rags throwing out some "Ten things to know about..." various topics that werent financially related. On two of the ones I remember, 8 of the ten "things to know!" were factually incorrect, several disastrously so.

But CR's handy for somewhat unemotional (if you can shake the occasional lefty ballast) yardsticks and calculators data points.

Just (as always) dont just take the numbers and ratings charts at face value. Understand what they're measuring, how they measured it, and how they came to the conclusions they did. Chances are, for each individual the measurements may vary, the importance of the measurements will be different, and you may come to some very different conclusions.

But...people just love to swallow the pie chart on the front page of USA today..

 

[kcowan]

I guess I get really nervous when a reputable mag tries to make something easy for consumers when we all know that this particular topic is not easy.

At one time they refused to evaluate Cadillacs because they said that nobody needed anything more expensive than a Chev. They have come a long way but I worry about some eggheads in the finance lab giving out charts that my mom and dad might have followed because of their reputation in consumer products.

 

[MasterBlaster]

I have real problems with the Consumer Reports view on cars.

To them they look at everything through a reliability scope. To them reliability is everything. They conviently ignore (or downweight) performance. And they downweight safety.

So for example, when evaluating a Corvette, they might say that it has nice acceleration but isn't as reliable as a Camry.

well duh.

If it was up to Consumer Reports we'd all be driving a Corolla.

 

[Shawn]

If it was up to Consumer Reports we'd all be driving a Corolla.

I was looking to buy a used car back in 1985. At that time, Consumer Reports listed the 1980 Toyota Corolla as having the best repair record of any car sold in America. Based largely on what I read in Consumer Reports, I found and purchased a 1980 Corolla, which was 5 years old at the time. Today, 22 years later, I'm still driving my 27 year old Corolla. It still gets 35-37 MPG on the highway. It even passed the California smog test on it's own a couple of months ago. What a car.

To each his/her own, of course.

This is my first post here so I hope it comes out OK. I've been lurking for a while, but I had to register and respond because my car took offense at your comment.

 

[MasterBlaster]

Shawn:

While a Corolla is a fine car for what it is, many people want more from a car than a Corolla could ever deliver.

 

[REWahoo]

This is my first post here so I hope it comes out OK. I've been lurking for a while, but I had to register and respond because my car took offense at your comment.

Welcome Shawn, glad you came out of the shadows to post. Nords is known to ask lurkers what made them take the plunge and join in the conversation. We know in your case it was to defend the honor of your Corolla!

When you have a chance, introduce yourself on the "Hi, I am" thread and tell us what brought you to the forum.

 

[TromboneAl]

By ignoring the index fund route, they do a disservice to their customers. In fact, a lot of people will look at their charts and say "Hey, look, all of these funds did better than Vanguard 500 index; guess that shows that indexing is no good."

 

[RAE]

Sorry, MasterBlaster, but I'm with Shawn on this one. I own two Corolla's.......a 96 with 165,000 miles on it, and a 2000 with 125,000 miles. Bought both of them used. So I'm far from Shawn's 27-year ownership tenure, but both of these cars are trouble-free, and I fully expect that they will be running many years from now. What I mainly want from a car is reliability, good gas mileage, and low-maintenance costs, and the Corolla's shine in all areas. Othere than tires, brakes, and oil changes, these two cars have been virtually maintenance-free. I understand that they are probably not for everyone, but they sure fit the bill for me RAE

 

[MasterBlaster]

RAE:

You win the Consumer Reports car driver of the year award.

And other than comfort, style , and safety I agree that the Corolla is a great car.

 

[kcowan]

We have a 93 Explorer and a 95 BMW convertible. Both have less than 100k miles on them. Only extra expense has been brake jobs too often on the Explorer. We even got a new set of tires from the Firestone recall when there was only 10% tread left.

 

[cute fuzzy bunny]

You got lucky on the exploder. I had an expedition and my little neighborhood is full of newer F150's, explorers and expeditions. One of us was always under theirs fixing something. The expedition led me to dozens of dealer service calls and after warranty I ended up replacing power window actuators, the power mirror motors, and two air conditioning compressors. I finally threw in the towel when after 50k miles the dealer told me it needed another AC compressor and the transmission was on its way out.

Hey Masterblaster...CR seems to factor in safety quite a bit on their ratings, but I look at their numbers as being from the practical safe/economical/reliable standpoint and then look at one of the car enthusiast rags for the testosterone 'vroom vroom' stuff. When they agree or come close to each other, I know i've got a winner.

 

[dumpster56]

We have a 93 Explorer and a 95 BMW convertible. Both have less than 100k miles on them. Only extra expense has been brake jobs too often on the Explorer. We even got a new set of tires from the Firestone recall when there was only 10% tread left.

What do ya get mileage wise? 12mpg?? Uh a waste.

 

[MasterBlaster]

Hey Masterblaster...CR seems to factor in safety quite a bit on their ratings, but I look at their numbers as being from the practical safe/economical/reliable standpoint and then look at one of the car enthusiast rags for the testosterone 'vroom vroom' stuff. When they agree or come close to each other, I know i've got a winner.

Haven't we already been through this once ??

Anyway, small (lower weight) cars are inherently more dangerous than larger cars - That's just physics. Airbags help, and crash testing helps determine safer cars too. But which car would you rather be in in the Excursion/Corolla collision. As I recall, Consumer Reports only uses crash test ratings to dfetermine safety

Check out the Insurance Institute for Highway Safety (ie. real world) stats http://www.iihs.org/brochures/ictl/pdf/ictl_0906.pdf

And note that, for example, you are around 3 times more likely to be killed in a Corolla than a Grand Marquis. Both of these cars had pretty good crash test scores but the real-world experience with the cars suggests that they don't have similar real-world survivabilty experience.

 

[Gearhead Jim]

...
So for example, when evaluating a Corvette, they might say that it has nice acceleration but isn't as reliable as a Camry.

well duh.

...

We are currently driving our third Camry and third Corvette, I'd suggest that everyone get both.
CR rates the Corvette as one of their most unreliable cars, but also showed it as having about the highest satisfaction rating of anything thy've tested. Guess which number they publicize most?
I sometimes think the motto at CR is "Fun is Bad".

 

[FinanceDude]

We are currently driving our third Camry and third Corvette, I'd suggest that everyone get both.

Good idea...........you can average the $$ of maintaining the Vette against the cents od owning the Camry...........

 

[teejayevans]

You can't possibly appreciate a vette unless you've gone
130 mph or more. Same is probably true of any sports car,
they are simply a waste of $ at normal US speeds.
Taking a vette at 130+ mph around sweeping highway turns
makes it all worth it. Now that I'm more mature I wouldn't do that
of course
Tom