Burns~ Indexing is flawed, vain, violent...better get some.

[mickeyd]

When you become an index investor, you rest in the benign assurance that you will capture the market return of many asset classes. You also accept a historically verifiable idea: Flawed, vain, violent and covetous human beings, on balance, collectively manage to create more value than they destroy.

Scott Burns has always suggested that passive investing is the way to go for most long-term investors and when he says to "buy an index fund to avoid the selection risk" he seems to bring it all home.

http://assetbuilder.com/?p=594

 

[magellan_nh]

In that same piece, Mr. Burns also suggested that CD rates are about the same as treasuries and that wealthier investors would do better with the latter. Unfortunately he uses average CD rates instead of the top rates and suggests that the top rates are transient and not widely available.

Sorry, but I think he's off the mark on this one. I've used bankrate.com for a couple of years and I've found I've been able to consistently get higher rates there. Not to mention the occasional PenFed offer that comes along and blows the doors off other alternatives.

Anyhow, Mr. Burns columns usually give good advice, but I can only guess that this answer was aimed at a non-Internet connected reader that isn't comfortable buying CDs online.

Jim

 

[Texas Proud]

Jim,

I agree with him using 'average'.... yes, you can do better with interest rates with just a little looking... but MOST people will only go down to the S&L or bank and open a CD... so for THEM the average is best... and he is writing to THEM, not us...

And it is funny, but I am only about 30% index and I am doing a bit better than the index... but they are some good Vanguard funds... OR my 401(k) which I am stuck with what I can invest..

 

[Grep]

The problem with fishing for CD rates that are higher than treasuries is that (1) you have to pay state taxes - for many of us rather high state tases - on CD's, and (2) if you have a lot of money that you want to maintain as "cash" then you have to find a lot of unusually high-interest CD's due to the 100k FDIC limit, which is often impossible. Hence, you are really talking about some average of the highest-paying CD offerings, minus the taxes. High-rate offerings are generally short-term and promotional in nature, and are constantly shifting, which raises the attention you must maintain on this sector. So, for many people with higher net worth, those who might be interested in CD's might genuinely prefer treasuries.

 

[magellan_nh]

if you have a lot of money that you want to maintain as "cash" then you have to find a lot of unusually high-interest CD's due to the 100k FDIC limit, which is often impossible

With different account registrations your can easily extend the insurance to $300k per couple (each individual, then joint). If that's not enough, you can add in IRA accounts as well.

I suppose we're all different about the cost/benefit trade-off of this type of bargain hunting. I'm pretty willing to do some extra work for an FDIC insured gift of .5 to 1% on several hundred thousand dollars.

But as Texas Proud commented, I guess we're not Mr. Burns' target audience.

Jim