On this episode of "On the Money," we discuss financial New Year's resolutions and the benefits of diversification. Click below to listen!
Paul Ruedi and Dr. Fred Giertz on alternative investments, Warren Buffet’s million dollar bet, and active vs. passive management (2:35 – 7:35)
“So (Warren) made a bet that (he) can basically go can buy the Vanguard Index 500… and can capture the complete returns of the US stock market, particularly the large companies in the US, (against) a fellow who basically set up a fund of the smartest hedge funds. He picked five of them, and all five of them underperformed that no-brainer stock index fund, and by a pretty wide margin.” – Paul Ruedi
Paul Ruedi, Ryan Repko, and David Ruedi, CFP® on Financial New Year’s resolutions (22:58 – 26:00 & 30:30 – 37:18)
Saving Vs. Paying Down Debt
“If you already have debt, consumer credit card debt, that’s something you should really consider paying off first – before you start savings. The reason is simple mathematics, if you have credit card debt that carries an interest of 18, 19, 20 plus percent – which is common – you’re not likely going to be able to get that return in the market.” – Ryan Repko
Pay off Your Debt
“I would suggest looking at your credit cards, if you have several credit cards, and paying off the one that has the highest percentage interest. That’s the mathematical side of it – what is going to hurt me the most in terms of interest charges - lets tackle that first.” – Ryan Repko
“Once you’ve eliminated any budgetary issues with shortfalls and credit card interest, an easy way to start saving money would be in a 401k provided by your work – that’s the “no-brainer” typically because a number of companies provide 401ks and a number also provide a match which is a nice way to get free money.” – Ryan Repko
Increase Your Savings
The fact of the matter is, most people have a company retirement plan, and the vast majority are not maxing out their 401ks. So I think the easiest thing to do is maximize that first, then if you have excess savings beyond that, you can open an account with one of the major custodians and (set up automatic transfers from your bank account into an investment account)” – David Ruedi, CFP®
Paul Ruedi and David Ruedi, CFP® on Diversification (38:27 – 50:50)
“Harry Markowitz won a Nobel Prize for MPT because he basically quantified that it makes sense not to own just 1 or 2 stocks – there is a real benefit (to diversification) that we can actually calculate.” – Paul Ruedi
“Instead of thinking in things in expected returns, and standard deviation, I like to think of it in common sense terms: why in the world would I tie my financial livelihood to one or two companies or one or two asset classes, when you just don’t need to do that? You can have the same expected return and diversify across thousands of companies and multiple asset classes – and then you don’t have to worry about any given one.” - David Ruedi, CFP®
“In the short run, sometimes diversification can make you feel really stupid or like you are really missing out – so if there is a downside to diversification, it kind of comes from an emotional side.” – Paul Ruedi
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