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Getting Sensible – The Financial Preserve from Lonier Financial Advisory LLC
Conscientious Financial Planning and Retirement Income Management | 201-741-9528
from Lonier Financial Advisory LLC, Osprey, FL

Getting Sensible

Getting Sensible

Learning about finance and investing is probably not high on your list of leisure activities, maybe ranking somewhere between watching curling and vacuuming the dust behind the refrigerator.

Check out this series of eight short broadcast-quality videos at SensibleInvesting.tv. Though not quite Downton Abbey, they’re (mildly) entertaining for their British lilt while providing an easy introduction to a prudent investing method that has attracted a trillion dollars of investments in the U.S.(1) over the last 20-30 years and is now taking root in the U.K.

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The method is usually called passive investing to distinguish it from the active management of a money manager or team of stock pickers and market strategists (think Goldman or Morgan). The short form is that the big guys and the stock pickers, for all their sophisticated models, jargon, and fancy brochures, mostly underperform the market while charging high fees to manage your money.

Passive investing is actually the grandfather of an evolving set of strategic investment approaches based on the academic study of market value and behavior. The underlying logic is that a strategically allocated group of broad and ‘tilted’ index funds that zig and zag at different times will more consistently produce higher returns at lower risk (volatility) than a mixed group of old-fashioned proprietary mutual funds. And at significantly lower fund and management costs, which contributes to the strategy’s out-performance of traditional funds over time.

Anyone saving and investing for their children’s or grand children’s college education, their retirement, and other goals should learn about index investing. It’s a prudent, low-cost way to harvest market returns at a level of risk that can be easily tuned to your personal balance sheet and stage in the investing life-cycle. Once properly constructed, it requires just a modest amount of attention and occasional rebalancing, allowing you to live your life without having to constantly worry about the market.

This video series is an easy way to start that learning. It includes short interviews with the major academic and industry figures who developed this approach over the last 30 years or so, such as Nobel laureate William Sharpe, Ken French, and Jack Bogle, founder of index giant Vanguard and the creator of the first index fund (1975).

I use this strategy in my lifetime financial planning process, adjusting fund allocations to your earning potential, savings, time horizon, and your specific risk capacity. This kind of individualized tuning is not possible with mutual funds, even so-called target date funds, which are one-size fits all.

This personalization is now available at a low cost thanks to the 1,000+ index exchange-traded funds created in the last decade, low-cost custodial account services, and efficient tools for lifetime planning and portfolio construction.

The cost (expense ratio) of typical index funds run from .05%-.30%. Those of us who specialize in this approach also charge low management fees that reflect the efficiency of the method, generally around .25%. So total fees range from .30%-.55%, well under 1% of assets. Compare this to total fees of 1.5%-3% from the big guys with their expensive proprietary funds and managed accounts. You don’t need a Harvard MBA to understand what a 3% nick does to your returns in a low-yield world. Or why the big guys have so much trouble matching index returns when those expenses are subtracted.

So click in and enjoy the show. You don’t have to watch them all at once, like catching up on a season of Homeland—but you owe it yourself to watch a few and learn enough about prudent saving and investing that you can set yourself set up in a ‘Sensible’ way. It could make a huge difference to you in the long term.

— By Michael Lonier , RMA℠


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