Your Wealth Reserve: Are Warren Buffett’s Vanguard funds right for you?

Are Warren Buffett’s Vanguard funds right for you?

Warren Buffett, one of the greatest investors, recommends we invest in only 2 funds: Vanguard funds. There are over 9,000 mutual funds and over 5,000 ETFs (index funds) to buy. Why did he pick just 2? He beat 5 Wall Street guru strategies with Vanguard’s 500 Index. It is low cost and diversified across many industries. The Vanguard 500 Index has returned about 11% per year since 1976. Buffett notes that compounding has made him wealthy. He recommends Vanguard because it provides high returns at low cost. His holding period is “forever.” His mantra is “we make more money when snoring than when active.” Why don’t all investors follow his advice: hubris and greed! People think they or their advisor can beat the market even though they can’t year after year. The average investor’s managed account earns just 3.79%. Trading reduces the benefits of compounding. Market timing is never perfect. Buffett says just ignore market gyrations.

https://www.amazon.com/Warren-Buffetts-Vanguard-Funds-Retirement/dp/1496148592

Social Security benefits rise in 2020

Wealthy people receive even higher benefits in 2020: $3,011 per month. That extra $1,800 a year comes from higher pay but a cap on their tax: incomes over $137,700 are not taxed at all! Those who need SS benefits the least don’t have to pay 6.2% of their income like we do. This is ‘Socialism for the Rich’: From the poor by law to the very rich by design. The wealthy folks’ benefits rise but they stop paying the 6.2% tax when their income rises above $137,700. We always pay 6.2%--they stop at the cap. The average benefit is $1,485: an increase of $24. Most of us fear GOP will reduce benefits to pay for their tax breaks. SS trustees estimate a benefit CUT in 2034. GOP has called SS benefits “socialism;” yes, Socialism for the Rich. Plan for the cuts now!

Create your own SS supplement: https://www.amazon.com/Pay-No-Taxes-Retirement-legally/dp/1507527977

Is equity rebalancing right for you?

Rebalancing means buying and selling securities to maintain the proportion you feel comfortable with. Example: you want to keep 60% of your money in equities for the foreseeable future. Equities grow to 70% of your total portfolio in a year so you sell 10% and buy the other securities to maintain the ‘balance’ overall. But if you do this, you may have higher taxes and a lower return over time. The tradeoff is you can sleep at night despite the market volatility. However, it you don’t look at your account, you can ignore the market gyrations and earn a higher return. Vanguard has provided an analysis of different rebalancing strategies (timing and portfolios) to illustrate the relationships. However, John Bogle, the founder of Vanguard, advises: “I don't think you need to do it. And sometimes rebalancing improves your returns. Sometimes it makes them worse.” “There is a comfort level …. So it's a behavioral problem.” If it makes you feel better, rebalance. However, don’t expect the market returns of 11% over time: $250 a month compounded at 11% provides about $1 million in 34 years vs $500,000 at 8%. Big deal!

Take Bogle’s advice: https://www.amazon.com/Dont-Re-balance-Your-Portfolio-Research/dp/1508802386

Is a balanced fund right for you?

Instead of rebalancing (selling and buying for fees) on your advisor’s orders, maybe a better plan is keeping a balanced fund fully funded. Take the Wellesley Income Fund. This 40 year-old, income-oriented balanced fund offers exposure to stocks and investment-grade bonds. This fund is unique in allocating about one-third to stocks and two-thirds to bonds. The fund’s stock holdings are focused on companies that have historically paid a larger-than-average dividend or that have expectations of increasing dividends. This focus may provide a higher quarterly income distribution. As a result, you earn a consistent 8-10% return over time without wild market swings.

One of Vanguard’s Top Ten: https://www.amazon.com/Vanguards-Top-Ten-mutual-funds/dp/150073909X

Why compounding your earnings is considered a ‘miracle’

Compounding is a miracle because you can accumulate over $1 million by investing just $3,000 during your working years. You can expect to earn the market returns of 11% over time: $250 a month compounded at 11% provides about $1 million in 34 years vs $500,000 at 8%. That is a quite a difference! Of course you must invest in a low-cost stock market index fund and avoid trading and advisor fees. Actually, this is exactly what Warren Buffett, a successful investor, recommends: "A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money." He says: "My wealth has come from a combination of living in America, some lucky genes, and compound interest." Every $20 invested in stocks is worth $770 in 35 years.

Use compound interest: https://www.amazon.com/Miracle-Compounding-Turn-day-into/dp/1470176513

Why do more investors go it alone?

You might have noticed the trend to investors going the Do It Yourself right-of-way. First, everyone thinks they are above average investors. Actually, the average investor earns only 3.79% over time while a simple market index earns 11%. Second, dealing with an advisor/broker can hurt you financially. Even top firms don’t control their Reps well: JP Morgan was caught not disclosing advisor fraud, stealing, lying, forging, etc etc. Reps are not reported quickly if at all and no one at the firm goes to jail. The industry considers bad behavior just the cost of doing business. Morgan employs 26,000 Reps. They “prevented or delayed regulators, other member firms, and the public from learning about those events and, in certain instances, prevented the regulator FINRA from pursuing potential disciplinary action.” Example: 12b-1 fees and revenue-sharing from mutual funds to advisors are often not disclosed. SEC says “investment advisers have not appropriately addressed these conflicts of interest." When I worked for a Wall Street firm and my advisor screwed up, my own compliance department dismissed my complaint. Third, industry lobbyists got Trump to cancel the Obama’s Fiduciary Rule that held Reps to a higher standard of ‘give the client the best’. Avoid industry Tricks of the Trade.

Earn more on your own: https://www.amazon.com/Tricks-Trade-Mutual-Insurance-Annuities/dp/1535497289/

**********ACCOUNTABILITY**************

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