One Goal, One Portfolio

“In which mutual funds should I invest in my new IRA?” This is typical of one type of question we get a lot on the Investing Help subforum of the  Bogleheads investment forum. The answer is: “we can’t advise you until you tell us about all of your investment accounts” (e.g., IRA, 401k, 403b, individual, etc.). This is because the decision to hold an investment in one account should not be made in isolation; it should be based on all investments related to a particular goal; e.g., retirement. It may make sense to design separate portfolios for separate goals, for example college expenses, a house down payment, and retirement, but there should be one portfolio for each investment goal, regardless of the number of accounts used. A portfolio is simply the collection of investments designated for a particular investment goal.

INOVA Slashes CD Rates--No Longer Competitive

INOVA Federal Credit Union has slashed the rates on their 5-year and 6-year CDs. They no longer are competitive with PenFed's 5-year and 7-year CDs. So for holding periods of three years or more, the PenFed 7-year now is the way to go. For shorter holding periods, the Ally 5-year CD paying 1.69% (APY) still is the winner. As always, you may be able to find a similar or better deal at a local credit union, and you may find comparable rates from other banks or credit unions at DepositAccounts.com. Congrats to those of you who got in on the good deal while it lasted.

Science or Sales?

Investors can be placed into one of two categories: those who base their investment decisions on the massive amount of academic research that has been done over the last 60 years (science), or those who base their investment decisions on the marketing machine of the ginormous financial industry (sales). Which category are you in? Which category of investors do you think is likely to do better in the long run?

Back to Basics

For some time I’ve been posting about specific topics like CDs, I Bonds, Reward Checking accounts, Vanguard Target Retirement and LifeStrategy funds, etc. I’ve decided that it’s time to review the basics. If you want to read another perspective on the basics of investing, a good resource is the Bogleheads Investment Philosophy. Watch the video version of it if you learn better by watching and listening to someone speak. For fun, I am  writing this without referring to those resources. Let’s see how many points we agree on (feel free to check). Here we go …

Why Vanguard?

It has occurred to me that I might sound like a Vanguard shill or salesman to those of you who do not have experience with a number of mutual fund and brokerage companies, including Vanguard. I assure you that I receive no benefit of any kind in recommending Vanguard funds, other than the satisfaction of seeing my friends and family benefiting from using the best mutual fund company on the planet (there I go again!). So, what is so special about Vanguard?

Vanguard LifeStrategy Funds

In previous posts I've recommended Vanguard Target Retirement funds (minimum investment $1,000) as a way to own a broadly-diversified, low-cost portfolio using a single mutual fund. Vanguard offers another group of all-in-one funds that are worth considering: the Vanguard LifeStrategy Funds. The main difference is that the LifeStrategy funds maintain a constant asset allocation (ratio of stocks to bonds), whereas the Target Retirement funds gradually reduce the stock/bond ratio as you approach retirement. Also, the minimum investment in a LifeStrategy fund is $3,000.

Blog Problem

I had a problem with my blog. A post I had published disappeared, and an old post was emailed to subscribers. Apologies to subscribers about receiving the old post; hopefully it did not hurt to be reminded that paying down high-interest debt is a good investment.

Although more than half of the post I had written had disappeared from the draft version, a kind member of the Google Blogger forum informed me that the blog post was "cached", and provided a link to the cached version, so I was able to retrieve the full post, and did not have to rewrite it. It has since been posted (Vanguard LifeStrategy Funds).

Wedding Costs: 1974 vs. Today

In 1974 when I got married, my in-laws offered to spend $2,000 on the wedding or give us the cash. That seemed generous to me. Being the poor, frugal hippie-types, we took the cash (but due to the generosity and love of family and friends still had a wonderful wedding). My older daughters are at the age at which a wedding could be on the horizon. This got me to wondering how much a $2,000 wedding in 1974 would cost in 2012. Considering only general inflation, this is easy to calculate.

Bogleheads

I spend a lot of time participating in the Bogleheads investment forum, and recently also contributing to the Bogleheads Wiki (a collection of articles on investing and other personal finance topics). So, what are Bogleheads? Here is a description straight from this page on the Bogleheads website:

Bogleheads, a term intended to honor Vanguard founder and investor advocate John Bogle, are investing enthusiasts who participate in the Bogleheads Forum. The forum's regular posters discuss financial news and theory, while also helping less experienced investors develop their portfolios. There are nearly 26,000 registered Bogleheads Forum users who normally make between 500 and 1,000 posts each day.

INOVA Drops Rates on 6-Year CDs

Update: INOVA has slashed its rates, so their 5-year and 6-year CDs no longer are competitive with the PenFed CU 5-year and 7-year CDs.

My shortest blog post ever ... INOVA credit union recently dropped the rates on their 6-year CDs. They now match the rates on their 5-year CDs, so now I would go for the 5-year CDs unless you think rates are going to stay this low for more than five years. Here are the current rates (APY):

• Taxable 5/6-Year CDs: 2.10%
• Taxable 5/6-Year step up CDs: 2.00%
• IRA 5/6-Year CDs: 2.20%
• IRA 5/6-Year step up CDs: 2.10%

The rates are still competitive with the PenFed CU 5-year CD at 2.00% APY, and the Ally Bank 5-year CD at 1.74% APY. The PenFed CU 7-year CD is a better deal if you hold for at least about four years. The break even point with the Ally 5-year CD (if doing an early withdrawal) is about two years. The step-up option still is a nice sweetener. See my recent posts for more details on the INOVA CDs.