To clarify from yesterday . . . the new edition of my book suggests two ways to do even better in the stock market over the long run than the most popular index funds – which themselves have long been suggested in prior editions as an easy way to outperform most stock market investors (because of their very low fees, very low internal transaction costs, and the very low capital gains tax they expose you to).
The new edition suggests “equally-weighted” index funds and the “Formula Investing” family of funds. Less and I are both high on the former. Less is not high on the latter – the case for which I make in the book – both because they have a much higher expense ratio and because, in a taxable account, you will likely be exposed to a much higher tax bill.
No one can know what will happen. And the stock market itself could collapse, so even an “outperforming” fund could leave you wrecked. But one could imagine that the typical load fund might grow by, say, 5% or 6% a year over long periods of time; an index fund by 7% or 8% (unburdened as it is by all the fees and transaction costs weighing it down); an equally-weighted index fund by 9% or 10%; and the Formula funds – and here is where my friend Less will lament the loss of my sanity – by 11% or 12%.
If that proved to be the case – and, obviously, both as to exact amounts and to relative performance it may not – then it would make sense to have a good chunk of your tax-deferred retirement account in Formula funds.
But it would be a much closer call in your taxable accounts. If you’re in a low tax bracket in a no-income-tax state (for example), you might still go with the Formula funds. But you might do better in the tax-deferred index funds. (Tax-deferred, not tax-free, because if you ever started selling the funds to, say, buy stuff, you’d then have to pay tax on the accumulated gains.)
The larger point here is simply that, by and large, index funds are generally a lot better than the actively-managed mutual funds most people buy . . . that there’s good reason to think that equally-weighted index funds will continue to do better still . . . and that, certainly in a tax-deferred retirement account, I think there’s good logical reason to think the Formula funds will do better still.
Less disagrees, which is what makes horses race and America great. Whichever of us proves right, I like to think that, over time, both approaches will have served you relatively well.
That said . . .
DON’T SELL YOUR BOREF
I mean, really: how could you? First of all, if you have a lot of it, you’d drive the price – $2.31 at last trade – down below zero. (I’m not sure how, but this company is unique.) Second, you have to visualize the alternatives. Alternative One: the stock does indeed, eventually, go to zero – just as first predicted here 11 years ago. You’re disappointed but . . . oh, well. Alternative Two: you sell, get your $2.31 a share – and the stock hits $100. You slit your wrists.
I would. After waiting all this time? I’d jump off a bridge.
No, I’d fling myself in front of an onrushing 737, as it taxies along the tarmac like a golf cart, as envisioned here:
PRAGUE, CZECH REPUBLIC and GIBRALTAR-20 January 2011 – WheelTug plc is pleased to announce that a video summary of 737NG tow tests conducted in Prague has now been released to the public.
. . . Isaiah Cox, WheelTug plc’s President and CEO, explained: “The tests we conducted verified the preliminary design of the in-wheel WheelTug system. We collected considerable data about the forces required from an onboard electric drive system, and we had the added bonus of working in very adverse conditions, including during the middle of a snow storm which resulted in snow, ice, and wet runway conditions.”
The video shows Chorus® electric motors attached to the nose wheels of a Boeing 737-800 driving the aircraft at taxi speeds and executing nose-driven 180-degree turns entirely under pilot control.
Mr. Cox continued, “The data we gathered are being applied to the demonstration program for the first WheelTug. This system, which is now at the final engineering stages prior to the actual build, will be within the wheel well envelope to avoid extensive modifications to the airplane.”
. . . The equipment used in Prague was solely for data gathering purposes. Production versions of WheelTug will be integral to the wheel, and will be fully retractable.
The patented and proprietary WheelTug® hybrid-electric drive system uses high-performance electric motors installed in nose gear wheels of an aircraft, providing full mobility while on the ground, without the use of the aircraft’s jet engines or external tugs for both pushback and taxi operations. WheelTug enables aircraft to be electrically driven from the terminal gate to the takeoff runway, and upon landing from runway exit to the gate. The resulting improvements in efficiency, flexibility, fuel savings, and reduced noise and engine foreign object damage (FOD) yield projected operating cost savings of more than $500,000 per aircraft per year, plus significant reductions in CO2 and other greenhouse gas emissions. . . .
☞ The dream lives on.
Quote of the Day
The people who sustain the worst losses are usually the ones who overreach. And it's not necessary: steady, moderate gains will get you where you want to go.~John Train
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