John C. Bogle was passionate about helping average investors get their fair share of the wealth produced by the stock market. In his book The Clash of the Cultures , he describes what is wrong with our financial system and what should be done to fix it. Unlike many who shout complaints from the sidelines, Bogle devoted his career to fighting for necessary change. When it comes to those who invest other people’s money, Bogle “observed firsthand the crowding-out of the traditional and prudent culture of long-term investing by a new and aggressive culture of short-term speculation.” Bogle devotes much of the book to the history of mutual funds to make his points. Most modern mutual funds have a “double-agency” problem where managers have to serve both the fund investors and the shareholders of the management company. Sadly, investors lose out on the conflicts of interest; management companies can only make money by dipping into investor assets. Stewardship has given way to salesm...

A decade ago I wrote about the lost decade for stocks from 1999 to 2008 when the S&P 500 total return failed to keep up with inflation. Since the depression, this also happened in periods that ended in 1947 and 1983. At the time I wondered what happened in the decades after these lost decades. Here were the answers: 1948 to 1957: 14.4% per year above inflation 1984 to 1993: 10.7% per year above inflation At the time I wrote “As you can see, those first two decades were spectacular! There is no guarantee that the upcoming decade will match these impressive results, but it does give us some hope.” The results are now in: 2009 to 2018: 11.4% per year above inflation This is in line with previous results, but is more than I could have hoped 10 years ago. S&P 500 stocks have nearly tripled in real terms (above inflation). Those who give up on stocks after weak periods pay a high price.

I managed only one post in the past two weeks: Time to Change Credit Cards Here are some short takes and some weekend reading: A Wealth of Common Sense wrote a tongue-in-cheek eulogy for the 60/40 portfolio after yet another declaration that it’s dead, this time from Bank of America. The eulogy is entertaining, and observes that “60/40 finished out its life strong, returning an astonishing 10.2% per year from 1980-2018 with just 5 down years over the past 39 years.” Some may hope for a repeat performance in the coming decades. However, in the last 39 years, U.S. interest rates dropped from about 20% to 2%. A repeat drop would get us to an absurd minus 16%. Lest you think I’m on the side declaring the 60/40 portfolio dead, the last 39 years saw the cyclically-adjusted price-earnings ratio of U.S. stocks roughly triple. It’s hard to see how it could triple again. Choosing a 60/40 portfolio is sensible enough – just don’t count on a repeat of the last 4 decades of returns. ...

I forgot to pay off my credit card balance a few days ago. I do this roughly every 4 or 5 years. More annoying than paying some interest is that I seem to have to stop using the card for a couple of months to break the credit card interest cycle and get back in good standing . I need a useful reminder feature to help me avoid these mistakes. My Tangerine Mastercard offers the following credit card email alerts: Remaining Credit Less Than $100.00 Credit Card Payment Due Credit Card Transactions Over $1,000.00 Money-Back Rewards Earned Credit Card Payment Received Money-Back Rewards Deposited The alert I really want is “Your payment is due in a few business days, and we haven’t received anything yet.” My wife tells me that her credit card offers this alert along with better cash-back rewards than I’m getting now. Maybe it’s time for me to dump my Tangerine credit card.

Here are my posts for the past two weeks: The Latte Factor Correlation Here are some short takes and some weekend reading: Doug Hoyes and Ted Michalos make a strong case that students are being treated unfairly by preventing them from including their student loans in bankruptcies for 7 years after leaving school. In addition to their other good points, they explain why removing this rule wouldn’t allow students to have bankruptcies of convenience shortly after graduating. One troubling part of the information they bring forward is the fact that university tuition has been rising much faster than inflation for a very long time. What we need is an inquiry into why schooling is so expensive and what unnecessary costs can be stripped out. If they’re anything like any of our levels of government, universities have far too much office staff and administration that contribute little to necessary functions. Jason Heath goes through some reasons for early RRSP withdrawals. He r...

Smart people who analyze different investment strategies often talk about correlations. Investments have correlations that are high, low, positive, or negative. This can all sound impressive, but as I’ll show, any conclusions we draw based on correlations can be suspect. In the investment world, correlation is a measure of how asset returns move together. A positive correlation means two assets tend to give good returns together and bad returns together. A negative correlation means they tend to move in opposite directions. A zero correlation means the direction of one investment doesn’t tell you anything about the direction of the other investment. It’s impossible to know the correlation of two investments exactly. All you can do is measure their correlation over a period of time. We then just assume the correlation will remain the same into the future. To show the problem with this approach, I simulated two streams of monthly investment returns. The distributions I chos...

The first step to improving your finances is to spend less than you earn. But a great many people never seem to find the motivation to take this first step. The Latte Factor by David Bach and John David Mann aims to help readers find this motivation. It’s a short, easy read that many young people might find compelling. The book is the story of a young woman whose finances are a disaster, and she gets some good advice from an unexpected source. Even without the financial lessons for readers, the story works well enough to keep the pages turning. The first two of the book’s main messages are familiar to readers of financial advice: “Pay yourself first” and “Don’t budget—make it automatic.” The idea is that your savings should come off your pay first rather than waiting to see what’s left over after life’s expenses. The final main message is “Live rich now.” The idea is to find a way to live the life you want now instead of waiting until some magical future time when you’ll h...