Simple Investing – Index Funds

Recent statistics from a Wells Fargo survey indicated that talking about finance is more daunting than talking about death, religion, politics, or taxes.* So, let me make you even uncomfortable for a few paragraphs!

I invest in stocks and I invest in index tracking funds. I love stocks, but the index trackers are what keep me sane and happy.

I can see your eyes glazing over now! Stop that. Focus. Come back to me. That’s right. It’s all going to be okay (and brief).

I’ve made some great investments: Pixar, Marvel, Netflix, Monster Beverage. Those investmens are sexy, and fun, and really helpful to my bottom line, but it’s not where I make most of my investment returns. They’re great to talk about with friends, but I always try to hold myself back, because those are just the winners.

Instead, when people ask me about investments in my personal life, I generally start with the one piece of advice that has served me well over the years. If they don’t want to fall head-over-heels in love with individual stock investing like me, then I recommend simply buying an index fund that tracks broad market indexes like the S&P500, the S&P 1500, or the Russell 2000. Heck, even though I love stock investing, this is exactly what I do with most of my family’s retirement money.

I also recommend they buy automatically and/or regularly in their 401(k), 403(b), IRA, Roth, or whatever tax-advantaged account they have. This allows them to make savings a habit.

Index investing accomplishes three very important things:

Immediate Diversity

Broad market indexes, like the well known S&P500, tend to have more stocks in them than most mutual funds, and more stocks than an individual investor can buy on their own. The purchases allow you to own fractional (often very small) percentages of those companies. This allows you to basically ride the success or failure of the entire economy, or large segments of it, not just a few companies.

Low Fees

Mutual funds offer diversity, and sometimes they offer charismatic Wall Street talking heads to entertain you. Very few actually track and advertise their achievements against broad market indexes. Many charge high fees. What’s high? To me, anything over about 0.5% feels really high, because I’m used to index investing. Indexes are based on computer models that reallocate money to track the published indexes. No human management really necessary. They just program a trading computer and forget it, so you can get pretty low fees compared to funds that pay salaries to managers.

Indexes Usually Beat Managed Funds

There’s some comedy to be had here, but unfortunately, it’s at the expense of investors who are paying money so they can have the privelege of underperforming. Funds that use human managers are trying to beat a group of stocks automatically generated using a simple formula (yes, that’s all indexes really are).

The reasons why are complex, but studies show the results are pretty clear. Indexes beat funds most of the time, by a few percentage points.

Now, this isn’t true of all mutual funds, and you may notice that some of the comparisons in the sample articles above are more dire than others. This is because the time period you choose to use to measure success or failure is arbitrary, and has a large effect on the results. Still, nobody should have a one year, or even a three year investment time horizon, unless they’re near the very end of their life span.

That means, over the long term, those 1% fees, taxes on trades, and short-term investment swaps combine to make it very difficult for a human fund manager to win, on a large scale, against the market.

Next time, I’ll talk about risk. Isn’t investing risky? Totally. So’s walking down the street. It’s all about how we manage risk, and what the alternatives are.


Disclosure: I work at Wells Fargo, but these opinions are mine, and not those of Wells Fargo. Also, please note that I provide this advice as a fellow investor, and someone preparing for my own retirement, and not as a financial advisor. I and my family own shares of S&P500 and Russell 2000 index tracking funds. Investing is never a guarantee. You can lose money.


Flat Earth, the Matrix, and the Right to Sex

I love the first Matrix movie, but I’ve been bothered by the second and third Matrix installments for years now. I really wanted to like them, much like I really wanted to like Chapters 1-3 of Star Wars.* However, I didn’t piece together what bothered me about them until today. It has to do with lacking the theme of overcoming a hard-held belief, the theme that was so central to the first Matrix.

Many people hold beliefs that defy logic, which is innocuous most of the time, like the belief in a flat Earth, which is hilarious, and doesn’t particularly hurt anybody. However, some beliefs directly endanger others, and at times those beliefs are used as an excuse for why people behave like reprehensible monsters. On a grand scale, the belief that one skin color is somehow better than another has caused the deaths of generations of human beings. On a smaller scale, the recent killing in Santa Barbara because a man believed that somehow women owed him sex allegedly drove him to commit multiple homicide. Whether or not this plays out to be the whole story doesn’t matter, the point is we easily believe this is true because we’ve seen it time and time again.

In The Matrix, Morpheus manages to free Neo from the prison of his own mind, literally overturning everything Neo thought he knew about the world. This analogy extends to any belief system that anyone has cast off, ever. Santa Claus, the Easter Bunny, the right of white men to control the U.S. government, Manifest Destiny, homophobia, etc.

For me, one Matrix was the Christian church, which I severed ties with in my early twenties, but I expect everyone has something they believed in at one time that today they wish had never been a part of their lives. An abusive lover. A horrible job. I doubt anyone’s life is so perfect they can’t think of an example right now.

So, to me, Morpheus is the real hero of the Matrix movies, because he seems to be the only person who actually manages to help free any of the people embedded in the Matrix. Yet he is hated by some of his friends, hunted, and generally unappreciated by the government he works for.

Neo, for his part, never frees another person, and only manages to run around having fights in the second and third movies. To his credit, he is trying to free everyone at the very end (I think), but I still don’t really know what happened there, so I didn’t find it fulfilling. Besides, he wasn’t working with anyone who actually wanted to get free, he was trying to do it to them, which is so very different, and not the way I hoped the story would play out at all.

That theme, of helping someone overcome a belief they know is wrong, a belief they struggled against unconsciously all their lives, was lost, and it is something I believe we need to hold onto as a society. Even though we sometimes grate at its creaky functioning, the U.S. government is designed to allow us to overturn our previously held beliefs by rewriting laws, by encouraging a change in representation, by allowing our constitution to be updated as required. It’s part of what makes us a free society.

So today, I write this in thanks and great respect for those who died for the freedom to change our beliefs, and in memory of those who worked to change our beliefs to become a more equitable society. On Memorial Day, 2014.


* Go J.J. Abrams! You can do it! I believe in you.

6 Things Not to Say to an Atheist

I just encountered Diversity Inc’s “What NOT to say” series, and since they tended to focus on the more popular diverse groups, I thought I would give a shout to my atheist sisters and brothers. “Shout.” Hell yeah. Oh, and my style is a little rougher than theirs. Enjoy!

American atheists and non-believers are generally disliked and distrusted. Pew reports 48% of Americans feel the fact that our ranks are swelling in the United States is a bad thing. This seems to tweak the evangelical whites the most. The number of people who mark straight-up-atheist has risen to 3%. The aggregate block of people who are atheist, agnostic, and I-don’t-care has risen to around 19.6%.

So, who are the targets of all this agony and antagonism? Who should we not trust? Who are we atheists? We don’t share skin color, barcodes on our necks, piercings, the way our hair smells, or by the way we discipline our kids. We can hide in any crowd. We don’t have a defined symbol, either.

Some ‘unaffiliated’ folks even go to church, synagogue, or mosque. I was one of these, although I got over it. They do this not because they believe, but to make the people in their lives happy. This is because many atheists, agnostics, and nothing-in-particulars are in the closet, for reasons of their own, or on a journey away from their childhood belief system.

Some atheists meditate, some believe in aliens, others are agnostic, but they definitely don’t subscribe to the standard religious practices or organizations.

On the other hand, atheist statistics worldwide can be misleading. Some atheists, particularly in places where the government frowns on religion, are actually believers in a variety of faiths, but are not comfortable disclosing their beliefs. This list is not for them, not exactly, anyhow. They’re a complex group, and I recommend caution, particularly if you visit them in a country that has limited religious freedoms. These phrases will likely make them uncomfortable for a whole host of reasons, as will direct questions about religious freedom, but that’s another story altogether.

So, here’s my list of things that make atheist’s teeth itch and their eyeballs boil. (Yes, I have personally heard all of these things.)

“So, you don’t believe in right and wrong?” — Of course we do. We are not psychopaths. Not all of us, anyhow. We have been taught right and wrong. Often times, we have had to supplant the teachings of the churches we attended because they failed to reflect the beliefs that we feel in our hearts are right. If my religious text says I should “stone all insert-diverse-group-here” and I consider how it’s suggesting I stone a good person who I love, well…

Atheists often look beyond religion for moral guidance.

“He/She/They are in a better place.” — To an atheist, life and death are serious business. To us, this phrase trivializes both a person’s life and death. We don’t fantasize we’ll come back in some afterlife. So, when the people we love die, we’re sad. We want to deal with our pain. It’s hard. We accept that. We accept that death is a part of life. Or maybe we don’t and we buy cybernetic organs so we can give living forever a shot. Either way, we don’t imagine souls go floating away after people die.

Telling an atheist their loved one is in heaven now is like telling kids it’s okay they don’t have enough to eat because their mother has walked them across Detroit to buy smack and hasn’t fed them in a week. Not to worry! Someday they’ll all be presidents of the world and Snickers and Jelly Bellies will come flying out of their butt whenever they fart.

Actually, it feels more demeaning than that, because it takes advantage of a bad situation and makes it all about pushing religion on the atheist during an emotional crisis.

“You should come to church with me.” — ROFL. No.

Also–awkward! Please keep in mind: discussing religion is okay, even at work. In fact, it probably should be discussed more. Pushing it on people is not okay, though, and yes, this is pushing.

Even in personal life, it’s likely to get the inviter knocked down the friend-ladder. However, given the feelings of most Americans about atheists, that’s probably okay on both sides.

“I’ll pray for you.” — To an atheist, this is like telling us you’ve written to Santa Claus on our behalf, and asked Batman to come save us when we’re in trouble with the evil Siberian goat-men. Sometimes, it’s used to indicate disapproval for our choices, for example, it’s often said after the laughter dies down from, “You should go to church with me.”

“Aren’t you afraid to burn in hell?” — Ah, the favorite of door-to-door evangelists. This is actually a threat. To an atheist, this threat sounds like the speaker’s going to come back and make it happen. Crazy people say things like this. Crazy people who know where I live. *Close door, dial 9-1-1.*

“Everything happens for a reason.” — This one’s my personal favorite because of its frequency and the strange and humorous reasons people find to pull it out, so I saved it for last.

This phrase often follows on the heels of a huge natural catastrophe, but it could just as easily follow the death of a dog, or when a man decides to kill his entire family because he mixed drugs with alcohol after a bad day neutering cats.

This stuff is serious. When bad things happen, atheists kind of freak out when someone says there’s a “reason” for it. When it’s humans doing it, yes, sometimes there is a human reason. Sometimes we can label the whys and wherefores. But those reasons are often crazy reasons, not good reasons. Reasons of psychopaths and CEOs. Those reasons don’t make the way we feel about those events better. Often the reasons question the very fabric of our society and whether we as humans can survive until next Saturday.

When it’s a typhoon that flattens a city and kills tens of thousands of people? Atheists really struggle to see a reason in that. We’re okay assuming it’s a random act of nature. We’re also okay saying, hey, people shouldn’t have built homes below the waterline and then failed to keep up work on the dikes holding back the ocean. But again–bad reasons. Not comforting.

This phrase makes it sound like the reason the storm came and killed those people is because they were called to heaven or they had all committed some grave sin. Really? All of them? The kids? The dogs? The old people? The cops fighting for justice? The woman who just left her abusive husband? No. Atheists are probably more comfortable, or at least accepting of, a universe that is just weird and fairly random. That’s life.


I hope these tips help smooth out some of the rough edges as folks learn to deal with the trustworthy and friendly atheist next door.

Harlen Bayha

The Motivational Technologist