DYI Investing, Budgeting, and Retirement Planning

At the moment, investing in ETFs and index funds are all the rage.  Unfortunately, what an investor believes they are getting may not be what they actually get. The most popular ETF is the SPDR S&P 500 ETF which is passively managed and based on the S&P 500 index which includes primarily large cap stocks. The S&P 500 is considered a broad market index because it includes 500 different companies. The appeal of investing in a broad market index is that there is such diversity that gains and losses are averaged out across various kinds of stocks as to realize the overall returns of the market.  But most funds are based on a much more narrow set of indexes which include various sectors, market caps, stock styles, or niche markets. These, more narrow indexes subject the investor to much higher risk. Therefore, you might think you are choosing an ETF in order to diversify, but you might actually be be putting your investments at risk by specializing.  Let's take a c...

  ARK Invest is a newer kind of investment fund just now beginning to gain notoriety. The fund is an actively managed ETF (exchange traded fund), unlike most ETFs that are passive index funds. This kind of fund is managed in a similar way to a mutual fund but is traded on the open market like an ETF. But what is more interesting about ARK Invest is their investment philosophy. Most ETFs and mutual funds focus on mimicking an index (e.g., S&P 500), or investing in a particular sector (e.g., energy) or market cap (e.g., small growth). ARK Invest, instead, focuses on the theme of disruptive innovations across all indexes, sectors, and market caps.  Since inception, ARK Invest has produced annualized returns between 19% and 33%. If those kind of returns can be sustained then they would rival the 20% annual returns of Berkshire Hathaway. Such success deserves a closer look. There are five areas of disruptive innovation that ARK Invest pursues: Energy Storage, Automation, N...

The interplay between risk and reward  and social incentives is often misunderstood. This is partly because determining the risk and reward for taking action is not always clearly seen. In addition, those that try to sell their wares - in any form be it monetary, material, political, ideological, etc. - often obfuscate the real risk and reward of buying in. That is, sales people have an incentive to be deceitful because in the short term they can convince people that greater rewards can be obtained with lower-than-expected risk. In this sense, sales people includes anyone trying to sell you something, politically, socially, ideologically, or materially. Consider the first time you bought a cheaply made product only to realize later you had made a bad decision. Initially, the lower amount of money you spent, and were able to keep in your pocket, appeared to offer greater value than a more expensive product which may have been assumed to have similar quality. However, soon the produc...