This week, I’m talking about how to avoid the hidden danger of index funds. 

Most investors would like to diversify their investments and reduce their risk as much as possible.  One popular strategy for diversification and setting your investments on auto-pilot is the index fund.  The S&P 500 index fund is the most popular of them all – containing 500 of the largest and most well-known companies in the world.

With 500 companies in just that one fund, you’re pretty diversified, right? Not as much as you might think. Why? Because the S&P 500 index and other funds like it are market-weight index funds, meaning the largest companies make up the largest % of the index.

So what you actually end up with is an investment where just the largest 10% of companies make up half of the index! I wouldn’t exactly call that diversified. 

Many people mistakenly believe that the S&P 500 and most other index funds like it are equal-weight index funds, meaning that each stock in the portfolio represents an equal weight share.  This is not the case with most index funds. The vast majority of index funds are market-weight index funds, and therein lies the problem. 

Because over time, the largest companies get bigger and bigger and a portion of the index fund, and there isn’t a human behind the scenes who can say, I think this position and that position are bloated and overvalued. Let’s rebalance and reduce our risk. 

If you look back at all the major stock market meltdowns, tech stocks were a bloated portion of the S&P 500 index in the late 90s and bank stocks were bloated and made up a much higher percentage of the S&P 500 index compared to today. When the balloon popped on those bloated sectors of the market, investors who thought they were diversified were hit harder than those who were truly diversified. And the same is true today. 

Tomorrow, I’m going to share with you the 5 stocks in the S&P 500 that make up more than 15% of the entire index. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast, index investing, ETF investing, index funds, ETFs, etfs vs mutual funds, etf vs stock, how to invest in index funds

This week, I’m talking about how to avoid the hidden danger of index funds. And before I get into all the buyer beware fine print that you need to know, I need to spend just a little more time talking about what’s great about index funds, lest you think that I’m some index fund hater, which is entirely possible if you listen to the rest of the tips this week after today. 

First of all, here at our independent advisory firm, True North Retirement Advisors, we manage about $260 million in client assets. And a sizeable portion of that is invested in index funds. I really like index funds and I think they are a great fit for most investors. And here’s why: 

It’s a cheap way to build a diversified portfolio. Just as an example, it’s hard to beat the fact that I can build a diversified bond ladder for a client with less than a quarter of 1% in annual fees, that provides about the same yield with significantly reduced risk compared to buying individual bonds.

The same can be said for using index funds to invest in the stock market - lower fees compared to most mutual funds, and less risk compared to individual stocks. It’s a win overall. 

But, I think too many people take the Dave Ramsey over-simplified investment advice of “just buy a good growth stock mutual fund”. I generally like Dave Ramsey a lot, but this is pretty garbage advice that can get people into a lot of trouble, as I’ll explain tomorrow. 

So rather than building a diversified portfolio of several index funds with exposure to different asset classes, many investors just buy the S&P 500 index fund, or some other broad-based index fund and call it good. They think their diversified because they own 500, or 1000, or 3000 different stocks with their “diversified” index fund, but the vast majority of index funds are market-weight index funds, and therein lies the problem...which I’ll get into tomorrow. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast, index investing, ETF investing, index funds, ETFs, etfs vs mutual funds, etf vs stock, how to invest in index funds

Welcome to a new week and a new theme here on the One Minute Retirement Tip! 

This week, I’m talking about how to avoid the hidden danger of index funds. Index fund investing continues to grow in popularity, with almost ½ of the assets invested in the U.S. stock market today is owned through indexing. 

If you’re not familiar with index funds, you also might have heard of ETFs, which are basically the same thing. Essentially, index funds or ETFs are a basket of stocks, bonds, or other investments that’s diversified and cheap! 

For example, you can buy several different index funds today that are meant to track the S&P 500 index. So rather than buying all 500 companies in the S&P 500, you can buy an index fund that will in effect, allow you to invest in those 500 companies with just a single investment in that index fund. 

Index funds have been around for so long and are in such high demand, that you can buy an index for a lot of specialized types of investments as well. Perhaps you want to own tech stocks or bank stocks, or gold, or 10-year treasury bonds without actually going out and buying a bunch of treasury bonds - there’s an index fund for all of those and plenty of other asset types as well. 

So today, I just want to lay the groundwork and make sure you understand what an index fund is, before I get into the details about what you need to know as an investor in index funds and how you can avoid some of the hidden and often overlooked dangers that exist with index funds. Hopefully we accomplished that today. 

That’s it for today. Before you go, though, if you haven’t already left a review in Amazon or iTunes for the One Minute Retirement Tip, can I ask a favor of you to go do that right now? It just takes a few seconds and it helps to spread the word, and helps other people find this podcast.

In a recent review The Roy writes: “always seems to hit the mark each week. take 1 minute to listen and find a gem to get you thinking. thanks ashley. I'm glad you are a part of my flash briefing”

Thank you, Roy, and I am honored to be a part of your flash briefing lineup. And thank you to all of you who have taken the time to write a review. 

My name is Ashley Micciche and this is the One Minute Retirement Tip.

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Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast, index investing, ETF investing, index funds, ETFs, etfs vs mutual funds, etf vs stock, how to invest in index funds

It’s Sunday, which means...It’s recap time! 

This week, I talked about the decision to rent vs. buy. Anytime you’re contemplating a large purchase, you should always calculate the cost of ownership along with your expected usage to determine the real cost, then seriously ask: Does it make sense to rent instead? 

Here’s what I covered in each episode this week:

• Rent or Buy - how to approach the question
• Rent or buy - big ticket items. We spent a day each on vacation homes, RVs, boats
• And then we talked about how to get creative and put some thought into those smaller purchases like power washers, skis, golf club memberships, and leaf blowers.
• And lastly, yesterday I showed you a method for calculating the true cost of ownership for any big ticket item you might be contemplating, and then how to apply that cost to your expected usage to determine if it really makes sense to buy.

Hopefully after listening to the One Minute Retirement Tip this week, you are better equipped to make well-thought out and sound decisions about those big and small items you’ll contemplate purchasing in retirement. 

If you missed any of these episodes or if you want to revisit any of them, you can find them on iTunes, Spotify, or Google Play by searching for the “One Minute Retirement Tip with Ashley”. 

Tomorrow, we are starting a brand new theme: Index investing. Index investing has become very popular over the last couple decades. Index investing offers a convenient and cheap way to build a diversified investment portfolio, so next week I’ll share with you what you need to know about index investing, and some common pitfalls to avoid to help protect you and keep you from getting burned. 

That’s it for this week! Thanks for listening and I hope you have a blessed Sunday! 

My name is Ashley Micciche and this is the “One Minute Retirement Tip”.

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Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast, rent or buy, rent vs buy, is it better to rent or buy, should i rent or buy

This week, I’m talking about the decision to rent vs. buy. Anytime you’re contemplating a large purchase, you should always seriously ask: Does it make sense to rent instead? 

Today I want to go into detail on how you can actually compare the cost of renting vs. the cost of ownership. For many people who aren’t “numbers” people, this may be a little intimidating. But the good news is that with a little research you can get a good handle on the costs of ownership for whatever it is you’re planning to buy. 

For this exercise, I’m going to use the example of a boat and walk you through how you might determine the cost of ownership. The best place to start is with a spreadsheet or even just a pen and paper. 

• The first obvious cost is the purchase cost. How much are you going to spend on the boat. 
• If you’re taking out a loan to buy the boat, you’ll also want to add in the total interest you’ll pay over the life of the loan. The best way to factor this in is just to add the interest amount you’ll pay over the life of the loan as a separate expense each year. 
• Then there’s insurance.
• Buying a trailer for the boat
• Storage fees if you’re going to store the boat at a marina or somewhere else.
• Maintenance - winterizing, engine maintenance, maintenance and new tires for the trailer as well. 
• Gas
• Other equipment, lifejackets, and other misc. Items
• Boating licenses

These will vary based on the type of boat you buy, but again you can find some pretty solid estimates online. 

Considering that the average boat lasts between 10-20 years, you can take your costs and convert them all to an annual amount to determine how much the boat will cost you each year. 

Now you’ll want to consider how much you’re going to use your boat. A quick search online tells me that the average boat sees about 50 hours on the water each year. This is different for everyone, but it’s important that you’re realistic about how often you’ll use the boat. 

I think the best way to do this is per day. Figure out how many days a year you’ll plan to use your boat and then divide the total annual cost of ownership that you already calculated by the days of use to come up with the cost per day.

Once you’ve done that, you can ask yourself 2 very important questions: 

1. Do the benefits outweigh the inevitable hassle of ownership? 
2. Is it worth it for me to pay $X per day to buy a boat or does it make more sense to rent instead? 

The good news is that you can apply this method to any purchase. Heck, you can even apply it to smaller things like a power washer or an expensive pair of shoes. 

My hope is that this method of estimating the cost of ownership with the expected usage will help you make smart decisions about those big ticket items and whether or not it makes more sense to buy or rent. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast, rent or buy, rent vs buy, is it better to rent or buy, should i rent or buy

This week, I’m talking about the decision to rent vs. buy. Anytime you’re contemplating a large purchase, you should always seriously ask: Does it make sense to rent instead? 

Today I’m talking about whether you should buy or rent a leaf blower. I don’t actually mean a leaf blower per se, but rather a whole group of purchases that can add up...ski equipment, household tools, power washers...you get the idea. 

In our self-sufficient, individualistic culture we live in, it’s natural to default to the buying decision when you need to power wash your driveway, or decide to upgrade your ski equipment. 

First of all, especially for seldom-used items like a power washer, it’s important to compare the cost of ownership with the cost of renting for 1-2 days a year which is probably all you’ll need it for. Then there’s the consideration of storage. Power washers, leaf blowers, ski equipment, all take up a lot of room. If it’s something you’re dead-set on buying, maybe it makes sense to go in with a neighbor, a friend, or a family member. You’ll halve the cost of ownership, plus it won’t always need to live in your garage either. 

When it comes to ski equipment or a golf club membership even...is the expense justified given your expected usage, or does it make more sense to rent skis when you need to or just pay greens fees at the public course vs. paying hundreds of dollars a month for the golf membership. You might make the decision anyways on the golf club membership - I certainly did - but that decision should be made weighing the cost with the expected usage, and seriously considering the other available options. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip.

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Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast, rent or buy, rent vs buy, is it better to rent or buy, should i rent or buy

This week, I’m talking about the decision to rent vs. buy. Anytime you’re contemplating a large purchase, you should always seriously ask: Does it make sense to rent instead? 

Today I’m talking about buying vs. renting a boat. I love boats. When I was a kid, our family had a jet ski and some of my best summertime memories growing up were playing around on that thing. Then in college I worked at a summer camp on the puget sound for 2 summers, and I learned how to sail several different kind of boats. I also love canoes and kayaks...I just love being on the water. 

I’ve also heard it said that the best 2 days of boat ownership are the day you buy and the day you sell it. But the real question here is not whether or not a boat is a good investment. Anyone with any sense knows that it’s a complete money pit. 

The real question here is can you afford it? Do you understand all of the costs involved - with boats, there are storage fees, repairs, maintenance that is often expensive. 

All those costs need to be carefully calculated and compared to the expected usage. I would love to own a boat, but a couple things prevent me from doing so - #1: the hassle-factor. I don’t live on the water. I don’t have room to store the boat, so any time I would want to use the thing, it just sounds like a lot of work. #2: time constraints. I live in a part of the country where the boating season is about 3 months. Every day spent out on the water is a day that I couldn’t spend doing something else with my kids or be on the golf course, which is really where I prefer to spend my free time in the summer. 

So in reality, I just wouldn’t use the thing that much and it would be a total waste of money to buy one, especially since I could rent a boat a couple times a year for a tiny fraction of the expense and all scratch my boat itch. 

If you’ve been listening to these tips all week, you probably think I’m trying to dissuade you from making any large discretionary purchase, and rent instead. I think it would be bad advice to say you should never buy a 2nd home, an RV, or a boat, but I do think it’s very important to factor in the real cost of ownership along with your expected usage and the headache factor. If you can do that and still come out ahead on the buy decision, then buy the darn thing. But too many people make emotional decisions and don’t consider all the factors, which is what I hope you’ll be better equipped to do after listening to these tips this week.

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast, rent or buy, rent vs buy, is it better to rent or buy, should i rent or buy

This week, I’m talking about the decision to rent vs. buy. Anytime you’re contemplating a large purchase, you should always seriously ask: Does it make sense to rent instead? 

Today, I’m looking at the rent vs. buy decision from the point of view of an RV. Now if I’m being honest, I would go out and buy an RV or some kind of camper right now if I knew my husband wouldn’t freak out and have divorce papers drafted in response. He wants a beach house, I want an RV, and unfortunately, I don’t think either of us are going to get what we want. 

Just like buying a vacation home, RVs can often be very expensive and sit unused for much of the year. One big reason why you wouldn't want to buy an RV is because it’s a depreciating asset. I read online that the value drops as much as 40% in the first 2 years - yikes! Then there’s insurance, interest costs to consider since most people take out a loan to buy the RV, storage fees, camping fees, the extra gas costs, etc. 

These all need to be factored in with the expected frequency of use. This is one area especially where I think it makes a lot of sense to rent, since you can also try out different types of RVs, get a realistic picture of how often you’ll actually use it before you drop $50,000 to 100,000+ on something. 

So if you have dreams of travelling the country in your camper trailer, just be sure that you calculate the true cost of ownership and your expected usage, to see if it might make more sense to rent when you need to and leave the headaches and depreciation for someone else to worry about. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast, rent or buy, rent vs buy, is it better to rent or buy, should i rent or buy

This week, I’m talking about the decision to rent vs. buy. While it’s a dream for many of us to own a cabin in the woods or a beach house, anytime you’re contemplating a large purchase, you should always seriously ask: Does it make sense to rent instead? 

Today, I’m looking at the rent vs. buy decision when it comes to buying a vacation home. We live in Oregon, just over an hour from the Oregon coast. We go there a few times a year, and if you have been to the Oregon coast, it’s one of the most beautiful and scenic places anywhere in the world. I’m a little bias obviously, but between the cliffs, miles of sandy beaches, and famous giant rocks, you quickly see why no one really minds that you can almost never wear a bathing suit at the beach in Oregon. 

One of my husband’s dreams is to someday buy a beach house in Manzanita, OR. It’s a cute little beach town with an amazing pizza place, lots of cute little shops, miles of sandy beach, and the quintessentially Oregon legal pot shop. 

But a beach house in Manzanita isn’t cheap. My husband thinks if we owned a beach house that we’d go to the beach more. I say, let’s go to the beach more and then we can talk about buying a beach house. Vacation homes are a particular difficult decision when it comes to rent vs. buy, because the considerations are complex. And it’s often a massive investment up front and over time. 

You have the mortgage and the taxes and insurance, plus all the maintenance and repairs. Interest cost of the debt. I would hardly consider most vacation locales investments, because the housing prices don’t grow enough to justify it for investment purposes. Then there’s the decision of whether you’ll rent out your vacation home when you’re not using it - the extra wear and tear that will cause, and the net income after expenses that you can expect. 

And then there’s the big question, which I alluded to with my husband and our ain’t-gonna-happen Manzanita beach house. And that is the question of usage. Most people overestimate how much they will use a 2nd home. If you think you’re going to pack up and head there every weekend, or spend 6 months out of the year there, it’s best to try that out with renting first before you commit to buying. 

The point here is that the cost of ownership needs to be carefully calculated, and then you have to take it a step further and calculate your expected and realistic usage to see if it really makes financial sense and practical sense to buy vs. rent. If owning a 2nd home costs you $4000/week because of how seldom you spend time there, but you could rent a place that’s twice as nice for $2000/week and none of the headaches of ownership, you definitely don’t want to find that out after you drop six figures or sign up for a 30-year mortgage for that beloved Manzanita beach house. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast, rent or buy, rent vs buy, is it better to rent or buy, should i rent or buy

Welcome to a new week and a new theme here on the One Minute Retirement Tip! 

This week, I’m talking about the decision to rent or buy. Anytime you’re contemplating a large purchase, you should always seriously ask: Does it make sense to rent instead? 

So this week we’ll be exploring the rent vs. buy decision when it comes to vacation homes, RVs, boats, and even that leafblower you bought last fall. 

Too often we don’t look seriously at the rent vs. buy decision, so this week I’ll help you think through the best option for you and how to think through the rent vs. buy decision of these big ticket items in a rational and thoughtful way. 

The key point with the purchase of any big ticket item is to remember that money is a limited resource, and that money used in one way prevents it for being used for something else. So it’s important that the purchase is a worthwhile one that considers not just the benefits of that purchase but the drain that the purchase will place on other resources, like your emergency savings, your expenses, and other things that your money could be used for instead. 

That’s it for today. Before you go, though, if you haven’t already left a review in Amazon or iTunes for the One Minute Retirement Tip, can I ask a favor of you to go do that right now? It just takes a few seconds and it helps to spread the word, and helps other people find this podcast. 

Thank you for listening and a special thank you to those of you who have already left a review. My name is Ashley Micciche and this is the One Minute Retirement Tip.

----------

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Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast, rent or buy, rent vs buy, is it better to rent or buy, should i rent or buy