Seeking Alpha
View as an RSS Feed

Difu Wu  

View Difu Wu's Comments BY TICKER:
Latest  |  Highest rated
  • Schwab Intelligent Portfolios: Intelligent Investing Or Marketing Hype? [View article]
    veeceeone:

    thanks for commenting! No, do not use any advisers, robot or person, especially person, because they charge way too much. Just buy the lowest fee diversified ETF for each asset class. For example, I would use VTI for US stocks, VEA for foreign developed stocks, VWO for emerging markets, and BND for bonds. Given your sample SIP, you seem extremely risk averse. I wonder if that is really necessary. If you are 66 and expect to work 1-2 more years, you will probably qualify for social security which is essentially a bond. How much investable asset do you have? If you expect to receive $1000/mo in social security benefits, that is $12,000/yr, which is equivalent to $300,000 in bond holding at 4% interest rate. For your age, an even 50/50 split between stocks and bonds is usually appropriate, so if say you have $700,000 liquid assets, you want to put $200,000 into BND (which combined with the social security equates $500,000 in bonds) and the rest ($500,000) into stocks, which can be split evenly among VTI, VEA, and VWO. Don't touch commodities, which are speculative instruments and not investments.
    Apr 21, 2015. 06:37 PM | Likes Like |Link to Comment
  • Schwab Intelligent Portfolios: Intelligent Investing Or Marketing Hype? [View article]
    Mike: Thanks for commenting. Yes, cash can provide some stability, but we must weigh the cost versus the benefits, and here the former overwhelmingly outweighs the latter. A 6% cash allocation means the portfolio is 94% correlated with stocks, so for all essential purposes it behaves no differently than an all stock portfolio. As for the cost, the seemingly small cost of cash drag compounds over the years to cost an investor almost a third of his assets and potentially millions of dollars in 50 years, an average lifetime of investing, as my graph showed. That is too much, way too much.

    Cash has zero role in a long term investment portfolio. Let's go back to the definition of what an investment is. According to Ben Graham, "An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." Since cash is a depreciating asset whose value is continually corroded by inflation, it not only fails to promise an adequate return, but in fact guarantees a poor return.

    To be fair, I agree with you that Betterment and Wealthfront as well as other advisors all charge too much. But at least they are being transparent with their fees, while the true cost of Schwab Intelligent Portfolios is cloaked under the hidden cost of cash drag. I am not recommending the use of other advisors instead. My recommendation would be to simply buy and hold a low cost index fund like SCHX or VTI, or better yet, invest in individual stocks for rock bottom investment costs. Please see http://seekingalpha.co....
    Mar 19, 2015. 07:27 PM | Likes Like |Link to Comment
  • Schwab Intelligent Portfolios: Intelligent Investing Or Marketing Hype? [View article]
    expatom: The Schwab fundamental index ETFs have too short an existence for return data to be meaningful. But if you go to morningstar, you can see for yourself that they too have underperformed.
    Mar 18, 2015. 06:58 PM | Likes Like |Link to Comment
  • Schwab Intelligent Portfolios: Intelligent Investing Or Marketing Hype? [View article]
    Mike: An average yield on cash of 1.82% not only significantly underperform stocks, but won't even keep up with inflation. Even if we be generous and assume a long term cash yield of 3%, that still underperforms stocks by 7%, which means a cost of 0.42% of assets annually on 6% cash allocation. Historically, cash will not keep pace with inflation, while long term bonds will at least keep up. Cash is a short term investment, NOT a long term investment. Yes, anyone should hold some cash... in a saving account, not in an investment account meant to last 25+ years. There is no liquidity for cash deposits placed with Schwab robo advisor, because the account has to maintain at least 6% cash at all times.

    Greater diversification is a good thing, but this benefit is far outweighed by the significantly greater costs of fundamental index ETFs, which charge 3-8 times as much as the market cap ETFs. That is a tough hurdle to overcome.
    A little more stability and diversification is never a good tradeoff for much lower expected returns. The Schwab portfolio would be very stable and diversified already without the cash allocation and high cost fundamental index ETFs.
    Mar 18, 2015. 06:55 PM | Likes Like |Link to Comment
  • Schwab Intelligent Portfolios: Intelligent Investing Or Marketing Hype? [View article]
    Dave Ross: I agree. Advisors are charging too much. This article is needed, however, to further raise awareness of the importance of costs on investment returns, and also to examine a striking example of ingenious marketing strategy to disguise a high cost service as "no fee", which may not be apparent to the novice at first glance.
    Mar 18, 2015. 06:27 PM | Likes Like |Link to Comment
  • Schwab Intelligent Portfolios: Intelligent Investing Or Marketing Hype? [View article]
    epjepson: how is 10% long term return on stocks too optimistic, given that is the long-term average? CAGR for the S&P 500 is 9.11% from 1871 to 2014, 10.14% from 1926-2014, and 10.15% from 1957-2014. See http://bit.ly/vFOfUm.

    Regarding cash in lieu of fixed income instead of more equity, that may be true, but since equity is the best vehicle for long term (20 years or more), equity return is the true opportunity cost here. Also, bonds and commodities have significantly greater expected returns than cash, which is not negated by higher transaction costs in trading fixed income investments.
    Mar 18, 2015. 06:19 PM | Likes Like |Link to Comment
  • Schwab Intelligent Portfolios: Intelligent Investing Or Marketing Hype? [View article]
    Good point, vinyl1. Arbitrage profits are another revenue source, though it is not as significant as cash drag and ETF fund expenses. Thanks for commenting.
    Mar 18, 2015. 06:07 PM | Likes Like |Link to Comment
  • Why I Cashed Out Most Of My LendingClub Shares [View article]
    Owen:

    My number are straight from LendingClub's prospectus. You need to calculate market cap on a fully diluted basis under GAAP, otherwise you are deceiving yourself.
    Jan 6, 2015. 06:31 PM | 2 Likes Like |Link to Comment
  • Why I Cashed Out Most Of My LendingClub Shares [View article]
    @ GI:

    Perhaps, but you could have said the same thing about eToy, Lucent, Palm, CMGI, Linux, Red Hat, etc. I can go on an on. You can project growth to Heaven if you wish, but I'd rather get my money's worth. Plus I get better sleep at night.

    No recession coming? You can't be serious. How much do you want to bet there will be recession? Do you really believe this time it's different and the Fed somehow cured the business cycle that has operated ever since there was a stock market?

    Did you know that 30 year treasury bond was paying >20% back in the early 1980s? The current extremely low interest rates are a rare anomaly and it will revert to the mean. Then LC will lose its glitters.
    Jan 6, 2015. 10:08 AM | 2 Likes Like |Link to Comment
  • Why I Cashed Out Most Of My LendingClub Shares [View article]
    @LS: Agreed. The tax laws definitely favor stocks over bonds and growth stocks over income stocks. We can't change the laws, but we can change our investing strategies to make the most use of them.
    Jan 5, 2015. 07:16 PM | Likes Like |Link to Comment
  • Why I Cashed Out Most Of My LendingClub Shares [View article]
    24brooksj:

    Are you kidding? Using FIFO, you owe $3240.45 in short term capital gains on the 285 shares you bought at $15 and sold at $26.37. Check your math, or the tax man will come get you. IRS laws don't allow you to reallocate cost basis like that.

    There is no such thing as house money. That is a mental accounting trap. Money is money. Period.
    Jan 5, 2015. 07:10 PM | 5 Likes Like |Link to Comment
  • Why I Cashed Out Most Of My LendingClub Shares [View article]
    Competition can be good... for the consumer. For the company, though, it will drive down margins and profits. 250 shares may not be a lot for you, but at $26.50 per share, that represents a little over 1% of my total net worth, and about 6-7 months of expenses, too much to bet on a rank speculation like LC stock.
    Jan 5, 2015. 07:04 PM | 1 Like Like |Link to Comment
  • 10 Best Value Stocks For 2015 [View article]
    Your links do not include Berkshire's foreign holdings, which the SEC does not require discloure. Check out these links below:
    http://yhoo.it/1B1ZQuO
    http://bit.ly/1B1ZQuQ
    Dec 30, 2014. 11:47 AM | Likes Like |Link to Comment
  • 10 Best Value Stocks For 2015 [View article]
    Thanks Peter for commenting. I agree Gazprom and Sberbank are not for everyone. They could easily drop another 50-80% from here. But the best opportunity is found at times of crisis, and the value proposition offered here is too great to ignore.
    Dec 30, 2014. 11:45 AM | 2 Likes Like |Link to Comment
  • Graham's Stock Selection Criteria Revisited [View article]
    VISA actually happens to have the best current ratio among all 30 issues, at 3.46, so that is the least of problems with VISA (its poor earnings and dividend record and very high price are why it failed as a defensive investment). I wonder sometimes too if the requirement for at least 2:1 current ratio is a little too stringent/outdated today, given most companies fail this test. But then you almost always find companies improve their balance sheets dramatically and become financially conservative after a major market correction of previous speculative excesses, such as in 2003 and 2009. I think requiring 2:1 current ratio at a minimum is important to help provide sizable cushion of working capital to sustain a company through hard times that will inevitably come. People tend to forget that a bear market is even possible after 5 years of a bull market.

    Also, I would not put too much stock on S&P ratings. XOM's AAA rating is mainly based on high IC and low D/E. S&P is facing lawsuits from the Justice Dept for giving high ratings for mortgage securities that turned out to be junk and ignited the 2008 financial crisis.
    Dec 17, 2014. 01:23 PM | 1 Like Like |Link to Comment
COMMENTS STATS
178 Comments
92 Likes