After Momentum What Next?
This is part three of nine in a series of the best route for investing success. The first one had to do with seeking “advice” from various online resources, focusing on Fidelity Investment’s Equity Summary Score and the tools that Seeking Alpha offers. Then I talked about the value of the momentum (speed) that the investment is rising in price. Now we should look at an investment’s Performance History. Do you know your investment “MPI?” It is something like MPG.
One thing I watch on the dashboard of our 2020 Ford Escape is the “Average MPG.” It can easily be as low as 22 MPG in the city, but if I drive on roads with fewer stoplights, stop signs, and stop-and-go traffic it can easily reach 30 MPG or even 39 MPG. The right road and right conditions contribute to better mileage. However, just a few miles of bad MPG ratings won’t hurt the total too much. I just need to stay thoughtful about acceleration and the routes.
Number Three: Investment Performance History
To put this in terms of investment performance, there are some investments that just suck the fuel from your account and fail to give you good ten-year returns towards your retirement income destination. Some examples include the following ETF funds. Some are treasury bonds, some are corporate bond funds, and some are “retirement date” funds. They are all destined to suck the life out of your returns.
IEF iShares 7-10 Year Treasury Bond ETF
GOVI Invesco Equal Weight 0-30 Year Treasury ETF
ILTB iShares Core 10+ Year USD Bond ETF
HYG iShares iBoxx $ High Yield Corporate Bond ETF
LQD iShares iBoxx $ Inv Grade Corporate Bond ETF
VCSH Vanguard Short-Term Corporate Bond Index Fund ETF
FFFGX Fidelity Freedom 2050 Fund
FFFEX Fidelity Freedom 2030 Fund
Target date funds are a deceptive bunch of gradual declining returns for the long-term investor heading into retirement. Sometimes the word “target date” is used. Fidelity calls their funds the “Freedom” funds.
In my opinion all of these are problematic due to their potential for mediocre returns and lack of control over investment choices. They may also fail to adequately protect against market volatility, as evidenced by significant losses during financial downturns. They also hold an increasing percentage of bond investments as you get closer to the target date. That investment mix will be a drain on your long-term mileage per investment.
What is Worse Than Bonds and “Retirement Date Funds?”
There is only one thing worse than holding these types of funds. “What is worse,” you ask? Failing to save and invest is far worse than bonds and bond funds.
Sadly, far too many younger people don’t have retirement accounts. In fact, far too many have a car that is valued as greater than their savings (and they probably have a loan they are paying on that car). Cars depreciate in value. If you buy depreciating assets you are heading down a dead-end street.
“Only about 60% of thirtysomethings have retirement accounts, and the median balance for those accounts is about $33,000. Across all 30–39 households, including the 40% of households with no retirement accounts, the median drops to $6,000. In fact, the typical thirtysomething household has more in checking and savings accounts than saved for retirement, with a median value of their cash holdings at about $7,000.” – Investopedia
Buy Investments with Solid Performance
Seeking Alpha helps me find investments that perform. During all of my searches on Seeking Alpha I have never found a target date fund or a bond fund that makes sense for good long-term mileage per investment (MPI).
Therefore, I stick with individual equities, especially those in the technology, health care, and financial segments of the economy. I also buy good dividend-growth ETF equity funds. I always look at the “MPI” for each investment to avoid bad investments.
Seeking Alpha
A Seeking Alpha subscription is one tool for avoiding bad MPI investments. Two of the components of the Quant scores are Growth and Profitability. You won’t find growth in any bonds or bond funds.
Summary
Performance History is a helpful consideration when you are buying any investment. Bear in mind, as always, that history doesn’t necessarily give you a view of the future. Therefore you should never fall in love with any investment. If it takes a turn and the MPI drops, your best option is to sell the investment and replace it with something that has growth and profitability. This means you must pay attention to your flock of investments.
Proverbs 27:23-24 “Know well the condition of your flocks, and give attention to your herds, for riches do not last forever…”
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All scripture passages are from the English Standard Version except as otherwise noted.
Know Your Flocks & Herds 