You can't see what you don't measure...

Slate
The Big Picture
NPR

If the goal of the Dow Jones Index is to give a single-number summary of the US equity market, the articles listed above argue (convincingly, IMO) that the goal is not being met.

By weighting the prices of a small number of stocks, instead of the market capitalizations of a large number of stocks, the Dow fails to capture the true effects of money flowing in and out of the market as a whole.

Given the amount of time and energy spent following the Dow Jones Index, I would argue that there should be a strong effort to make the index as accurate as possible (or restate the goal). Or, as the Slate article suggests, use a different index.

That's why money managers prefer to use broader market-cap weighted indexes to help create their own portfolios and benchmark their own performances. 

Another alternative: RAFI 1000

EDIT: My title was inspired by a quote I'd read before. Here, it is used in a article describing how airport security in the US could be vastly improved by focusing on the people, rather than the threats.

We have a saying in Hebrew that it's much easier to look for a lost key under the light, than to look for the key where you actually lost it, because it's dark over there.

Passive investing, with a dash of market timing

Blog post at Pop Economics

But as tough it is to see if the market is slightly over or underpriced, it’s actually pretty easy to see if it’s way over or underpriced.

Looking back at market prices and earnings for a little more than 100 years, Shiller found that the market’s average P/E10 (the shorthand when you use 10-year earnings) was about 15. What’s more, if you invested when the market was at a high P/E10, your returns for the next 10 years were almost certain to be much less than if you invested when the P/E10 was below 15.

Based on the CAFE10 metric, you slightly tilt your portfolio towards stocks or bonds.

Robert Shiller's CAFE10 Data
updated monthly

Retirement Marathon

Guest blog post at Get Rich Slowly

This is a great analysis of the power of compound interest. Key points - start early, don't be afraid of risk, and you'll reap the rewards.

• Early Bird Bob contributed $5,000/yr. for 20 years ($100,000 total contribution). His nest egg at age 67 is $5,938,625.
• Conservative Carrie contributed $5,000/yr. for 48 years ($240,000 total contribution). Her nest egg at age 67 is $940,127.
• Live it up Larry contributed $10,000/yr. for 38 years ($380,000 total contribution). His nest egg at age 67 is $4,644,805.
• Late bloomer Bill contributed $20,000/yr. for 28 years ($560,000 total contribution). His nest egg at age 67 is $3,168,398.
• Mid-life crisis Melissa contributed $40,000/yr. for 18 years ($720,000 total contribution). Her nest egg at age 67 is $2,005,735.

For my age, this statement from a related post at Get Rich Slowly is key:

It’s human nature to procrastinate. “I can start saving next year,” you tell yourself. “I don’t have time to open a Roth IRA — I’ll do it later.” But the costs of delaying are enormous. Even one year makes a difference.

Daily Routine, versus Splurges

Post on The Simple Dollar - Splurges, Habits and Projection

Which scenario sounds more appealing?

About two mornings a month, I take my laptop to a local coffee shop that I adore, pick up a tasty morning treat and a cup of coffee, and sit here in this pleasant environment writing for a few hours.

I make a daily stop at a coffee shop for breakfast. I sit in there each and every morning, drop $7 on a breakfast sandwich, a cup of coffee, and a paper, and read it without much real joy.

A splurge is healthy every once in a while. It’s an irregular expense - not one that you spend money on every day or even every week. It also fills you with joy when you do it - and you still feel happy about it a day later. In short, you derive quality of life from that purchase.

A habit is never healthy. When an experience (particularly one tied to spending) becomes routine and normal, it should either fulfill a basic need in a simple way or it should be reconsidered. If it doesn’t add genuine value to your life - or if there’s a cheaper option that could add the same value - then you shouldn’t be spending your hard-earned money on it.

Take some time and really look at the things you spend money on regularly. Are these things really bringing you happiness - or are they tired routines centered around something you can’t really recapture? You might be shocked to realize how many of your spending choices are really dictated not by your true wants and needs, but by the wants and needs you’ve projected onto those purchases.

Efficient Investing

The second article uses the term "lazy", which was the original title of this post, but I prefer to think of it as efficient - efficient in time, money, and effort.

Link to "The best investment advice you'll never get"

One by one, some of the most revered names in investment theory were brought in to school a class of brilliant engineers, programmers, and cybergeeks on the fine art of personal investing...

Stanford University’s William (Bill) Sharpe, 1990 Nobel Laureate economist and professor emeritus of finance at the Graduate School of Business:
“Don’t try to beat the market,” he said. Put your savings into some indexed mutual funds, which will make you just as much money (if not more) at much less cost by following the market’s natural ebb and flow, and get on with building Google.

Burton Malkiel, formerly dean of the Yale School of Management and now a professor of economics at Princeton and author of the classic A Random Walk Down Wall Street:
Don’t try to beat the market, he said, and don’t believe anyone who tells you they can—not a stock broker, a friend with a hot stock tip, or a financial magazine article touting the latest mutual fund.

John Bogle, "Saint Jack", is the living scourge of Wall Street. Though a self-described archcapitalist and lifelong Republican, on the subject of brokers and financial advisers he sounds more like a seasoned Marxist:
Ignore them all and invest in an index fund. And it doesn’t have to be the Vanguard 500 Index, the indexed mutual fund that Bogle himself built into the largest in the world. Any passively managed index fund will do, because they’re all basically the same.

But the premise of indexing is that stock prices are generally an accurate reflection of a company’s worth at any given time, so there’s no point in trying to beat that price. The worth of a client’s investment goes up or down with the ebb and flow of the market, but the idea is that the market naturally tends to increase over time. Moreover, even if an index fund performed only as well as the expensively managed Merrill Lynch Large Cap mutual fund that was in my portfolio, I would earn more because of the lower fees.

Over the last 21 years, chief investment officer David Swensen has averaged a 16 percent annual return on Yale University’s investment portfolio, which he built with everything from venture capital funds to timber. “Invest in nonprofit index funds,” he says unequivocally. “Your odds of beating the market in an actively managed fund are less than 1 in 100.”

Link to "8 Lazy Portfolios"

What are Lazy Portfolios? Just simple, boring versions of a proven Nobel prizing-winning strategy: Well-diversified portfolios of no-load, low-cost index funds that require little balancing and no active trading, yet they're winners in bear and bull markets. And so easy, anyone can set them up.

The portfolio I like:
33% in VIPSX (Vanguard Inflation-Protected Securities)
33% in VTSMX (Vanguard Total Stock Market Index)
33% in VGTSX (Vanguard Global Stock Market Index)

Alternative for VIPSX is Vanguard Total Bond Market Index (VBMFX).