Arsicles

ETFs: Index Funds That Trade Like Stocks

2008-05-11T12:34:02Z

In How to Build An Investment Portfolio, I explained the benefits of using index funds instead of the actively managed funds that dominate most portfolios put together by financial advisors. Vanguard and DFA both provide an excellent selection of indexed mutual funds, giving you the ability to implement a variety of portfolio strategies. However, buying into DFA funds is impossible for most investors, with typical $100,000 account minimums and only through approved advisors. So, the obvious solution is to open a Vanguard account, which only requires a $3000 balance. Another option is to use index ETFs, which trade like stocks, in whatever brokerage account you wish. There are hundreds of quality index ETFs available today, including ETF versions of most of Vanguard’s index funds.

What is an ETF?

An ETF is a “closed-end” mutual fund that trades like a stock at a continuously variable price throughout the day, in contrast to traditional “open-end” mutual funds that trade at a fixed price set at the end of each day. This has a number of important implications:

More Flexibility

While I don’t believe in market timing, I think it makes perfect sense to buy something you want when it’s on sale. Prices will always float up and down, but it’s nice to be able to pull the trigger when you see a discount you are happy with, rather than being forced to make a decision before you know what the eventual price will be. Also, like an eBay auction, you can set a threshold for what price you are willing to pay, called a “limit order”, then go about your work for the day, instead of sitting glued to your computer checking the price constantly.

Trade commissions

With open-end mutual funds, many creative ways exist for companies to sneak in added expenses. These include transaction fees, front and back-end loads, and 12-1b fees. Fortunately, none of these fees apply with Vanguard mutual funds held in a Vanguard account. A golden rule of investing: expenses should always be kept to a minimum.

100 Free Trades at Wells Fargo

With ETFs, you avoid the unnecessary costs that plague many mutual funds, but you add one in the form of a trade commission. Commissions vary widely from broker to broker, and often go down when you hold a certain amount of assets in your account. For example, Wells Fargo has a great deal going now where $25,000 in assets will give you 100 free trades per year. Scottrade is a good option for starters, with $7 trades regardless of your account balance.

(click for fine print)

These trade commissions could chew off a significant portion your money, especially with smaller transactions. For instance, even with the relatively low $10 fee TD Ameritrade charges, a $1000 ETF purchase equals 1% of your investment. That isn’t negligible. You might even be better off buying a no-load, no-transaction-fee actively managed fund with a relatively low expense ratio (gasp!).

Less Flexibility

You might think the trade fee isn’t so bad, just a one-time thing that you’ll never have to deal with again once you buy your shares. But remember, trade fees are charged for each lot of shares sold and purchased, so you get hit twice if you ever want to exchange assets between funds.

This comes into full effect with normally recommended “housekeeping” chores such as portfolio rebalancing and year-end tax-loss harvesting. You might need to buy and sell from several funds, and the costs can add up quickly, making such maneuvers detrimental rather than beneficial. Also, realize that dollar-cost averaging, where you make steady regular contributions throughout the year (and get hit with a fee each time), is not well suited to ETFs. Meanwhile, it is common for open-end mutual funds to allow for tiny $100 contributions free of charge.

Lower Expense Ratios

As you can see in the table below, Vanguard ETFs usually have around half the expense ratio of the corresponding open-end mutual fund. You can consider this a trade-off for the added commission you may pay for the ETF version. If the amount you are investing makes the commission negligible by comparison, or if the commission is waived, ETFs become a more attractive, economical investment strategy, compared to using the traditional, open-end funds.

Great Selection

The selection of ETFs gets better every month as more ETFs are announced. You can build a portfolio of Vanguard index ETFs identical to their open-end mutual fund equivalents, or expand beyond Vanguard with hundreds of other quality index funds.

What ETFs Are Best?

Not all ETFs and index funds are created equal, even if they sound like the same thing. Vanguard ETFs are usually the best choice, tracking appropriate indexes with the lowest costs. There are cases where you can make a good argument for using non-Vanguard ETFs, and with a few asset classes you have no choice, due to lack of availability. In the table below, open-end mutual funds from DFA and Vanguard are compared with their ETF alternatives. Again, Vanguard ETFs are identical to the open-end fund with the same name, with the differences in cost structure outlined above.

Asset Class	DFA Portfolio		Vanguard Portfolio		ETF Portfolio
	Symbol	Cost	Symbol	Cost	Symbol	Cost
TSM	-	-	VTSMX	0.15%	VTI	0.07%
LC	DFLCX	0.15%	VFINX	0.15%	SPY	0.08%
			VFINX	0.15%	IVV	0.09%
			VLACX	0.20%	VV	0.07%
LCV	DFLVX	0.28%	VIVAX	0.20%	VTV	0.10%
LCV	DFLVX	0.28%	VIVAX	0.20%	RPV	0.30%
SC	DFSTX	0.38%	NAESX	0.22%	VB	0.10%
SC	DFSTX	0.38%	NAESX	0.22%	IWM	0.20%
SCV	DFSVX	0.53%	VISVX	0.23%	VBR	0.11%
	DFSVX	0.53%			RZV	0.35%
	DFFVX	0.46%			IJS	0.25%
	DFFVX	0.46%			IWN	0.25%
REITs	DFREX	0.33%	VGSIX	0.21%	VNQ	0.12%
Total Int.	-	-	VGTSX	0.27%	VEU	0.25%
Total Int.	-	-	VFWIX	0.40%	VEU	0.25%
Int. LCV	DFIVX	0.44%	VTRIX	0.41%	EFV	0.40%
Int. SC	DFISX	0.56%	-	-	GWX	0.59%
Int. SCV	DISVX	0.70%	-	-	DLS	0.58%
EM	DFEMX	0.61%	VEIEX	0.37%	VWO	0.25%
EM	DFEMX	0.61%	VEIEX	0.37%	ADRE	0.30%
EMV	DFEVX	0.63%	-	-	DGS	0.63%
EM SC	DEMSX	0.81%	-	-	DGS	0.63%
TIPS	DFFGX	0.23%	VIPSX	0.20%	TIP	0.20%
TIPS	DFFGX	0.23%	VIPSX	0.20%	IPE	0.18%
US Bonds	DFFGX	0.23%	VBMFX	0.20%	BND	0.11%
US Bonds	DFFGX	0.23%	VBMFX	0.20%	BIV	0.11%
Global Bonds	DFGBX	0.29%	n/a in U.S.	-	BWX	0.50%
Global Bonds	DFGBX	0.29%	n/a in U.S.	-	WIP	0.50%

You can see that every asset class and style is covered by ETFs, and the situation will only improve in the near future as more and more ETFs are rolled out to target specific markets that index investors demand.

The main distinction between international funds VGTSX and VFWIX / VEU is that the latter include a 5% allocation to Canada and are eligible for a foreign tax credit, so they are preferable in taxable accounts. Both indexes include a 20% EM allocation. For emerging markets, the clear pick is VWO for low cost and diversity. ADRE is composed of only 50 companies, which is obviously less than ideal when the fund is supposed to represent the entire economy of the world’s emerging markets. Still, it’s an alternative to VWO with increased exposure to Brazilian and Chinese markets. It actually pairs nicely with DGS, which emphasizes Taiwan, South Africa, Thailand, and Malaysia stocks, but if I had to pick just one it would be VWO. There are other EM ETFs out there, but they have significantly higher expenses compared to VWO and ADRE.

For info and commentary on US Small Value and International Small Cap ETFs, I’ll refer you to a few good articles I found:

The Best Smallcap International ETF? That Depends – SeekingAlpha.com
Seven With Small-Cap Value, ETF-Style – TheStreet.com
Domestic Small-Cap Value Funds – Altruist Financial Advisors LLC

The biggest difference between Vanguard’s BND and BIV bond ETFs is that the latter excludes Mortgage-Backed Securities, which actually make up 33% of BND. This is preferable according to advisor / author / guru Larry Swedroe.

Do ETFs Make Sense For You?

To invest in index funds with smaller account balances, you should really trade ETFs as little as possible and minimize costs with a low-cost broker such as Scottrade or TD Ameritrade. With less than $25,000 in assets, it might be best to just open a Vanguard account and use their open-end funds to avoid dealing with trade commissions altogether.

As your account balance grows and the trade commissions become more negligible, a portfolio stacked full of ETFs becomes practical. As in the case of free trades with Wells Fargo (and a similar deal from Bank of America), you can probably manage a portfolio of ETFs year after year without ever paying a trade commission. Even with $10 trades, if this is applied to a transaction of $10,000, now we’re talking about 0.1% of your investment. To an extent, that is negligible, and you will automatically recoup this within one year since Vanguard ETFs typically differ by about 0.1% in expense ratio from their corresponding open-end fund.

For more about index funds and ETFs, read Rick Ferri’s All About Index Funds. This excellent book covers the history of index funds and how to use them effectively, including important chapters on ETFs and asset allocation strategies.

He’s written a newer book more focused on ETFs, aptly titled, The ETF Book. I can’t vouch for it’s contents, although the reviews on Amazon are quite positive. I suspect it could be overkill though, as the chapter in All About Index Funds would probably suffice for many.

How to Build an Investment Portfolio

2008-04-01T23:25:31Z

It irks me every time I see an ad for some pompous investment advisory firm. It typically shows some well-to-do people sitting around smiling, while a generic acoustic guitar strums in the background, and some guy with a gruff voice tells you how good they are at managing their client’s “complex” investment objectives. I think we all have one simple objective – to make as much money as possible! It should come as no surprise that these companies are incredibly wealthy because they often make more from your money than you do. The truth is, it’s easy to invest your money all by yourself with the simple advice in this article and beat the vast majority of investors using high-cost brokerage firms.

“The stockbroker services his clients in the same way that Bonnie and Clyde serviced banks.” — William Bernstein

I know I’d feel duped if I realized I was contributing part of my earnings to the $2.65 million per year needed to keep naming rights for the Edward Jones Dome. More typically, your assets will be siphoned off to silently fund a marketing campaign and provide a salary for the guy who sold you your funds. This isn’t conspiracy theory, it’s literal truth. Take a moment to read about loads and 12b1 fees if you aren’t familiar with these terms. Of course, some people get a thrill from throwing their money around indiscriminately and don’t care if they’re paying their advisor more than they’re paying themselves. My opinion is these people need to be taxed at a rate of 100% until they come back to reality.

Indexing vs. Active Management

The history of the stock market is a random but upward coarse over time, as illustrated in this graph. Research has consistently shown that expensive, actively managed funds are most likely to fall behind of the overall market’s return. Interestingly, these funds dominate most portfolios, and are invariably what financial advisors will try to sell you. Meanwhile, index funds, by definition, are designed to track the market, and while they rarely if ever beat the market, they almost always match it. Considering a historical annual return of ~10%, the market’s performance is something anyone should be happy with. So what is an index fund? And why does active management have such a poor track record? Let me explain these things briefly…

An index fund is a mutual fund designed to track some market index, which can be broad such as the Wilshire 5000 index that tracks the entire US stock market, or more narrow such as the Russell 2000 Value index that follows US small-cap value stocks. The stock make-up of a true index is determined by an objective algorithm, rather than an emotional human, leading to optimal diversification, low turnover and resultant low costs. Costs are important because investing isn’t free. You want to pay as little as possible, meanwhile financial companies want to sneak in as many fees and hidden expenses as possible. An interesting fact is that the only quality of a fund that has been shown to correlate consistently with higher returns is lower costs, as illustrated in the table below. If you use an indexing investment strategy, you will lower costs drastically. Financial advisors hate index funds because they don’t make any money from selling them.

Expense Ratio vs. Annual Return
Expense Ratio	Average Annual Total Return
0.50% and below	12.05%
0.51%-1.00%	11.67%
1.01%-1.50%	11.23%
1.51% and above	9.16%
Note: Data are for ten years ending Dec. 31st 2004 (Source: Lipper Inc.)

Active management means there is a fund manager who picks stocks for the fund based on their opinion of what will do best. More often than not, this results in overactive buying and selling, substantially increasing costs and attenuating gains. To worsen matters, managers tend to pick stocks based on their predictions of where the market is headed, rather than analyzing the value of individual companies relative to their stock price (a successful stock picking strategy called “value investing”). Trouble is, no one can consistently predict the future of the market, which besides its upward trend, is random.

Now, a brief history of actively managed mutual funds: if you go back to 1970, there were 355 of them in existence. Only nine beat the S&P 500 (a common index of the US economy) through 1999, and only two of them by more than three percent. That’s a pretty poor record – two out of 355. Bottomline: picking a winning actively managed fund is very much like playing the lottery or going to a casino – the odds are stacked heavily against you. If that sounds like a good way to invest your retirement money, have fun. With indexing, your investments will mirror the market and closely follow its long-term upward trend.

Asset Allocation and Portfolio Theory

With index funds you always get the lowest costs and market tying performance, leaving just one factor to be concerned with: asset allocation. Asset allocation means having an appropriate amount of money invested among the various asset classes and “styles” of US and international stocks, bonds, and treasuries, so that you “don’t put all your eggs in one basket”. A general principal is that riskier investments are more volatile and have the potential for amazing gains but also devastating losses. Stocks, or equities, are a risky investment class, and some stocks are much riskier than others. Nevertheless, in the long-run, they are by far the highest-performing investments, and so they appropriately make up the bulk of any portfolio with a distant time horizon.

You can leverage risk or volatility by combining investments that have a poor or negative correlation with each other, so that while one is moving down, the other is typically moving up. Commonly this involves adding some proportion of bonds and treasuries, which generate steady positive interest while buffering the wild swings of the stock market. In the end, a well-balanced “portfolio” achieves greater long-term returns with less volatility than one made up of stocks alone. How you decide to balance your portfolio should be based on a realistic assessment of your risk tolerance.

The remainder of this article will look at three sample asset allocation strategies that you can copy, alter, mix and match. I’ll start by looking at a simple, single fund approach and end with a portfolio made up of fifteen different index funds. Among these examples, I think you’ll find something that’s just right for you.

Target Retirement Funds

Fidelity Freedom 2045 Fund

Portfolio management can be as simple or complicated as you like, but if you’d rather be completely hands-off with your investments, everything can be managed for you automatically. One way of doing this is to pay an advisor to help you set up an asset allocation and periodically move things around to keep it balanced and appropriate, and they will be happy to lop an additional 1-2% off in addition to the actual fund expenses for this service.

Today, most of the major mutual fund companies have introduced target retirement funds that do this formulaic work at no additional charge. These funds are named by a year that should be close to your target retirement date. The asset allocation automatically adjusts to be more conservative as you age, basically meaning it will very gradually shift from stocks towards fixed-income like bonds and treasuries.

Most of these are actually conglomerates of actively managed funds, like the Fidelity Freedom Fund shown to the right. This is a downside for the reasons I already mentioned, including higher costs. With expense ratios in the range of 0.75-1%, this means that each year, regardless of gain or loss, that percentage of your money will go to the brokerage firm, paying the costs of active management.

Vanguard Target Retirement 2045 Fund

Vanguard’s target retirement funds are the exception, composed of index funds, with expense ratios of around 0.2%, making them the best option in my book. Again, why hold any active funds when they have such a poor track record? All of these retirement funds have merit though, given the convenience of having a robust portfolio contained within in a single fund that adjusts its asset allocation automatically for your whole life.

Total Market Index Investing

If you’d like a bit more flexibility and control over your portfolio, you can follow another simple strategy using total market index funds. The Bogleheads’ Guide to Investing suggests the following asset allocations based on your age, using Vanguard total market index funds:

Vanguard Index Portfolios
	Young	Middle-Aged	Early Retirement	Late Retirement
Total Stock Market Index Fund	80%	45%	30%	20%
Total International Index Fund	0%	10%	10%	0%
Total Bond Market Index Fund	20%	20%	30%	40%
TIPS	0%	20%	30%	40%
REIT	0%	5%	0%	0%

As its name implies, the Total Stock Market Index Fund (TSM) tracks all traded US stocks, and so, if it had existed in 1802, it would have closely follow the line labeled “stocks” in the graph shown earlier. Similarly, the Total Bond Market would follow the course of the line labeled “bonds”. And so on…

The Bogleheads’ Guide to Investing, put together by three “diehard” disciples of Vanguard founder John Bogle, is an excellent overview of personal finance and index investing, which I would recommend to anyone. You can use the table above as a starting point and make changes to based on your own research. For example, I find the treatment of international stocks here questionable. I don’t see why they should be left out of a young investor’s portfolio, and limiting them to a max of 10% at any age borders on ignoring them completely. Even though the book is written for US investors, and the US is the largest economy in the world, many argue that a portfolio should be weighted according to global market-capitalization. This would give you a 50/50 domestic and international stocks, since the US makes up about half of the world economy. Most would agree that 70/30 is a safe and happy medium.

Bonds, TIPS, and REITs

Bonds and TIPS (Treasury Inflation-Protected Securities) are included in a portfolio to decrease its overall risk. They are investments that typically have some guaranteed appreciation, albeit with less potential gain compared to stocks. Also, they have low correlation with stocks, often moving in opposite directions with market swings. Additionally, bonds and TIPS don’t correlate with each other, so having both gives you the best hedge against the more risky stock portion of your portfolio. The easiest way to own them is to buy into a low cost index fund.

REITs (Real-Estate Investment Trusts) are another asset class that doesn’t correlate much with others, adding further diversification, although at a recommended 5% in only one of the age groups in the table above, it’s obviously not a key part of the authors’ overall investment strategy. Many agree that REITs are not that important to hold, while others use them for greater than 15% of their portfolio. Esoteric discussions about REITs, TIPS, and other aspects of asset allocation theory can be found in abundance at the Diehards.org Investing forums, another product of John Bogle / Vanguard fans. They are always bubbling with interesting, intelligent discussions to give you food for thought, if nothing else.

Beating the Total Stock Market Index

While anyone should be happy with tying the market, with its average ~10% annual return over the past 80 years, some index investors use strategies to beat it over the long term. To beat the TSM, you must be willing accept greater risk and volatility in your investments.

If you are using the historical upward trend of all stocks over long periods of time as your justification for investing in them, why not focus on a defined subset of stocks that have done the best of all? You may have seen or heard of the Morningstar style box that visually categorizes stocks based on company size and relative value or growth qualities. Using these definitions, research has shown that small and value stocks have consistently outperformed the market at large, while growth stocks have lagged behind. These traits seem to act independently, meaning that stocks don’t have to be small and value to outperform, but there is a distinct value effect, as seen in large value stocks, and a small company effect, as seen in small blend or “core” stocks. That is the gist of the market-beating strategy of overweighting small and value stocks in your portfolio relative to the TSM.

The performance of small and value styles carries over to international stocks as well, as shown in the graph above. Here it looks like they beat out US stocks, but really it is just that the data started being collected in 1982, at the beginning of the 80’s bull market, after a long recession in the world economy. Increased exposure to emerging markets is another consideration, given that it is the highest overall returning asset class of all (using data collected since 1989). EM stocks have been extremely successful in the past 5 years, surpassing the S&P 500 by a huge margin. The caveat is that these higher performing asset classes have also had the most volatility, as indicated in the standard deviation values shown at the bottom of the figure above. Meanwhile, sticking to the TSM / S&P 500 gives you the least volatile equity portfolio.

IFA Index Portfolio

Vanguard TSM / Total International

A good example of a riskier asset allocation strategy is seen in the portfolios offered by Index Funds Advisors (IFA), which are heavily tilted toward small, value, and EM stocks relative to their global market capitalization, or in other words, relative to the way they would weighted in a total market index portfolio. This is shown nicely above, using Morningstar’s Instant X-ray to look at how the style box for an IFA portolio compares to one composed of Vanguard’s TSM and Total International index funds (70/30 ratio).

If you plan to stay invested for 10 years or more, a riskier indexing strategy becomes very attractive, and if history is any guide, it is likely to pay off. This is illustrated in the figure to the right, showing 10-year annual rolling period returns from 1957-2006 of five different IFA portfolios, which use DFA index funds. This impressive back-test shows the highest-risk portfolio “90” with an average annual return of almost 14 percent over 50 years, never dropping below a 5% average over any 10-year period. The table below compares the make-up of these five portfolios:

IFA Index Portfolios

US Large Company Index	4	8	12	16	20
US Large Cap Value Index	4	8	12	16	20
US Small Company Index	2	4	6	8	10
US Small Cap Value Index	2	4	6	8	10
Real Estate Index	2	4	6	8	10
International Value Index	2	4	6	8	10
International Small Company Index	1	2	3	4	5
International Small Cap Value Index	1	2	3	4	5
Emerging Markets Index	0.6	1.2	1.8	2.4	3
Emerging Markets Value Index	0.6	1.2	1.8	2.4	3
Emerging Markets Small Cap Index	0.8	1.6	2.4	3.2	4
One-Year Fixed Income Index	20	15	10	5	0
Two-Year Global Fixed Income Index	20	15	10	5	0
Five-Year Gov’t Income Index	20	15	10	5	0
Five-Year Global Fixed Income Index	20	15	10	5	0

Within the stock portion of each IFA portfolio is an identical ratio of styles and asset classes. Rather than subtracting from small, value, or EM allocations, risk is leveraged by increasing the proportion invested in fixed income indexes, which are mostly comprised of bonds and treasuries. This contrasts the Vanguard portfolios discusses earlier, where the domestic / international stock ratio varied between age groups, on account of the historical notion of foreign investments being riskier. Another difference here is that rather than just going by age, IFA provides a Risk Capacity Survey that will recommend a portfolio number based on your answers. A higher portfolio number means more risk – more stocks and less fixed income.

IFA‘s founder is the author of an index investing book (where I got some of my figures), called Index Funds: The 12-Step Program for Active Investors, and it is just that, breaking the bad habits of active investors with a mountain of investment research that goes back centuries, all favoring an index investment strategy. There are free online and PDF versions of the book at IFA.com. Just as the Bogleheads’ book focused on Vanguard funds, this one focuses on its own preferred index fund provider: Dimensional Fund Advisors (DFA). Vanguard’s index fund selection is quite good, but it comes in second to DFA, which offers a veritable giant-size crayon box of index funds, covering important market nooks like micro-caps and emerging markets value stocks.

Not everyone has easy access to DFA, or even Vanguard index mutual funds for that matter, so in a planned follow-up article, I will show you how you can use any brokerage account to build a robust index portfolio using index ETFs. In addition to replicating the portfolios shown in the tables of this article, I will look at other ETF portfolios advocated by various investment professionals and enthusiasts. After that, my next article will look at the best overall brokerage accounts out there, with a focus on an indexing investment strategy.

Conclusion

I hope one thing people can take away from this article is that there is no single “right” way to build a portfolio, and it doesn’t have to conform exactly to any standard. I know that for me, part of what held me back from investing earlier was thinking I would screw everything up if I didn’t do it just right. This is what leads so many people to give up and hand their money over to a broker / adviser combo person. This sets up a conflict of interest that slowly, invisibly robs millions of investors of a portion of their retirement savings.

Even if you just invest in TSM and nothing else, you will beat most of these thieving advisory firms. With a riskier index portfolio tilted toward small and value stocks, you should blow them away. The most important thing is to put your money in the market early and often, so you can take full advantage of the power of compound interest to grow it exponentially over your lifetime. Knowing there is room for flexibility makes getting your feet wet in investing a lot more comfortable, and using index funds to track the market instead of a manager’s whims also leads to greater peace of mind.

Canon's New Vixia HD Camcorders

2008-01-07T21:26:23Z

The Vixia Line

Canon has announced three new HD camcorders today that kick off the Vixia line of high-end consumer models. The black paint jobs are definitely nice, making the HV30 look less toy-like compared to its predecessor, and the HF series sports some sleek new styling, an area where Canon has taken a back seat to competing Panasonic and Sony models. You sure will look cool now with a Vixia in your hand.

HV30

This is the camcorder so many HV20 fans have been pondering, and now that it has been announced, HV20 owners can rest comfortably knowing it wasn’t really worth holding out for. The added features can be counted on one hand: black chassis, 30p mode, larger zoom toggle control, upgraded LCD that resists solarization (changing image appearance with screen tilt), and support for an expanded battery pack. No changes have been made to the CMOS or other components of the imaging system, which is fine, the HV20 is already amazing the way it is. It would have been nice if they’d enabled some more manual controls in the HV30, but alas they didn’t.

The 30p feature is no doubt the most significant addition to the spec, but I wonder how much use it will really get. Mitch Glick, assistant manager of Product Marketing at Canon, had this to say about it:

“We recognize that people want to do a lot of web video work. Typically, when people are doing compression for the web, you’re compressing at 15fps. If you’re at 30fps, you’re only pulling out every other frame. It holds the quality together better.”

Why not just use 60i? The math works out nice with that mode too. One big reason people like to use the progressive mode on the HV20 is that it improves on the low-light performance of 60i significantly (as shown here), It will be interesting to see how the 30p mode’s low-light performance stacks up to 24p. If it delivers similar results, it may hold some real value to people for the reasons the Canon rep mentioned. The extra frames will also help smooth out the sometimes stuttering look of 24p when panning, giving it an edge. But given the history of 24fps in film, I don’t think too many indie filmmakers will switch from 24p to 30p, while there may be some casual users who decide to shoot in 30p instead of 60i, if there are indeed low-light benefits.

HF10 and HF100

These are Canon’s first solid state HD camcorders, and they include more exciting features than just solid state storage. The lack of moving parts for storing data likely means longer battery life and probably shelf life as well. They share a 1/3.2-inch CMOS that packs 3.3 megapixels (compared to the HV20/30’s 1/2.7-inch CMOS with 2.96 megapixels). Both record in AVCHD format, like the hard drive based HG10, but now in full HD 1920×1080 resolution with a maximum bitrate of 17mbs, up from 1440×1080 and 15mbs in the HG10. All of this makes for a significant upgrade over the previous HG10, but we’ll have to wait for some objective testing to know for sure how all of these specs translate into video performance.

The HF100 will retail for $899, while the HF10 will be $1099. The extra $200 gets you a black chassis and 16GB of internal flash memory, while the HF100 can record to SDHC memory cards only (the HF10 can still accept them for expansion). When you consider a 16GB SDHC card costs nearly $200 anyway, it may be hard to justify getting the lesser HF100. Other cool features include an intelligent battery that allows the HF10/100 to display in minutes how long before the battery dies. Zoom is up to 12x from 10x on the HV20 and HG10. We’ll have to see where street prices on these go in the coming months.

The 15mbs bitrate imposed by the AVCHD format was clearly a limiting factor in the HG10’s video performance. It shares the same CMOS as the HV20, yet has less sharpness and more compression artifacts. Also, its 24p mode is choppy and unusable, while the HV20 captures nearly pro-quality 24p footage. It remains to be seen how well the marginally increased 17mbs video bitrate will take advantage of the upgraded imaging system in the HF10/100. And while 24p and 30p modes are also included in the HF series, being progressive, we’ll have to wait and see if they suffer the same issues seen with 24p on the HG10, and be rendered useless. The new HF10/100 has a lot of potential, but the question is whether its AVCHD format will be a bottleneck that keeps it from surpassing the HDV-based HV series on the totem pole of HD camcorders.

Ultimate Financial Lifestyle Guide - Part 1

2007-10-31T11:07:18Z

Who doesn’t want freedom, control, and peace of mind in their financial lifestyle? Is there any reason not to lower all your expenses and maximize earnings? In this series of articles, I’ll detail the ultimate products and strategies that can enhance your financial lifestyle in every aspect. In Part 1, I will discuss the importance of saving money, the best online checking accounts, the best brokerage accounts, and Roth IRAs.

Saving is Everything

No matter how much or how little you make, the only thing that matters in the long run is how much you save. And the earlier, the much better. Aim for saving 20% or more of your income. If this isn’t possible, do yourself a favor and at least try to salvage 10%. Start early and aggressively and you won’t have to save nearly as much later. The power of compound growth is illustrated profoundly in the graph below. It shows three different investment scenarios, all with $4000 annual contributions compounding over time at 8% annual return:

As you can see, a $40,000 total investment, made in $4000 increments over ten years, beats a $120,000 investment started ten years later. In fact, the $40,000 investment will continue to beat the one started ten years later into perpetuity, despite additional $4000 contributions each year! Looking at the first curve above, you can see that combining these two scenarios – early and continued investment – is a recipe for becoming a millionaire by age 65. Of course you can reach that point much sooner if you are able to invest a lot early in life, giving your exponential growth curve something like a steroid injection, except legal.

Roth IRA

The Roth IRA is the biggest tax break for individuals ever created. Max it out every year, as early as you can. I start this guide with the importance of saving and IRAs because probably the single best thing you can do for your finances is to pay yourself first. Secure money for your contribution ahead of each New Year’s like someone is holding your child for a ransom. Then you can pay yourself on January 1st and know that you’ve already met the most important financial goal for the year.

The key feature of a Roth IRA is that you avoid capital gains taxes on your investments; you pay tax on the invested money right at the start and then never again. A Traditional IRA lets you deduct your contributions from your taxes, but in retirement, your withdrawals are taxed as regular income – not good, especially since your initial investment will have grown exponentially. If you are able to contribute the maximum amount to your Roth IRA each year, which is harder to do since you are using taxed money, it is almost always a better option compared to a Traditional IRA, regardless of your current and future tax bracket, as illustrated in this article.

If you don’t already have a Roth IRA, I’d recommend opening one with Fidelity or Vanguard, as they both offer an exhaustive array of mutual funds, have great customer service, and most importantly, they have low expenses. As for what you should invest in, remember, this is your IRA, not Wall Street. Investing in it should be boring, not like a never-ending episode of “Mad Money”. To start, you could do much worse than to use one of the target-retirement funds that give you an appropriate asset allocation that automatically adjusts over time. While your money is (hopefully) growing in this fund, you can devote some time to learn more about asset allocation strategies and the benefits of index funds. Read Index Funds: The 12-Step Program for Active Investors to ground yourself in reality before you start throwing your money at the stock market.

Schwab Investor Checking / Fidelity mySmart Cash Account

See my checking deals article for a review of high-interest checking accounts. Most people have a single checking account where they keep thousands of dollars earning 0% interest. If you are one of them, look into one of these accounts, you will be very glad you did.

Since my checking deals article was published, Schwab lowered the APY on the Investor Checking account from 4.25% to 4.00%, but I think it remains the best overall product out there. The APY is still very competitive, and it has the most complete feature-set of any internet-based checking account in existence:

No minimum balance
Unlimited ATM rebates (use any ATM you want)
Free Checkfree BillPay
Fast, free ACH
Free, unlimited paper checks
Unlimited pre-paid deposit envelopes (no postage necessary)
Free Direct Connect access in Quicken

A quasi-checking account is offered by Fidelity called the mySmart Cash Account that matches the Schwab account on the above features. It has the potential for higher earning if you keep your cash in a linked money market fund earning ~5%. Read more about setting it up correctly on FatWallet. My only reservation about this account stems from the fact that it is actually a brokerage account in a checking account’s clothing. This has a couple of implications. First, you can’t see your balance when you use ATMs. Also, Quicken sees it as an investment account, which can cause a number of problems when you try to replicate the functionality you get with regular checking accounts. Schwab, meanwhile, shows both ledger and available balances at ATMs and appears as a regular checking account in Quicken.

It’s a good idea to have at least 3 months of living expenses stashed away as a liquid asset, available on demand. With an account like Investor Checking or mySmart, you have one-stop shop in a full-featured checking account that also earns high-interest for keeping a cushion of cash as an “emergency fund”. You can just subordinate the account you may already have at a local branch bank, using it for making deposits at local ATMs or branches. You can then ACH the money to your high-interest account to start earning interest the next day.

Vanguard / Fidelity Brokerage Account

If you go beyond funding your IRA each year and keeping a cash pool of 3 to 6 months of living expenses on hand, you should consider starting to invest in mutual funds or ETFs in a regular taxable brokerage account. Choosing between Fidelity and Vanguard can be looked at as a clash of the titans of active vs. passively managed funds, respectively, although each broker offers both types of funds. I have become a believer in passive index funds, because of their extremely low expenses and tax advantages over high turnover mutual funds. Vanguard’s mutual funds have an average expense ratio of 0.21 percent, one-sixth of the average fund’s 1.27 percent. In the words of Vanguard’s founder, Jack Bogle:

“Asset allocation is critically important; but cost is critically important, too – All other factors pale in into insignificance.”

A nice article was recently on Morningstar that gives some common sense advice on investing with ETFs, a type of index fund. If you want a great, honest, and concise overview of finance management and investing, I can highly recommend a book I’m reading now, The Bogleheads’ Guide to Investing.

Ignore advice of financial advisers and brokers who will suggest high-load, high-expense funds that siphon a share of your investment to support their own livelihood. Research has shown time and again that an index such as the S&P 500 will beat most actively managed portfolios by a wide margin over a long period of time. For more on constructing your portfolio, just ask some friendly Bogleheads for assistance.

If you decide to go with Investor Checking instead of the mySmart account, you can still put a big chunk of cash, your “emergency fund” money, into a money market fund with Fidelity or Vanguard and get that extra percentage point of earnings. Again, these earn ~5% APY and can be readily sold off whenever you need cash. The only qualifier is a $2500 minimum investment and $2000 minimum balance to avoid fees. To me, this is the ideal scenario, as your Quicken experience isn’t crippled with the MySmart account, and you still get the ~5% APY for a large amount of your liquid assets.

More to Come…

Part 2 of my Ultimate Financial Lifestyle Guide will look at the most successful money saving strategies, online shopping deals, and today’s top rewards credit cards.

Seven Blog Design Tips for Textpattern

2007-09-10T10:17:10Z

Textpattern is the CMS that powers my site, and almost every day I learn how to take advantage of another one of its endless features. If you’re using Wordpress instead, I feel sorry for your mother. Detailed below are seven design tips that I’ve used in the recent redesign of AndrewSwihart.net, some coming from two excellent books I’ve read: Textpattern Solutions: PHP-Based Content Management Made Easy, and Beginning CSS Web Development: From Novice to Professional.

1. Local Development Site

Before my Samsung 226BW review got popular, I didn’t see much traffic here, so I was content changing things on the live site, knowing maybe only 1 or 2 passersby would be around when I was redressing the proverbial mannequins in the display window. When you’re seeing more steady traffic like I am now, it’s not a good idea to regularly subject visitors to the horror of your site under construction.

The solution is to install Textpattern locally on your computer so you can mess things up as much as you want. You can do a perfect port of your live site by following this excellent guide on Wion.com. He covers every potential pitfall, and the instructions are clear and thorough.

It’s possible to do a whole transfer of your site in a couple minutes, and the process is almost identical if you want to import your local development site back up to your web server. The only thing you have to do each time is change the Site URL field in Admin » Preferences to match the site you’re working on, so all your relative URLs will still work.

2. Style Sheet Management

One of the biggest buzz-kills in CSS web design is hunting around over and over for style properties that you want to change. To minimize this you should keep your CSS as organized as possible. An article called Creating Sexy Stylesheets by Jina Bolton is one of the best single, free guides to CSS management I’ve found on the web. Read it from beginning to end for an excellent primer on minimizing CSS work flow headaches.

A single style sheet is best for the speed of your site, but one sheet can be long and hard to navigate when you are making a lot of changes to your site’s design. For this reason, it’s nice to use multiple style sheets to divide up the different properties of your CSS. A lot of people find it useful to separate reset styles, layout, typography, forms, IE hacks, and print styles (to optimize your site’s appearance for printing). In Textpattern, you can create multiple style sheets like this and link to them in the <head> element with tags as follows:

<txp:css n="reset" format="link" />
<txp:css n="layout" format="link" />
<txp:css n="typography" format="link" />
<txp:css n="forms" format="link" />
<txp:css n="ie" format="link" />
<txp:css n="print" format="link" media="print" />

When you are in the thick of the design stage for a site, this kind of modular CSS is very convenient. In addition, organizing your style declarations in one of the ways suggested in Jina’s article will make finding them much faster and less cumbersome.

Also in that article, Jina talks about making your own CSS “framework.” That’s really just a fanciful term for a set of style sheets like those above, except stripped down to act as a template for designing several sites. A bunch of egotistical developers came up with the term as if it was a revolutionary idea. However, a CSS template (I like that term better) is a great idea and something any web designer would benefit from in the long run.

My Thoughts on Blueprint

I think the popular Blueprint CSS template is a great learning tool, created by experts and full of nifty tricks, but it’s not perfect. Regarding reset styles, you may want something more or less rigorous than what Blueprint provides. An article on Perishable Press provides and discusses a collection of reset styles for you to pick and choose from. These, in effect, replace the lowest priority styles in the cascade – the browsers’ default styles. Meanwhile, the grid layout of Blueprint may not be something you would need or want for a simple blog site, although the logic behind it is worth appreciating. As for Blueprint’s typography stylesheet, its organization and completeness is admirable, however, you will almost certainly make changes to the styles for your own site. It would be most savvy to use something like Blueprint as a starting point for making your own CSS template, which will save you a huge amount of time rehashing commonly used styles across multiple sites, with little or no bloat.

3. Textpattern Forms

Making liberal use of forms in Textpattern is another thing you can do to be organized and code your site efficiently. Forms are used for storing and micro-organizing snippets of markup. You give each form a name and it’s added to an alphabetized list. Then, in place of the chunk of markup you put in the form, you can simply type a tag like this:

<txp:output_form form="form_name" />

I’ve taken this advice, and it makes it easier to quickly find what I’m looking for when I go to make a change. Most importantly, when you reuse forms on several pages or in articles, the changes are reflected everywhere that references the form. In this way, forms are like CSS, except for HTML and Txp tags instead of styles.

An idea to get you started is to put your headers, sidebars, and footers into their own forms, and then call them into all the pages that use them. In general, any commonly used snippet of code deserves a place in a form.

4. Use Tags

I now use the tru_tags plugin for tag-based navigation on my site, which makes use of the built-in keywords feature in Txp. Tag and category-based navigation work pretty much the same from the user’s perspective, but tags hold the advantage when you’re the one creating the site, especially for blogs. First, its nice to be able to just type in some words in the keywords box in Textpattern, without having to go make new categories every time you write an article on a new topic. Also, there’s no limit to how many tags you can assign to an article, whereas, by default in Txp, categories are limited to just two. You can use the rss_unlimited_categories plugin to get just that, but you’re still stuck with creating the categories before you can use them. The other nice benefit I get from using tags is that I can automatically add them to the metadata for each article with a single Txp tag, like this:

<meta name="keywords" content="<txp:keywords />" />

If you are using the keywords field for this purpose already, as it’s intended, you can use the same words for organizing your content. Simple and automatic, the best rules to live by ;)

5. Make Your Site Come Alive

Textpattern lets you exploit the power of PHP without knowing a lick of the language. You can decorate your sidebar, archives, photo gallery, and other areas with dynamic elements that update automatically as you write new articles, upload new pictures, etc… And setting up these dynamic elements in Textpattern is worlds easier and more accessible for a novice than it is in Wordpress, courtesy of elegant, simple Txp tags. More to come…

6. Add Some Flare

With the easy-to-use Javascript package JQuery now being packaged with Txp, it’s time to use it to add a little spice to the behavior of your site. If you haven’t noticed my new subscription area on the top of the sidebar, I have a tiny smidgen of JQuery goodness in there when you click “email”. Here is the entire code for it:

$(document).ready(function() {
// hides the element by default
$('#email_sub').hide();
// toggles the element on clicking the noted link 
$('a#email_toggle').click(function() {
 $('#email_sub').slideToggle(400);
  return false;
 });
});

That’s it! If you have an idea for some effect you think might be possible with Javascript, surf over the Learning JQuery and see if Karl or someone else has an example you can work from. You can usually figure out what the scripts are doing even if you don’t know the syntax. You just have to plug in a few elements, classes, or ids into the right spots and it should work fine.

7. Speed It Up

Textpattern is known to be the slimmest, fastest CMS out there, so you may not feel like there is much to be done here. But I recently discovered a plugin called asy_jpcache that makes Txp even faster. It serves up cached versions of pages as long as the cache is less than 15 minutes old or whatever time limit you specify. According to benchmarks reported in the plugin’s thread and in this article, you can get anywhere from a 8x to 20x speed boost!

When you are finished (or are taking a break from) playing with your CSS, you should condense your multiple sheets into a single, static style sheet for optimal page loading speed. To do this, just copy and paste the contents of each individual sheet into one big “default” sheet. Now, to make a static CSS file (to take the place of the style.php file), you can use the plugin rvm_css and link to the file in your <head> element like so:

<txp:rvm_css format="link" />

This single Txp tag will load a static version of whatever stylesheet you have assigned to each section under the Presentation tab in Textpattern. You should also always remove unnecessary comments and maximize selector grouping to make your CSS as small and efficient as possible.

There are other things you can do in terms of designing your site for speed, and some of these are well layed-out in Paul Stamatiou’s 5 Ways to Speed Up Your Site. If you really get into it, check out his other site speed articles. Paul is a bit of a website optimization fetishist ;)

Before

After

Conclusion

I hope these tips are useful to people who have made the wise decision to blog with Textpattern instead of Wordpress. In making your own dynamic blog site, there is nearly unlimited customization possible using simple Txp tags and plugins – no PHP to deal with or even look at. I’d love to get some constructive feedback on my site’s current design; for kicks you can click the screenshot above to see the original AndrewSwihart.net.