Going Long On Retail

Without going in to individual security selection, I want to touch on an idea that I’ve been formulating for a while. It first crossed my mind when Macy’s reported better than expected earnings last year and I thought it was a curious theory but then never pursued it.

Then Toys R Us declared bankruptcy. I thought back on the days when my parents took me to Toys R Us and the happiness I felt just walking the aisles even if I didn’t walk out with anything.

Then Sears filed for bankruptcy and while reading about the declaration and about what brought a once iconic American company over the edge made the idea come up once again, only this time stronger. Retail is a sector that has lagged behind the broader S&P for a while now and hasn’t really shown a promise rebounding. Amazon has taken over. Having worked for a startup that leveraged amazon’s platform, I saw first hand the dominance Amazon has in the marketplace of goods. Not only do they sell everything, they produce everything as well. From Amazon branded clothing to Amazon branded food, Amazon has gone from the little online book seller to the everything store.

But how much can their dominance grow and have traditional brick and mortar retailers felt the full effect of this? I believe so. While reading about Sears and the events that led to it’s fall, one of the major thing I noticed was the lack of spending on technology. Retail companies that have weathered the Amazon storm have a major characteristic shared among them. They invested heavily in technology over the last 5 years. It doesn’t matter if it’s Walmart’s acquisition of jet.com or Target enhancing their own online presence, brick and mortar retailers have found the secret ingredient to stay competitive and not lose any more market share to online only retailers.

Further reinforcing my theory is that online direct to consumer companies such as mattress startups Casper and Tuft & Needle have made the push in to retail stores. While these stores are limited, I believe that they have plans to expand their brick and mortar presence in an effort to give more consumers an experience and a place to test their products.

In my opinion going to a mall or store is an experience and a good reason to get out of the house. I know plenty of people that enjoy actively shopping and walking around which is, for obvious reasons, impossible to do through online stores. While my original thesis was that companies investing in technology can and ultimately will weather the storm I also believe that a push back in to traditional retail will bring back a resurgence in REIT’s that are heavily invested in shopping centers and malls.

While I am unsure about substantial growth coming in the form of new stores I would expect that same store revenue year over year will continue to increase for traditional retailers, regardless of their push into e-commerce or not. Consumer sentiment stands at 98.3 and consumer confidence is hovering around 137.9. Both of these numbers show that Americans are happy with their current financial situation and expect the good times to keep rolling. Heading in to this holiday shopping season, I would expect higher than last year spending, even with the recent volatility in the markets.

As traditional retailers adapt to e-commerce taking a larger percentage of market share I believe the focus will shift from products in the stores to getting customers in the door with the allure of an experience. Instead of investing in large stores that hold many products, giving customers an experience that will make them want to leave their house and forgo online shopping will be the key. Give me a shoe store where I can try on shoes and jump on a treadmill, show me a clothing store where I can find the best products for me and order them directly to my house. I’d rather go to a Teavana that is a cafe setting and then purchase the tea I enjoyed after casually tasting and exploring their selection.

A recent trip to a local mall showed one of our contributors how retail is changing first hand.  Gone are big box stores sprawling thousands of square feet with scores of goods.  They have been replaced with things like a Tesla retail store where you can purchase merchandise and sit in the most recent model.  Interested buyers can be set up a test drive and learn everything they want to know about the car without leaving the mall.  In another portion of the mall our contributor found a new Nespresso store which was centered more around having customers sample new flavors free of charge rather than pushing product to purchase.

With a lot of market research coming out showing that the expectation for the near term is “growing but slowing”  I expect the retail sector to stay in line with that. Overall, I am long on the sector in a 5-7 year outlook and have begun the process of looking for individual companies that show the potential to not only survive the storm but come out stronger.


The Courage To Act

Overall score 8.2/10

The Courage to Act by Ben Bernanke

The Courage to Act by Ben Bernanke is one of the better economics books I’ve read. Recounting the events before, up to, and after the ’08 crisis, Ben Bernanke had a front seat to the entire situation as chairmen of the Federal Reserve. Bernanke brings a unique insider’s point of view from the crisis and objectively reviews exactly what happened and how different areas of the government, obviously with heavy emphasis on the Fed, reacted and tried to deal with the crisis and it’s eventual fallout.

I get it may not make the most exciting reading for someone just interested in personal finance but for anyone interested in macroeconomics and how the financial system works in the United States I highly recommend this book. Having graduated from college with a degree in economics I had plenty of classes that referenced and were even focused on financial crisis’, especially the Great Recession of 2008-2009 but not a single teacher could truly convey what Ben Bernanke so simply puts in his book. How close not only the financial system came to ruin but the United States economy along with it boggles my mind. The complete evaporation of credit may seem to have affected Main Street with higher interest rates and stricter lending criteria but had the Fed and the government not intervened there could have been a complete collapse of the very fabric of our capitalistic society.

I know that sounds like a doomsday prophecy and looking back from where we are now it seems hard to fathom the conditions that led to this crisis and the crisis itself. Personally I was too young to fully understand what was going on. All I knew was that a lot of people were out of work and my parents retirement accounts lost a lot of money. Now reading the chairman of the Fed’s first hand account of the crisis I understand why those accounts lost so much value and why people were looking for work.

Bottom line is this book will help you if you plan on studying economics in college. This book will help you if you want to understand markets better and the interconnection of our financial system. And this book will help you if you want to understand the recession. It’s a welcome glimpse into the brain of Ben Bernanke and you should take full advantage.

Blockchain and Bad Conversations

Guest post this Friday by a senior at Penn State! Read on to see what he has to say about blockchain.

At this point, you’ve probably heard the term ‘blockchain’ thrown around a time or two. In reality, you’ve probably been in a conversation where it’s been brought up, people start to discuss topics related to it, and you find yourself nodding along to everything they say, pretending to understand what they’re talking about and giving them the satisfaction of knowing they have an engaged audience. Before I say anything else, don’t hate yourself for it! We’ve all been there. What’s important is learning what they were talking about after the fact, so the next time you see this person, you can really nod your head to a familiar topic, not just words going in one ear and out the other. 

So what is ‘blockchain’ exactly? No, it’s not bitcoin, and no it’s not illegal. I know at least a few of you were thinking that. Blockchain is in fact a system of measurement. Just as banks keep ledgers of every transaction within their clientele and partnering banks, blockchain does this for cryptocurrency as well. The key difference between a traditional bank ledgering system and the blockchain is that every transaction that happens in the blockchain is public. Every transaction and its respective amounts and included parties are all recorded on this public interface. Transactions are sorted into blocks along this chain and published online, while remaining well encrypted. These blocks are mathematically solved with a certain amount of transactions, depending on the solution, and then placed on the chain. The blocks themselves are solved by miners; the individuals who actually derive each coin. They then take each transaction, and through a series of complex mathematical procedures, systematically solve each block; adding onto the chain. I know, mind blown. Now before any questions, I have to disclaim the hobby of mining by saying that not everyone can do this, even if you claim to be a mathematical savant. Crypto-mining takes a heavy set of expensive computer machinery, and a lot of time that most people don’t have. However, with that being said, it’s not impossible!

So aside from avoiding a confusing conversation, why is this subject important to our generation? Simple. The blockchain is going to become the most disruptive technology of our modern world. Aside from all that it has already done, the public ledgering system allows for instant data and information dissemination across multiple platforms, and business templates. In other words, people can share sensitive information instantly, with whoever they want to, in a very safe manor. In the next 20 years, the blockchain will revolutionize the ways in which businesses process data. Prospectively, this system will be replicated across every business and multi media platform, allowing for easier spread and analysis of data. 

So there you have it, the blockchain in a nutshell. Before you go buying all the mining rigs and cryptocurrencies you can find, it is important to have at least a base knowledge of the blockchainand the way it operates today. Something about .001% of the world could really explain well. Tell that to your IST and market trends professor.

Why The Federal Reserve Alters Interest Rates

The United States economy has been on a hot streak.  Overall growth had been present for years and recent corporate tax cuts put gasoline on the economic flames.  Precisely why talk of Federal Reserve interest rate hikes have been littering the news lately.  Today I want to discuss what that actually means for the economy and for you as an individual.

So what does the Fed actually do?

At a very high level the Federal Reserve has been enacted by Congress to “promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates.”  This has come to be known as the “dual mandate.”  Why there is three mandates in the dual mandate I do not know, but I don’t make the rules.

It is important to note that maximum employment is not necessarily 100% employment.  In theory it should be, but in reality you will always have people leaving jobs or in the process of switching jobs for many uncontrollable reasons.  However, since we currently sit at some of the lowest unemployment levels in history I’m not so sure the Fed is as concerned with people being able to find work as they are with the other two things in the dual (triple) mandate.

Right now Jerome Powell and the Federal Reserve are working overtime to figure out how to keep inflation within controllable levels as the economy heats up.  In other words, as more money is accumulated to pay for goods and services they are trying to prevent that $3 Starbucks coffee you shouldn’t be getting every morning from becoming a $4 Starbucks coffee you shouldn’t be getting every morning.

Where interest rates come in

Raising or lowering interest rates is one of the most common tools the Fed uses to keep prices stable.  If they feel the economy is heating up and inflation is rising they may choose to raise interest rates to discourage borrowing, something that goes hand in hand with economic growth, and vice versa.

When the Fed alters rates they are referring to the federal funds rate or the rate at which banking institutions can lend money overnight to other banking institutions.  This may not affect individuals directly, but over the long term interest rates offered by banks change accordingly.  This eventually ripples out into the entire economy with the hope of controlling growth or jump starting the economy when it slows or contracts.

The Federal Reserve’s Federal Open Market Committee(FOMC) meets 8 times a year to discuss rates usually about 7 weeks apart.  This ties into the moderate long term interest rates portion of the dual, but actually triple mandate.  Quite obviously, an extreme change in the rate can have unforeseen effects on the economy so the Fed elects to raise or reduces rate gradually over time.  The Fed can also elect to keep rates unchanged if they believe inflation is where they would like it to be.  Currently the target rate of inflation is 2%.

While robust economic growth is good for everyone as it means more jobs, higher pay, and rising markets it is important that it is contained.  Additionally, it is important to encourage borrowing by lowering rates when times are not so good.  A stable economy that tends to expand over time is best for everyone as it keeps the maximum amount of people employed and will not radically change the price of goods.  The Federal Funds Rate is a tool to keep the economy on the right track.


Some more links for you:

Federal Reserve website FAQ section

Federal Reserve of Richmond Essay on the Dual Mandate

Explanation of the Federal Funds Rate

Understanding Investing and Speculating

It’s time to break down the difference between investing and speculating. At different points in market cycles and throughout stock market history investing has been thought of as speculating and speculating as investing. With the latest boom and bust of weed stocks, last years run up of crypto and the resulting crash, the longest bull market in US history, and now movements in to correction territory it’s more important than ever to understand the differences.

We get it, diving into the world of investing can be tough. There are so many different ways to lose money and it’s easy to fall in to a trap. One of the many pitfalls that most new participators in the market come across, and one we all definitely fall prey to, is speculation. I made a lot of uninformed and rash decisions that I would never make now and lost, at the time, quite a bit of money. And while we still learn every day about the markets, this lesson of investing vs. speculating should be learned quickly and forgotten.

At the highest level I would say every market involves some sort of speculation. If you hold the S&P 500 through index funds (which is one of our favorite ways to invest) you are speculating that the US economy is going to continue to grow. If you hold treasury bonds you are technically speculating that the US government is not going to default on its debt and will have the ability to pay you back (which has actually come close to happening in recent years). There are people who purposefully make speculative investments and they have their own reasons for doing it. We are just here so you understand the difference and don’t accidentally speculate when you meant to invest.

Investors tend to seek to maximize their risk adjusted rate of return based upon fundamentals, through analysis, risk management, and due diligence. Speculators buy a security with the hope that someone else will buy that security from them at some point in the future at an even higher price than they payed for it. Burt Malkiel of Random Walk Down Wall Street fame presented this idea the best with his castles in the air analogy. Let’s dive into some examples of each:


A great example of speculation are small cap biotechnology stocks.  The underlying businesses usually don’t make much money if any and are operating with money raised by issuing equity and grants they have secured for researching new drugs.  However, an FDA review of a drug they are trying to bring to market can either make or break the business. Speculators will buy up stock or short it (usually on margin) right ahead of these reviews seeking to create outsized returns.  While speculators can read all the company press releases they want the FDA approval process is extremely complex. No one really knows what’s going to happen and people make small fortunes or get burned all the time.

But you don’t have to take our newest high tech example to find speculation in the markets. Ever heard of Dutch Tulip Bulbs? One of the greatest financial bubbles and speculation crazes of all time. That’s right. Tulip Bulbs. People actually bought and sold flowers that costed more than their homes. And they bought them on margin. And as all speculation crazes do and all bubbles must, they popped. People lost fortunes.

Check out these other speculation crazes to see how ridiculous and irrational people can get.

Weed stocks, biotech, Housing, dot com bubble, savings and loans, south sea company, tulip bulbs.


A good example I like to use for investing is something that you can conduct research on and conclude that it will have positive expected returns with average or lower than average risk for many years to come.  

Take a large conglomerate that is in several industries.  It is a top player in the industries that it participates in and returns value to shareholders through either dividends, share buybacks, or capital expenditures.  An investor might choose to invest in this company to seek a modest return on the capital they put at risk as due diligence suggests that the business’s risk is relatively low.  Additionally, the investor might go ahead and purchase stock of similar companies to diversify their portfolio across industries and regions.

Remember that purchasing a share is not just owning a string of numbers running across your screen with the hope those numbers go higher. It is a ownership position in the company of whose share you bought. The value of your house is not told to you consistently throughout your day and you don’t care. Your investments should be the same. Even if you are not able to know the price you should be comfortable in your investments, and I stress investments and not speculative positions, that if you didn’t know the price at this very moment you would be happy to own a piece of that company.


We are not saying to not speculate. Some make their fortunes on speculation but many more lose fortunes because of speculation. It’s important to understand the differences and the risks acclaimed with both. Yes, investing has it’s risks and while they are different from speculating they are always present and represent hurdles that intelligent investors must learn to navigate.

Atlas Shrugged

Atlas Shrugged by Ayn Rand

The Modern Piggy Bank’s Rating: 10/10

If you saw Atlas, the giant who holds the world on his shoulders… what would you tell him to do? What would you tell him? To shrug”

Atlas Shrugged is one of, if not the best book I’ve ever read. I picked it up after learning of how many successful people attribute their success to the philosophy enshrined in this book and after finishing it I could completely understand why.

I won’t lie. This is a long book, it will take a long time to get through and it can be slow at times. But every page brings you a new insight into how the majority of people interact with reality and how badly you don’t want to be like most people. This is actually the first book that I went back to read passages and pages over again, not because I didn’t understand them, but because I wanted to absorb the words again.

Presenting her philosophy of Objectivism in story form, Rand creates characters we can all associate with people we know in our own lives. You’ll also find the ideal characters don’t seem so unrealistic and the way they live their lives so simplistic, you’ll wonder why it’s not common sense. Francisco’s speech on money, probably spanning 20 pages, is eye opening and will be sure to burn in your brain for a long time. Even though this book revolves around the storyline of good versus evil it’s about fundamental moral laws that all people should adhere to but so many just throw by the wayside.

It’s actually a struggle for me to write down all I want to say about this book because there’s so much to say and I don’t want to go on a rant. Feel free to email me at founders@themodernpiggybank.com and I’ll happily tell you everything I love about this book in more detail.

So let me finish by saying I don’t care who you are, what you do, or what level of success you have achieved, this book will change the way you look at the world. No, it doesn’t have anything to do with investing and personal finance per say but handling of money is as much of a mental test as it is anything else. In fact, a whole new area of study called behavioral finance is attempting to learn more and understand the connection between our thoughts and the way we go about money.

The very second I turned the last page in Atlas Shrugged I knew I was a changed person and I know you will be to. There is no denying it that Rand touched a long forgotten truth about the human condition and brought it to life through her writings.

Atlas Shrugged is a book I will return to time and time again to read over and over or sometimes just read certain passages and speeches. I’ve gone on to read another of Ayn Rand’s books: Anthem. And am currently making my way through Fountainhead.

Embarking on the journey that is Atlas Shrugged is a long one but not an expensive one. The paperback can be bought from amazon for less than $10. Just click the link below and it’ll take you directly to the page.

Atlas Shrugged

Make sure to let us know what you think! We welcome any discussion about this book or any others that you’re reading. As always we ask you to subscribe using your email so you can stay up to date on all the exciting things going on at The Modern Piggy Bank and follow us on twitter @themodernpiggy2.


Reading WSJ is Great. This is Better.

If you’re like anyone that wants to learn more about the markets you probably have a Wall Street Journal subscription.  It is a great resource and something I used to read cover to cover almost every day.  I still read it often, but I tend to skip the bombardment of writers telling me stocks are going up/down on any given day, recently the narrative has been the trade war and tariffs.  Don’t get me wrong these things pose a big threat to the global markets, but in my personal opinion that has not even come close to materializing yet and as someone who looks at the big picture I don’t think one day of stock market noise can be explained by any one thing.

So if you are looking to further deepen your knowledge there are few things you can do, many of which are free or won’t break the bank.  Some of the things we like to do include:

Reading Actual Portfolio Management Research

Find a fund, asset manager, investor, professor, economist or anything of the sort that you like and resonate with.  Read what they have to say and ask yourself if it makes sense.  Then read something completely opposite and see what you think.  I used to think individual stock picking was the only way to invest.  My ideology was that bonds could never give me the returns I needed and other financial products involved heavy amounts of leverage.  Then I read Burton Malkiel’s, “A Random Walk Down Wall Street.”  Now, I like looking at data and Malkiel consistently provided concepts I found easy to understand followed by charts to drive his thoughts home.  I am now more open to a portfolio that is diversified across the world and across asset classes.

Some other ideas include reading AQR Capital’s website.  With $226 billion under management across all their offerings its quite amazing they have a research tab right on the homepage so you can read up on their thoughts and insights.  I am also a big fan of Meb Faber’s blog and weekly podcast.  Aside from running a $1b AUM investment manager he frequently puts out free research and inexpensive books.

Looking At Economic Indicators

The Federal Reserve, Bureau of Labor Statistics, Institute of Supply Management, etc. regularly put out economic indicators that gauge the health of the economy.  A lot of guesswork is taken out when you have data showing how many people are buying houses or how inflated the prices of goods are.

Getting even more creative, public companies are required to disclose their financials every quarter.  The largest companies choose to have earnings conference calls and field questions from some of Wall Street’s top analysts, but these are completely available to the public.  So for free you can hear the executives of top global business talk about what their views are on their businesses and the overall economy.

Some of our favorite indicators include:

  • Real GDP Growth – GDP Growth less inflation
  • Purchasing Managers Index(PMI) – gauges business health by means of a survey to purchasing executives at hundreds of companies which includes new orders, factory orders, employment level, supplier’s delivery times, and inventories
  • Housing Starts – how many people are buying new homes
  • Caterpillar/Boeing Earnings Calls – industrial giants who are sensitive to changes in the global economy

Tinkering With Data Series

There are a number of free or low cost data series out there on the internet.  One of the most popular is the Fama/French database which includes US equity data dating back to the 1920s.   AQR Capital, which I referenced before, has a similar dataset on their website as well.  These two are especially nice because they have different factors you can play around with and see how they have historically performed.

However, even yahoo finance has free data.  Most recently I was playing around with an S&P 500 strategy that tilts into lesser represented sectors of the market and found that yahoo price data was more than sufficient.

And you don’t have to be a programming genius either, you can do a lot with excel and you’d be surprised how one simple plot can lead to many ideas.  One of my favorite websites portfoliovisualizer.com actually allows you to create a portfolio and see how it historically performed.

But if you are a real nerd you can play around with quantopian.com, quandl.com, and quantiacs.com.  These websites have free financial data and essentially built a backtesting engine for you so you just have to code up a strategy and see how it performs.  (Not sure if quandl does the backtesting for you I just heard they have great data)

More than anything it is important to be creative.  The industry notoriously is pretty secretive about their research because an overused strategy is one that does not work.  However, more and more firms are starting to provide research and insights to the general public so make use of what you can.  We are working on starting two new sections of the website. One for money manager’s letters to investors and one with interesting papers, excel spreadsheets, and more. So hopefully we can provide value to you as well.

As always we welcome questions, comments, and thoughts via email at founders@themodernpiggybank.com.  Be sure to subscribe to this website and follow us on twitter @themodernpiggy2.

How To Use Your Cash Back Credit Card To Build A Rainy Day Fund

Cashback credit cards? Awesome. I’m personally so thankful that cash back cards are a thing because I utilize them to the full advantage. Or so I thought. Personally I have a Chase Freedom Unlimited card which gives me 1.5% back on everything I buy. Considering the fact that I graduated college recently and moved to a new city for my post grad life I got a lot of cash back during this move.

I try to use my credit card for every single purchase that I make because of the cash back feature. I know a lot of you will say this is irresponsible so let me quickly say I only expense things I can afford and will pay off every month. I don’t carry a balance and therefore I pay no interest on my card. So really, this cash back is just found money for me. When I was moving it was great because as I bought things that I would need in my new apartment my card gave me cash back to buy even more things I wanted but I didn’t consider essential to the apartment such as art or little knickknacks to make the apartment feel more like a home. Sadly, the plant I bought died but that’s neither here nor there. (I was devastated).

So getting back to cash back. If you are a responsible spender with your credit cards and not a frequent traveler I highly suggest going with the cashback option, but again you need to find a credit card that fits your lifestyle and personal spending habits. I know a lot of people around my age in cities like NYC or Boston that if they had excellent credit opted to go for the Uber credit card because of how it directly caters to those people who are very active in their social life. I also suggest checking out the Capital One Savor Card because of it’s great cash back on dining and entertainment.

I’ve talked to a lot of people about what credit card they use and why they chose that particular one. Most people take cash back and apply it to their statement balance so they owe less on their credit cards each month and I highly recommend doing this if you are carrying a balance from month to month. It will allow you to pay down your debt faster and get out of interest payments, if you have those.

Now that I carry a zero balance from month to month I don’t feel the need to apply my points right back into my credit card. Sure, I could go online and get some gift cards or apply them to travel but let’s be honest, I’m 22 and I don’t have time to go on crazy vacations and I try to curb my spending habits so that I can save more.

So I thought about this a lot. I wondered how I can best use my cashback. 1.5% sounds like nothing but it definitely adds up over the course of a year. As I was going through my options for my last point redemption it had an option if I would like to deposit the cash back into my checking account. Now I don’t keep my savings account with chase as you all know if you read my article on savings account, I use Marcus by Goldman. Some more digging allowed me to find that I can link any bank account up to my card and deposit the money there. Aha! A rainy day fund was created.

Sure I have my savings that I deposit a fixed amount in every month because I worked it into my budget, but I’ve never even thought about putting my cash back into a savings account. Even better, it’s an interest bearing savings account so basically I’m being handed money, putting it into an interest bearing account, and earning even more money on top of that. Think of it as a monthly allowance almost.

This is how I personally use my cash back but the more I thought about it the more I saw the wide range of possibilities this really has. Savings accounts offer low interest rates right now with the highest you’ll find hovering around 1.8% while the average market return year over year is 7%. So if you already have a rainy day fund and don’t feel the need to contribute more consider taking this cash back and putting it into an investment account, retirement or otherwise and letting it grow even more than a rainy day account ever would.

Make sure to subscribe to The Modern Piggy Bank using your email address and follow us on twitter @themodernpiggy2. As always you can email us directly at founders@themodernpiggybank.com with any comments or concerns you guys have. Have a topic you want to learn about? Shoot us an email and we’ll do the research.

The Major Indexes Explained

If you turn on CNBC you’ll probably see and hear a bunch of talking heads screaming about how many points the Dow is up on the day or where the S&P 500 is heading.  It can be a lot to take in and even we learn new things about the major indexes from time to time.  So if you are confused about what these things represent you’re in the right place.

The major indexes include the Dow Jones Industrial Average, Standard & Poors 500 (S&P 500), and the NASDAQ Composite.  There are countless more you may have heard of like the Russell 2000, but usually the three listed above are the most talked about and usually can be used to get a quick snapshot of whats happening in the market.

The Dow Jones Industrial Average

^DJI_YahooFinanceChart.pngThe Dow traces its roots back to 1885 and was officially introduced in 1896 when Charles Dow calculated an average of 12 purely industrial stocks.   Surprisingly, it is not the oldest index as it is 12 years younger than the Dow Transportation Average.  It has come a long way since then and now holds 30 stocks with none of the original 12 remaining.  GE has the record for the longest Dow membership, but was recently removed for Walgreens amidst a series of financial blunders.  The companies are selected by a committee of experts with the goal being to select companies that together best represent the US economy as a whole rather than purely industrials for which it was originally intended.

The Dow is the most followed US index.  Whenever it passes a mile stone celebrations are in order and whenever there is a crisis people gauge the severity by how much the Dow has fallen.  Interestingly enough the index is price weighted.  This means that a company that has a greater price per share represents a larger portion of the Dow than a company with a lower price per share.

A table of all the components can be found here.

The Standard & Poor’s 500

^GSPC_YahooFinanceChart.pngStarted in 1957, the S&P 500 is a weighted average of the top 500 stocks in the US by market cap.  Unlike the price weight of the Dow the S&P 500 is cap weighted meaning that companies with a larger market capitalization represent a larger portion of the index.  For example, a price swing in Amazon would have a bigger effect on the index than a price swing in Campbell’s Soup.

This index is just as popular as the Dow and some might argue that it gives a more holistic view of the US economy since it is an average of more stocks.  Since its construction relies solely on market cap it does tilt toward certain sectors of the economy and individual companies.  Currently the S&P 500 tilts toward the technology and financial services sector with about 26% and 15% weighting respectively.  The smallest sector is telecom at just under 2% (I calculated these a few months ago so I apologize if they are not 100% accurate).  To take this a step further about 4% of the index is AAPL while smaller companies can be just fractions of a percent of the index.  Overall, the S&P 500 is a solid way to hold the US market, but its construction can sometimes cause it to lean towards what’s hot.  We are working on an article discussing this in more detail and hope to share it soon.

To see the full list of member companies click here.

The NASDAQ Composite

^IXIC_YahooFinanceChart.pngThe NASDAQ composite is a composite index of all stocks trading on the NASDAQ exchange.  If you haven’t heard of the NASDAQ exchange it’s simply a separate stock exchange from the NYSE set up in the 1970s as the first electronic exchange.  To put this in simple terms every trade on the NYSE gets cleared in New York at the NYSE.  The NASDAQ is different as it allows sellers to automatically connect to buyers in a decentralized manner.  For further details click here for an interesting Investopedia article on how it all works.

Although it is not a tech exclusive index the NASDAQ is notorious for being technology heavy.  The index dropped over 80% in value in the early 2000s dot com bubble.  As of May the index sits at about 46% technology stocks, but otherwise has a good mix of stocks from every sector.  Additionally, it is also market cap weighted like the S&P meaning larger market caps represent a larger portion of the index.  It differs from the S&P 500 in that any company that chooses to list on the NASDAQ exchange is automatically on the index whereas the S&P 500 is the top 500 companies by market cap that are based in the US regardless of exchange.  Over 2600 stocks trade on the NASDAQ and they are all represented in the NASDAQ Composite index although some fund managers might select the top 100 as it makes it easier to package into index funds and the like.

For the full list of companies click here.

The Bottom Line

The major indices do a great job of giving a snapshot of the US markets, but that’s about it.  The construction of these indices show inherent biases towards industries and even individual companies.  Owning the US markets has rewarded investors handsomely over the course of modern history, but it is important to know how indexes and funds are constructed so you can truly understand your investments.

The main takeaway here is to understand what your risks are.  I have no problem with index investing as it is easier for me to justify why a whole market may go up than try to place a value on an individual security.  If we can assess our risks and better understand our portfolios we can start thinking about if we want to hedge that risk out and at the very least we can understand why our portfolio is moving up or down to avoid rash uninformed decisions.

If you are interested in index investing some great funds and ETFs are offered by Vanguard and State Street.  They are extremely passive, have very low fees, and minimal tracking error to the indexes they follow.  As always it is important to read the funds prospectus and understand how it works before investing.

As always we welcome questions, comments, and thoughts at founders@themodernpiggybank.com.  Be sure to subscribe to this website and follow us on twitter @themodernpiggy2.

How To Decide Between A Bank Or A Credit Union

If you are looking to open a new checking or savings account or maybe even secure a small loan you are probably shopping around at all of the banks in your area.  You may not have ever heard of Credit Union’s before or have even give it much thought.  Well today I am going to walk you through the key differences between the two and why I ended up choosing a credit union for my daily banking.

On a very basic level banks and credit unions essentially offer the same services.  You can deposit money into a savings or checking account, open a business account, secure loans, and use ATM’s.  The difference lies in how they operate and how they are run.

Banks Explained

As you probably know banks are for profit institutions. They exist to make money not for their clients but for their themselves and their shareholders.  As a result you may experience things such as higher fees and lower interest rates on savings accounts.  Most commonly people say that going with a larger bank can feel like a very impersonal and sometimes robotic experience.

On the flip side, it’s really nice to have access to ATMs across the country and more branches in more places. And very important to most millennials, most banks are investing heavily in technology to make their online banking and other services more convenient.

Credit Unions Explained

A Credit Union is actually a non-profit institution.  It is technically member owned although there usually are some executives to run the day to day operation.  As a result, lower fees and higher interest rates on savings accounts are used to get customers in the door.  Credit unions usually cater to a smaller more exclusive customer base but there are quite a few that have massive membership numbers.  For example, lots of large corporations have credit unions for their employees and the credit union I use requires your address to be within a certain distance of the nearest branch.  Although, I am sure you will find a credit union to fit your needs.

Aside from the lower fees and higher interest rates on savings accounts credit unions are known for the high quality customer service they provide. Most people who use them say the bankers they interact with really go out of their way to understand your financial needs and help you plan to achieve your goals. This all ties back to the customer owned non-profit status that they hold.

The big downside is the lack of branches and ATMs. Since most Credit Unions serve specific areas or companies they are regionally located and don’t have a national network of branches. However, even though your individual ATM network is usually limited, your credit union may give you access to the CO-OP network which boasts over 30,000 ATMs.


It really comes down to what you are looking for in a financial institution.  If you are looking for a convenient place to deposit and withdraw money I would say the bank is the superior option, as they are more nationally present and have quick automated processes in place.  If you want to save a little more and the customer service experience is important to you go with the credit union.  These institutions come in all shapes in sizes so my best advice is to shop around.  You might be surprised with what you find.  For example, a small bank might be personable like a credit union with a larger presence and a large credit union might be able to give you lower fees and high interest savings with many of the benefits of banks.

My Experience

I ended up going with my local credit union and here’s why.  Their checking account yields 2% interest on balances up to $10,000 and all I have to do is have at least 1 direct deposit a month and swipe my debit card 12 times a month.  I get direct deposit through work and the 2% interest will pay for my months worth of coffee and then some.  Additionally, they offered me a credit card specifically for those who are new to credit and looking to build up their credit score.  Additionally, my credit union does participate in a CO-OP network and will even give me a refund of up to $20 worth of out of network ATM fees.  It was a perfect setup for my specific situation.

The bottom line is keep an open mind, shop around, and ask questions.  Everyone’s situation is different and could be better suited to a variety of different options. If you need help deciding feel free to reach out to us and we can walk you. Through more detailed differences.

As always you can reach us at founders@themodernpiggybank.com for questions comments and concerns.  Follow us on twitter @modernpiggy2 and please subscribe!