Carnival of Passive Investing # 26 – What Passive Investing Is and Is Not – January 2013 Edition

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IRA, Rollover IRA, Roth IRA, passive investing, Carnival of Passive Investing, index funds, ETFs

Welcome to the January 2013 (the 26th total!) edition of Carnival of Passive Investing – a monthly collection of the best and most intelligent passive investing strategy articles around the internet! Some people foolishly want to beat the market (want being the key word), but we just want to invest with it.

As discussed in my introductory post for this carnival, the purpose of this carnival is two-fold:

  • To provide a forum to showcase articles and research in passive investing strategies (i.e. investing in ETFs, index mutual funds, etc. in such a way that one avoids employing active stock picking). By investing with the market, we are able to beat 70-80% of investment “professionals.”
  • To create a community of passive investment bloggers to connect and share expertise.

It’s crazy to think that it’s been almost a year since I last hosted an edition of this Carnival that I started back in December of 2010. We’ve had some really great guest hosts over that time, and it’s been fun to watch the Carnival evolve. A big thanks goes out to everyone who has helped out! I deeply appreciate it! 

Over the past year, I’ve noticed that we’ve gotten a lot of submissions that center around topics that are closely related and/or sound like passive investing, but do not quite fall in to this specific category of investing styles/personal finance interest and therefore, have to be excluded from the final selection of the carnivals. For example, of the 40 submissions for this month’s edition, 50%+ of them were not actually passive investing.  

As such, I thought it might be nice to make the theme for this month’s Carnival as showing several examples of topics that are and are not passive investing to keep this distinction fresh in our minds. This isn’t meant to point fingers or criticize anyone, but rather is simply for the sake of continuous improvement to our focused goal here with the Carnival of Passive Investing. 

Please enjoy and stop by my blog on my non-carnival days as well.

Listed below are this month’s top 3 editor’s picks!

1. Darwin presents Dollar Cost Averaging: Actual Results From the Past 10 Years posted at Darwin’s Money. 10 Years of Results crunched for how you would have fared if you dollar cost averaged into the market versus a one-time investment. Interesting results!

As Darwin points out, these are some REALLY interesting results. Essentially, the conclusion is that you experience a much higher gain during the 10 year period if you were to invest all of the money at one time in a lump sum fashion.

While I do agree with lump sum investing generally resulting in more money overall (it was also the conclusion that Jeremy Siegel came to in his amazing book, Stocks for the Long Run), I think it would be hard for people to do in real life if they were confronted with the task of investing a VERY large amount of money all at once (we’re talking along the lines of more than 1x their annual salary). In this case, it might be better for a person to invest half of the money now to get in to the market, and then invest the remaining half gradually over a few years. However, if it was a more modest amount of money (maybe $10k-$20k), I would likely just invest it all at once according to the correct asset allocation. 

2. Michael presents Contributing to a Roth IRA When You’re Over the Income Limit posted at Financial Ramblings. Yes, there’s an income limit for making Roth IRA contributions. But guess what? There’s a very simple workaround that can be used by pretty much anyone.

3. John Schmoll presents Reader Question: Should I Invest in Mutual Funds or ETFs? posted at Frugal Rules. There are various similarities as well as differences between mutual funds and ETFs. If you do some simple homework you can determine which funds are better for you while also keeping down the costs associated with investing.

Congrats to our 3 winners this month! Listed below are the rest of this month’s spectacular passive investing articles, along with the author’s comments summarizing each piece. Enjoy! 

Passive investing is not  Analyzing/selecting individual dividend stocks to generate passive income.Passive income actually has nothing to do with a passive investing strategy. Passive investing also does not relate to creating passive income through starting a blog, affiliate marketing, or sales of products.

PK presents Treasury Return Calculator posted at Don’t Quit Your Day Job. Any passive investor surely has taken a look at the GS10 series – the constant maturity on the 10 Year Treasury as computed by the Treasury. However, a chart of yields isn’t enough to tell what an investor would earn over a period of time. Well, one sleepless night and 8 cups of coffee led me to make this tool, which will calculate the coupon-reinvested return on the 10 Year Note for any period dating back to 1871.

My Money Design presents What are the 401k Withdrawal Rules for Getting My Money Back? posted at IRA vs 401k Central. Before putting too much money into your employers retirement plan, it helps to understand the 401k withdrawal rules and when you’ll see your money again.

Rohit presents No minimum balance and No maintenance fees Roth IRA accounts posted at The Money Mail. Returns in your Roth IRA can be reduced by the fees the custodians charge. You should select accounts that have no minimum balance requirements or annual maintenance fees. Some brokerage houses are now offering many free mutual fund options within Roth IRA but you will still have to pay for individual stock transaction. There are other criteria you should look at when selecting a Roth IRA account provider such as real time quotes and customer service. This article reviews the criteria to select a no-fee Roth IRA account and the other important factors you should look at when selecting a custodian for your retirement accounts.

Passive investing is not  Assessing where the market will go in the future, even if it involves predicting the direction of an entire index, such as the S&P500. 

Philip presents Traditional and Roth IRA Contribution Limits Increased by $500 for 2013 posted at PT Money Personal Finance. The latest info on 2013 Traditional and Roth IRA contribution limits–including a breakdown of what it means for those under 50, over 50, and an explanation of why these limits matter.

Dan presents The 8 Largest ETFs on Earth posted at ETF Base. Here are the 8 largest ETFs on Earth. It’s worth checking them out to see tickers, assets under management and their low expense ratios.

harry campbell presents Be Wary of Frontloading Your 401(k) Contribution and Losing Company Match posted at Your PF Pro. January is a great time to re-assess your retirement accounts. It’s important to review your 401k contribution and at least consider re-balancing your accounts at the beginning of every year. You’ve probably made a couple New Year’s resolutions so why not add this one to your list? 2013 will be the first official year I’m able to max out my 401k since last year I received a raise about halfway through the year so I just missed out on contributing the full $17,000.

Passive investing is not  Analyzing the activities involved in renting out a real estate property you own. However, assessing how a passively managed real estate REIT or index mutual fund might or might not fit in to your asset allocation would fall in to the category of passive investing.  

My Money Design presents The 403b vs 401k – How Are They the Same? How Are They Different? posted at My Money Design. Even though we have both types of plans, I didn’t always know what the differences between the 403b vs 401k. Here is what I found out about each one.

Rohit presents Comprehensive guide for Roth IRA posted at The Money Mail. A comprehensive post on Roth IRA that show you how to get started to make use of this powerful retirement saving option that is Roth IRA. You will learn about the contribution limits, the withdrawal options and where to get started. We also cover the most frequently asked questions for getting you to save for your retirement. Now there is no reason to start saving for your retirement.

Konvexity Institute presents This one concept from CFA level I QM curriculum can make a big difference in your wealth posted at konvexity.

Passive investing is  Investing with the market through the use of proper asset allocation, index investing, ETFs, portfolio rebalancing due to market fluctuations, asset class evaluation, controlling investor emotions, etc.

Michael Kitces presents Financial Planning Implications of HR8 – the Taxpayer Relief Act of 2012 posted at Nerd’s Eye View. The last-minute legislation this week not only averted the so-called “fiscal cliff” – it also brings about a number of significant changes to the tax code itself, and its permanence (unlike so many temporary rules and sunsets of the past decade) may herald in a new era of productive tax planning for portfolios!

Michael presents Are My IRA Contributions Tax Deductible? posted at Financial Ramblings. Curious if you’ll be able to deduct your IRA contributions? It depends on your income and whether or not you’re covered by a retirement plan at work.

Well, that wraps up this month’s edition. A big thanks to everyone for participating! 

You can submit your passive investing posts for the February 2013 edition of the Carnival of Passive Investing (hosted by Frugal Rules) by clicking the link below:

Blog Carnival HQ – Carnival of Passive Investing – Submit Your Posts

    ***Photo courtesy of


    1. Thanks for the include! I agree completely on the changing of the word 'passive' to mean things it, well, doesn't. Spending 20 hours a week to carefully cultivate the perfect portfolio of dividend stocks doesn't jibe with the definition of 'passive', even though you get dividend checks.
      My recent post Is There An Alternative to Student Loans?

      • Well said PK! I just got a submission to the carnival today that I had to turn away because it was a really good post about picking dividend stocks – passive income, not passive investing! haha
        My recent post You Don't Know What You Don't Know – A First-Hand Account of the State of Personal Finance Education

    2. John S @ Frugal Rules says:

      Thanks for hosting Jacob & for being an Editor's Pick!
      My recent post A Man’s Credit: Taking Responsibilty of Your Financial Life

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