Mr. Dumbs: This is your opinion. I agree with Elizabeth's definition
of investment success.
The only reason I respond consistently to your posts is to contrast
the view of a get-rich-quick, risk-taking, timing type with those who
know that slow-and-easy wins the race.
Live within your means. Save regularly. Invest in broad, low cost
index funds, diversified so as to include high grade bonds and/or CDs.
Too many blew off the high grade bonds/CDs in recent years. The reason
I am sleeping well these days is because of my bonds/CDs allocation.
You imply it is easy to beat the market in the long run. All reputable
research on this indicates the opposite.
On Jan 25, 12:24 pm, email@example.com wrote:
Interesting. May I suggest that perhaps what we are looking at here is
a gradient of "investing"?
I ain't got no money!
Jobs and savings accounts
to T-Bills and bonds with time the principal horizon
to mixes of Treasuries with index funds
to mixes with stock funds
to funds and maybe some companies' stock
to one's own portfolio
to super managed money (whatever that is)
to opening up one's own hedge fund
to giving it all the Bernie Madoff
(which brings us full circle)
To what we all do from time to time - speculating on what life is all
Defeatist approach? We're retired. I'm 63, my husband will be 54 in a couple
of weeks. I invested so we'd have enough. I have other things to do with my
life. Oh - and no gold-plated wheelchair for me. I walk some 40 miles a
week - 9 miles yesterday in 2:10, a half marathon a week ago in a little
over 3 hours beating my 23 year old granddaughter who ran.
"The goal"? The only goal? Maybe for you, but you ain't everybody. Some
people are lucky enough to like their work.
I tell my daughters that money is freedom. Yes, freedom to retire if you want.
But also freedom to travel, freedom to live where you want, freedom from many
worries, freedom to take time off to care for a relative...
And you can't win the lottery if you don't buy a ticket. The question
is, is the work likely to be of any benefit? And will the benefit be
enough to compensate for the work?
You can get average with almost no work.
Most people, even educated people, have neither the time
nor the inclination to become investment experts. They
often, very reasonably, feel that their time is best
spent doing the things they are best at - and financially,
that's often just a matter of them doing their jobs,
whatever they are.
There's no need for investing to be a full-time job
or even for it to suck up much of their time. But there
is an enormous incentive within the industry to try to
sell the notion that it can only be done by experts and
that folks need complex products. Most folks don't,
and most of their investing needs can be handled through
very simple portfolios. But how to tell this quiet
truth over the din of advertising and "advisors" selling
products (with some of the slickest marketing materials
I've ever seen)?
Sadly, it's almost as difficult to pick an advisor as
it is to pick a fund or a stock. But there are some
good guidelines out there and folks either need to spend
a lot of time educating themselves, or they have to choose
to trust someone, sometime. And much of the value of
a great advisor is not even the selection of stocks
or funds - a great advisor helps an individual with
other issues which may outweigh the security selection
choices by a long shot - things like getting them to
max out retirement plans (or at least get the full
value of an employer match), titling assets and
accounts correctly and naming appropriate beneficiaries,
making sure they have the right kinds of insurance, etc
and how to take advantage of tax issues (like tax loss
harvesting), and maintaining discipline.
It'd be nice if there were more unbiased investor and
financial education out there. Folks should know how
to balance a checkbook (even if they don't actually
do so - and whether to bother balancing it each month
or not is a whole other discussion). Folks should
understand compound interest. And marginal tax rates.
But who's going to teach all that? At the moment, folks
need to be self-motivated and capable of distinguishing
the real education from the sales materials. And it's
that latter problem which may be hardest of all.
In the meantime, how much better off would the average
investor be if he'd just gone with a 60/40 broad index-
based portfolio and left it alone, versus all the
ongoing, often conflicting advice out there? It's about
as uninteresting and unglamorous as it gets, but the
long-term return of such a portfolio is surprisingly
good. Since '92, that portfolio has had almost the
same compound return as a 100% stock index (a bit under
7%) - with only about 2/3 the volatility. Over the last
10 years, it's beaten the 100% stock index handily. With
a little bit of tweaking the asset allocations, it may be
possible to beat that - slightly better return and/or lower
volatility. But that simple benchmark is a heck of a
good starting point, and that portfolio can be built
and managed easily for less than 15bp/yr.
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
At the very least, people with limited spare time can read a couple of books
like "Investing for Dummies" or "Mutual Funds for Dummies" and get some
basic information, enough to steer clear of scams and avoid major pitfalls.
Also, they can make use of many web resources and read newsgroups like this
Many funds have low management fees and it's difficult to hold stocks
over a long period of time so brokerage fees aren't much of an
An advantage of a full service brokerage is that you can borrow
against your investments to meet emergency needs to avoid bad tax
investors need diversification, but having only one fund doesn't give
all the advantages of diversification. It's better to have an
assortment of funds and stocks. I feel more comfortable with about 30
stocks, but if an investor has a considerable amount in broad funds,
the number of stocks can be less.
ETFs allow an investor to get into markets (foreign and commodity)
that aren't available through conventional stock buying.
On some mutual funds, the fees are so low that they are not
material. For example, fees on Vanguard index funds are usually under
Also, using your discount broker, you can buy securities that
represent some stock index, for example symbol SPY represents 1/10 of
S&P500. SPY has very low management fees and some advantages over
Due to extreme spam originating from Google Groups, and their inattention
to spammers, I and many others block all articles originating
Because it is expensive to maintain the portfolio of individual stocks
so that it tracks an index. Back of the envelope calculations:
The annual turnover of the S&P 500 is on the order of 3%. So figure a
total of 15 sell orders and 15 buy orders a year at a cost of $10 per
transaction. It will cost you $300 a year to track the index.
The annual expense ratio of a popular S&P 500 ETF, say SPY, is 0.08%.
So an amount invested in the ETF that is less than $375,000 ($300/.0008) will produce lower annual costs than buying a basket of
Many caveats attach to this example, but the point is that, if one
wants diversity, low cost index funds are a bargain for many people.
At one time I found it complicated to work with DRIPs at tax time. In recent
years, however, my companies do the calculations, and I just turn over a
slip that comes in the mail to my tax preparer. If you are able to do your
own taxes, the DRIP part still should be easy, at least in the case of my
Years ago a major fund got a new manager, who liquidated all existing
positions. I'm not kidding. December 28th, holders got a surprise:
more than 35% distribution, over 68% of which was short-term. That put
a few "complications" into a lot of people's tax planning. It probably
made more than a few wish they hadn't signed on for automatic
reinvestment, too. The following year, that manager 'departed the firm
to pursue other career interests' (or something like that). The
predictability of funds is only partial, long, short, divs, or
Compare to Mobil Oil (now XOM), arguably a "buy with your eyes closed
household name", purchased in 1985. At a closing price Friday of
$78.04, the annualized appreciation is 11.66%, current yield on cost
is 26.32%. (I'm just *sure* someone will say, "Well, Buffett got 35%"
or find some other objection :-) I'm sure there are many other similar
stocks individuals "wisely" bought, or are now buying.
You're right, of course. What I really meant is that the automatic
reinvestment of capital gains distributions that often occurs when
investing in funds complicates the tracking of the basis of individual
shares of the fund that are owned. Is that better wording?
william dot trice at ngc dot com
Many (most?) brokers will allow free reinvestment of dividends
from individual stocks. And heck, back in the investment club
hayday, DRIP plans were all the rage. Either way, they'll "complicate"
things for individual stocks as much or as little as distributions
"complicate" things for mutual funds.
Rich Carreiro firstname.lastname@example.org
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