New at investing, general ?s

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rgm1982
Posts: 50
Joined: Wed Dec 01, 2021 11:50 am

New at investing, general ?s

Post by rgm1982 »

Hi ya'll,
First time posting, I'm pretty much a newb in the world of investing, so please pardon me if this post is a bit long winded and I ask a bunch of dumb questions...

I had been saving for a few years to buy a house, but unfortunately I live in Austin and the market here pretty much exploded during covid with no signs of slowing down, so now that I can't afford to buy here anymore I need to decide how best to allocate my $50k downpayment to work best for me

I may still try to reserve some of that money to buy a cheaper rental property in a market I can afford, still looking into those options to see if it's viable...meanwhile for whatever is leftover there's stocks, bonds, reits, crypto, etc, and I'm in a little over my head with some of this stuff. Just curious to see how other folks who are wiser than me would allocate their funds if they had this amount to play around with.

A friend of mine put me in touch with his financial advisor, who wants me to put $12k in a roth IRA and fork over another $20-25k to put into a managed fund. I told him I'd think about it and come back with a bunch of intelligent questions, so...what would be some intelligent questions to ask him?
His firm charges 1.25% for each fund, I don't really know if that's good or not...I know I can use robo advisors and invest in index funds for much less in fees and never have to touch it, but would that be better than the return on a professionally managed account, even with the fees? The one thing he offered that I liked is that the stock fund would be liquid, so if the opportunity ever did come up to buy a home again I could instantly pull the money out and still use a downpayment if I wanted to.

Also, just a few random questions, based on some advice some friends have offered...I read Joel Greenblatt's book on magic formula investing at someone's recommendation, anybody familiar with that concept? Is that a good way to invest, in comparison to either a passive index fund or professionally managed fund?
How about the Motley fool's monthly stock picks? i have a friend who says she put a few hundred $ into each pick every months for a few years and did really well, any thoughts on that?

Think that's all I got for now, thanks so much in advance to anyone who took the time to read this and offer any advice, your input is greatly appreciated
dbr
Posts: 46182
Joined: Sun Mar 04, 2007 8:50 am

Re: New at investing, general ?s

Post by dbr »

rgm1982 wrote: Wed Dec 01, 2021 11:54 am Hi ya'll,
First time posting, I'm pretty much a newb in the world of investing, so please pardon me if this post is a bit long winded and I ask a bunch of dumb questions..

I recommend going to "getting started" in the Wiki and going from there: https://www.bogleheads.org/wiki/Getting_started

I had been saving for a few years to buy a house, but unfortunately I live in Austin and the market here pretty much exploded during covid with no signs of slowing down, so now that I can't afford to buy here anymore I need to decide how best to allocate my $50k downpayment to work best for me

I may still try to reserve some of that money to buy a cheaper rental property in a market I can afford, still looking into those options to see if it's viable...meanwhile for whatever is leftover there's stocks, bonds, reits, crypto, etc, and I'm in a little over my head with some of this stuff. Just curious to see how other folks who are wiser than me would allocate their funds if they had this amount to play around with.

I see owning rental real estate as a small business that takes know-how, expertise, time, and effort. That does not make it a bad idea, but I would be pretty reluctant myself. Your reading at "getting started" is where to get educated about different kinds of assets together with books by the Bogleheads, Bernstein, Swedroe, Ferri and others. You could start with http://flip4u.org/docs/If%20You%20Can%2 ... nstein.pdf

A friend of mine put me in touch with his financial advisor, who wants me to put $12k in a roth IRA and fork over another $20-25k to put into a managed fund. I told him I'd think about it and come back with a bunch of intelligent questions, so...what would be some intelligent questions to ask him?
His firm charges 1.25% for each fund, I don't really know if that's good or not...I know I can use robo advisors and invest in index funds for much less in fees and never have to touch it, but would that be better than the return on a professionally managed account, even with the fees? The one thing he offered that I liked is that the stock fund would be liquid, so if the opportunity ever did come up to buy a home again I could instantly pull the money out and still use a downpayment if I wanted to.

Run away. You should not be paying 1.25%, fund costs, and likely being sold things you should not own in order to invest.

Also, just a few random questions, based on some advice some friends have offered...I read Joel Greenblatt's book on magic formula investing at someone's recommendation, anybody familiar with that concept? Is that a good way to invest, in comparison to either a passive index fund or professionally managed fund?
How about the Motley fool's monthly stock picks? i have a friend who says she put a few hundred $ into each pick every months for a few years and did really well, any thoughts on that?

Read the Wiki and the Boglehead books and ignore most of the stuff on investing that is out there.

Think that's all I got for now, thanks so much in advance to anyone who took the time to read this and offer any advice, your input is greatly appreciated
MattB
Posts: 1228
Joined: Fri May 28, 2021 12:27 am

Re: New at investing, general ?s

Post by MattB »

dbr wrote: Wed Dec 01, 2021 1:13 pm
rgm1982 wrote: Wed Dec 01, 2021 11:54 am Hi ya'll,
First time posting, I'm pretty much a newb in the world of investing, so please pardon me if this post is a bit long winded and I ask a bunch of dumb questions..

I recommend going to "getting started" in the Wiki and going from there: https://www.bogleheads.org/wiki/Getting_started

I had been saving for a few years to buy a house, but unfortunately I live in Austin and the market here pretty much exploded during covid with no signs of slowing down, so now that I can't afford to buy here anymore I need to decide how best to allocate my $50k downpayment to work best for me

I may still try to reserve some of that money to buy a cheaper rental property in a market I can afford, still looking into those options to see if it's viable...meanwhile for whatever is leftover there's stocks, bonds, reits, crypto, etc, and I'm in a little over my head with some of this stuff. Just curious to see how other folks who are wiser than me would allocate their funds if they had this amount to play around with.

I see owning rental real estate as a small business that takes know-how, expertise, time, and effort. That does not make it a bad idea, but I would be pretty reluctant myself. Your reading at "getting started" is where to get educated about different kinds of assets together with books by the Bogleheads, Bernstein, Swedroe, Ferri and others. You could start with http://flip4u.org/docs/If%20You%20Can%2 ... nstein.pdf

A friend of mine put me in touch with his financial advisor, who wants me to put $12k in a roth IRA and fork over another $20-25k to put into a managed fund. I told him I'd think about it and come back with a bunch of intelligent questions, so...what would be some intelligent questions to ask him?
His firm charges 1.25% for each fund, I don't really know if that's good or not...I know I can use robo advisors and invest in index funds for much less in fees and never have to touch it, but would that be better than the return on a professionally managed account, even with the fees? The one thing he offered that I liked is that the stock fund would be liquid, so if the opportunity ever did come up to buy a home again I could instantly pull the money out and still use a downpayment if I wanted to.

Run away. You should not be paying 1.25%, fund costs, and likely being sold things you should not own in order to invest.

Also, just a few random questions, based on some advice some friends have offered...I read Joel Greenblatt's book on magic formula investing at someone's recommendation, anybody familiar with that concept? Is that a good way to invest, in comparison to either a passive index fund or professionally managed fund?
How about the Motley fool's monthly stock picks? i have a friend who says she put a few hundred $ into each pick every months for a few years and did really well, any thoughts on that?

Read the Wiki and the Boglehead books and ignore most of the stuff on investing that is out there.

Think that's all I got for now, thanks so much in advance to anyone who took the time to read this and offer any advice, your input is greatly appreciated
DBR's advice is solid.

I second running away from the financial advisor charging 1.25% fees, read the wiki (https://www.bogleheads.org/wiki/Getting_started) until you are comfortable investing in a broad market index fund, and then work on your savings rate.

You'll learn a lot along the way. And you'll be wealthier and happier for your trouble.
Last edited by MattB on Wed Dec 01, 2021 4:17 pm, edited 1 time in total.
niagara_guy
Posts: 1168
Joined: Tue Feb 11, 2020 7:32 am

Re: New at investing, general ?s

Post by niagara_guy »

As a longtime index investor here (who has done very well without the 'help' of an advisor charging high fees), I recommend you stick with low cost (like 0.04% annual expense ratio) index funds. Schwab, Fidelity and Vanguard all have these low cost funds without any other fees.

i am not going to address your other questions.
LittleMaggieMae
Posts: 2569
Joined: Mon Aug 12, 2019 9:06 pm

Re: New at investing, general ?s

Post by LittleMaggieMae »

A friend of mine put me in touch with his financial advisor, who wants me to put $12k in a roth IRA and fork over another $20-25k to put into a managed fund.


You can do this yourself without incurring a 1.25% fee. 1.25% doesn't sound like a big amount of money. But it is. Do the math. Also factor in that it's a re-occurring charge. It's not a one and done.

I get it that buying individual stocks is all the rage and is supposedly the best way to "get rich quick". For like one person out of a million other investors. You shouldn't be picking individual stocks to invest in.
Read the Bogle Wiki on getting started.

Owning and managing a rental is a second job. Even if you have a Property Manager. Owning a rental property doesn't always mean you have more spendable income - even when the property cash flows positive. A rental property has ALL the expenses of owning your own home and then some. It's a big commitment of time and energy and being willing and able to learn all about being a landlord/keep up a rental property which takes more than a weekend to acquire. It's a commitment. Not trying to dissuade you from it... just realize it's "work". I have two properties but I spend time each month (and more time each time a lease comes up for renewal, each time the insurance needs to be renewed, and even though I have a PM, I spend some time whenever a tenant reports a problem - as I may have to make a decision.)
invest4
Posts: 1905
Joined: Wed Apr 24, 2019 2:19 am

Re: New at investing, general ?s

Post by invest4 »

Welcome!

Good news…solid investing is not that complex. No one will care more about your money than you. You can absolutely do this.

You have already received some great advice from the others. Start reading / educating yourself and then request a portfolio review in the requested format.

Combined with living beneath your means and a good savings rate, you can have a simple to manage setup that will put you on the path to achieving your financial goals.

Best wishes.
Caduceus
Posts: 3527
Joined: Mon Sep 17, 2012 1:47 am

Re: New at investing, general ?s

Post by Caduceus »

Definitely do not buy into any managed funds with 1.25% expense ratios or trust anyone who has ever suggested that. Not sure why he'd market his funds as liquid. Index funds are equally liquid with lower expenses. Liquid doesn't mean risk-free. At the point you need the funds, it may have lost money, so you should not invest in things with money you need for the short term.

I don't think you need to make quick decisions. Stock market valuations are at all time highs. Even if you were to keep the $50k in cash for the next few months until you figured things out, it would be reasonable. It's not like you can get index funds at cheap valuations anyway at this point.
billfromct
Posts: 2057
Joined: Tue Dec 03, 2013 8:05 am

Re: New at investing, general ?s

Post by billfromct »

You don’t mention your age, if married, retirement accounts, etc. which is important information for appropriate responses.

You could only put $6,000 in a Roth IRA for 2021 & there are income limits if you have a retirement plan at work so it’s confusing why the financial advisor would say to put “$12k in a Roth IRA.” If you are married, you & your spouse could put a total of $12,000, $6,000 each in 2 separate Roth IRA accounts.

If you don’t have any retirement savings, a Roth IRA should be your first priority with a low cost provider like Vanguard, Fidelity or Schwab.

I’ve never heard a newly retired person say, “I wish I hadn’t saved so much for retirement”, but I have heard a few newly retired people say, “I wish I had started saving for retirement when I was younger” or “I wish I had saved more for retirement”.

bill
Topic Author
rgm1982
Posts: 50
Joined: Wed Dec 01, 2021 11:50 am

Re: New at investing, general ?s

Post by rgm1982 »

billfromct wrote: Thu Dec 02, 2021 5:56 am You don’t mention your age, if married, retirement accounts, etc. which is important information for appropriate responses.

You could only put $6,000 in a Roth IRA for 2021 & there are income limits if you have a retirement plan at work so it’s confusing why the financial advisor would say to put “$12k in a Roth IRA.” If you are married, you & your spouse could put a total of $12,000, $6,000 each in 2 separate Roth IRA accounts.

If you don’t have any retirement savings, a Roth IRA should be your first priority with a low cost provider like Vanguard, Fidelity or Schwab.

I’ve never heard a newly retired person say, “I wish I hadn’t saved so much for retirement”, but I have heard a few newly retired people say, “I wish I had started saving for retirement when I was younger” or “I wish I had saved more for retirement”.

bill
I'm 39, unmarried as of now, I have a pension and an annuity through my job but I don't know that they'll really be enough to retire on when it's time so i decided to look more into adding to those funds.

The $12k into a roth IRA suggestion was $6k now, and another $6k in Jan 2022, so basically $12k off the bat
Topic Author
rgm1982
Posts: 50
Joined: Wed Dec 01, 2021 11:50 am

Re: New at investing, general ?s

Post by rgm1982 »

Caduceus wrote: Thu Dec 02, 2021 4:06 am Definitely do not buy into any managed funds with 1.25% expense ratios or trust anyone who has ever suggested that. Not sure why he'd market his funds as liquid. Index funds are equally liquid with lower expenses. Liquid doesn't mean risk-free. At the point you need the funds, it may have lost money, so you should not invest in things with money you need for the short term.

I don't think you need to make quick decisions. Stock market valuations are at all time highs. Even if you were to keep the $50k in cash for the next few months until you figured things out, it would be reasonable. It's not like you can get index funds at cheap valuations anyway at this point.
This sort of leads me into a few additional questions I have...first off, I understand stocks are high right now, and I've been told by a few friends that it's not the best time to invest, even in an index fund, it might be a good idea to wait until the market comes down a bit - with the limited knowledge I have that makes perfect sense even to me - buy low, sell high, yada yada.

That being said, how am I, a completely clueless jabroni, supposed to know when the best time to invest in a fund would be? I guess that's hypothetically what I would be paying for in a managed fund, somebody who would have a better sense of the timing of when to get somewhat aggressive with it because I sure don't.

That being said I'm thinking the advice to not use this guy's firm is probably right, he didn't charge for our appointment probably because he viewed it as a sale...so is there someone out there who can just sit down with me for like an hour and offer me solid, unbiased advice? I'd happily pay for this service if it were going to be something that would set me up well for the long haul, I just don't know where to look
esteen
Posts: 439
Joined: Thu May 23, 2019 12:31 am

Re: New at investing, general ?s

Post by esteen »

rgm1982 wrote: Wed Dec 01, 2021 11:54 am Hi ya'll,
First time posting, I'm pretty much a newb in the world of investing, so please pardon me if this post is a bit long winded and I ask a bunch of dumb questions...

Welcome to the forum! No questions are dumb. Every question that you asked, we have had to ask at some point along the way.

I had been saving for a few years to buy a house, but unfortunately I live in Austin and the market here pretty much exploded during covid with no signs of slowing down, so now that I can't afford to buy here anymore I need to decide how best to allocate my $50k downpayment to work best for me

I may still try to reserve some of that money to buy a cheaper rental property in a market I can afford, still looking into those options to see if it's viable...meanwhile for whatever is leftover there's stocks, bonds, reits, crypto, etc, and I'm in a little over my head with some of this stuff. Just curious to see how other folks who are wiser than me would allocate their funds if they had this amount to play around with.

The first question to ask is "if not home downpayment, what do I want to do with this money?" If you figure out what, that will inform your time horizon (the length of time you have before you'll need to use it). Once you figure that out, that will inform where you invest it (meaning both what type of assets, e.g. stock funds, bonds, cash savings, etc... and also in what type of account, e.g. IRAs, taxable investment accounts, high yield savings account, etc.).

It sounds like you are open to having some of this money invested for the long term, possibly for retirement savings, but it also sound like you want to keep some of it liquid (easily accessible) for potentially using in the short-term. These two very different time horizons would be invested in very different ways, as I'll explain more further down.


A friend of mine put me in touch with his financial advisor, who wants me to put $12k in a roth IRA and fork over another $20-25k to put into a managed fund. I told him I'd think about it and come back with a bunch of intelligent questions, so...what would be some intelligent questions to ask him?
His firm charges 1.25% for each fund, I don't really know if that's good or not...I know I can use robo advisors and invest in index funds for much less in fees and never have to touch it, but would that be better than the return on a professionally managed account, even with the fees?

1.25% is not good. And it's unclear in your post whether there are more fees on top of it... (Clarifying note: this financial advisor doesn't own the funds himself, he just is your "broker" to help you buy the funds. That used to be a necessary job a few decades ago. Nowadays, you can go buy the mutual funds yourself. There are a very few funds that only professional brokers can buy, but their net returns are no better (and often worse) than any funds available to you directly, so you wouldn't want them anyway.)

So if he charges 1.25% for each fund, what does the fund charge itself? If by "managed" funds he means actively managed, which is my guess, those fees can easily run another 0.5-1.5%. Once added to the fee he's charging you, it's probably 2% at least. Let me run some math for you to show you how much that really is in fees...

If an investor put $10,000 a year into an investment fund over their working lifetime, say 40 years, their total contributions would equal $400,000. If they invested it in assets that returned 7% a year (approximately the historical "real" i.e. inflation-adjusted return of the US stock market), through the magic of compound interest they would earn an additional $1,736,096 (wow!), for a total of $2,136,096. Obviously that's why we want to invest for the long term.

If that investor decided to invest themselves using low-cost index funds that tracked the market (doing the work for them), let's assume a 0.04% fee which is easily attainable with today's options. Over the course of that 40 years that would amount to approximately $22,688 in fees, or 1% of the $1.7M in gains. Not bad.

But if that same investor decided to use a financial advisor that cost them 2% a year in fees, over the course of those same 40 years those fees would balloon to $867,698, or FULLY HALF of the $1.7M in gains. 2% just became 50%... because the magic of compounding returns also applies to compounding fees.

Standard & Poors has shown consistently over the years that actively managed funds like the ones this financial advisor wants to put you in lose to index funds over pretty much any time period. https://www.spglobal.com/spdji/en/resea ... hts/spiva/

This is why at the end of the day, it won't help to ask this advisor intelligent questions. They are playing a loser's game, and their paycheck is created by taking money out of your investments. Likely their answers to any questions, intelligent or not, will be to sell you something and play on your ignorance because they can't legitimately offer you superior returns. As Jack Bogle famously said, investing is the one place you get what you don't pay for.

That said, financial planners who help you with the non-investing part of your financial life can be very beneficial, and provide a valuable service in terms of sharing their knowledge and expertise for things like goal setting, tax management, insurance needs, etc. If you were to want professional financial advice, look for an hourly fee advice-only financial advisor. They don't make their money off selling you bad investments... instead they are like a lawyer or accountant, charging hourly to provide professional advice.

Resources on how high fees affect you:
https://investor.vanguard.com/investing ... t-of-costs
https://www.youtube.com/watch?v=K4lwJ5aQGlI
http://401kfee.com/how-much-are-high-fees-costing-you/


The one thing he offered that I liked is that the stock fund would be liquid, so if the opportunity ever did come up to buy a home again I could instantly pull the money out and still use a downpayment if I wanted to.

All stock funds are liquid. If you go invest in VTSAX yourself, you can pull your money out any time. This is not something that he is offering you that you can't get on your own for free. If he framed this as a selling point, this proves my above point that he will use your ignorance to make the "sale".

Please note, there's a difference between "can" and "should". You can pull your money out of stocks... but if you have a high probability of needing that money in the near future (i.e. a short time horizon, as mentioned above) then stocks aren't the appropriate investment in the first place. Stocks can swing wildly for months or even years at a time, and there is no guarantee of principal (meaning you can lose some of the money you put in). For money I depended on using within the next 1-5 years, I would invest in safer, less volatile assets like bonds (bond funds can still lose money just not as much) and high-yield cash savings or other principal-assured investments.


Also, just a few random questions, based on some advice some friends have offered...I read Joel Greenblatt's book on magic formula investing at someone's recommendation, anybody familiar with that concept? Is that a good way to invest, in comparison to either a passive index fund or professionally managed fund?

I've read that book too. His magic formula is essentially a simplified & standardized quantitative formula for value investing large cap stocks. In short, it is not a good way to invest. There are a couple reasons I would not recommend this formula to an individual investor.
#1) prior performance is a poor indication of future returns. You'll see that over and over as you learn more about investing... Morningstar has some great studies that prove that out. Why that's important is that the Magic Formula worked great for certain past periods, but that can't be relied upon for your future. In fact we can create all sorts of formula that back-test really well, from quantitative measures like P/E to silly things like "conference of that year's Superbowl winner".
#2) It is inherently more volatile/risky. We saw that in 2007-2010 during the housing crisis when this Magic Formula actually lost more money than the S&P 500.
#3) Compared to active index investing, it is complex. Yes you don't have to be a quant PhD on Wall Street to operate it, but you do have to spend time evaluating individual companies and actively buying/selling stocks, including manual tax loss harvesting. You don't just set it up once; it requires significant maintenance.
#4) it relies on GAAP financial reporting rules that are constantly evolving. So you also have to follow public company financial reporting rules to understand if the strategy will continue to work the same or if you hvae to adjust it.
#5) Even if you had the time and expertise to navigate all those touch points in individual stock-picking via the Magic Formula, this many touch points means a lot of opportunity for you to mess it up either via actual errors, or behavioral issues (confirmation bias, recency bias, etc). Studies show the average short-term trader underperforms the market significantly due to both trade drag and these biases that cause us to make suboptimal decisions.


How about the Motley fool's monthly stock picks? i have a friend who says she put a few hundred $ into each pick every months for a few years and did really well, any thoughts on that?

Again, past performance is not an indicator of future returns. Motley Fool doesn't make their money from investing. They make their money from selling web content and ads. If Motley Fool could consistently beat the market, they wouldn't be writing web articles, they'd be operating a billion-dollar hedge fund and rolling in their vaults of money like Scrooge McDuck.

Think that's all I got for now, thanks so much in advance to anyone who took the time to read this and offer any advice, your input is greatly appreciated

DBR's advice to read the Boglehead "getting started" wiki page is excellent advice. If I were you, I would politely decline the financial advisor's offer to manage your money and either go invest it yourself in index funds through a discount brokerage like Vanguard/Schwab/Fidelity, or get a discounted investment management services (i.e. "robo-advisor" services) like Vanguard's PAS, Schwab's Ingtelligent Portfolios, Wealthfront, or Betterment.

You can set up your own Roth IRA - it takes 5 minutes online at any of those aforementioned brokerages.

Remember before you invest, spend some time thinking about what you want that money to be available for (i.e. what is the time horizon) and that will inform your Asset Allocation, meaning whether you want to invest risky things like stocks, less risky things like bonds, or least risky (cash or cash equivalents).


This post is for entertainment or information only, and should not be construed as professional financial advice. | | "Invest your money passively and your time actively" -Michael LeBoeuf
esteen
Posts: 439
Joined: Thu May 23, 2019 12:31 am

Re: New at investing, general ?s

Post by esteen »

rgm1982 wrote: Thu Dec 02, 2021 12:02 pm
Caduceus wrote: Thu Dec 02, 2021 4:06 am Definitely do not buy into any managed funds with 1.25% expense ratios or trust anyone who has ever suggested that. Not sure why he'd market his funds as liquid. Index funds are equally liquid with lower expenses. Liquid doesn't mean risk-free. At the point you need the funds, it may have lost money, so you should not invest in things with money you need for the short term.

I don't think you need to make quick decisions. Stock market valuations are at all time highs. Even if you were to keep the $50k in cash for the next few months until you figured things out, it would be reasonable. It's not like you can get index funds at cheap valuations anyway at this point.
This sort of leads me into a few additional questions I have...first off, I understand stocks are high right now, and I've been told by a few friends that it's not the best time to invest, even in an index fund, it might be a good idea to wait until the market comes down a bit - with the limited knowledge I have that makes perfect sense even to me - buy low, sell high, yada yada.

That being said, how am I, a completely clueless jabroni, supposed to know when the best time to invest in a fund would be? I guess that's hypothetically what I would be paying for in a managed fund, somebody who would have a better sense of the timing of when to get somewhat aggressive with it because I sure don't.

That being said I'm thinking the advice to not use this guy's firm is probably right, he didn't charge for our appointment probably because he viewed it as a sale...so is there someone out there who can just sit down with me for like an hour and offer me solid, unbiased advice? I'd happily pay for this service if it were going to be something that would set me up well for the long haul, I just don't know where to look
Follow-up to my last post: yes, stocks are relatively highly valued now compared to the past. No one, not even the experts, are sure whether that means this is the new norm or there is an impending "crash" that will bring them back down to historical levels. Too many factors at play, and no one has a crystal ball. That said, no matter how stocks are valued, if you invest in them you should be prepared for a crash at any time, taht could wipe out a bunch of the money you put in. That's why they're called "risky" assets. As to when that might occur, it's a fools game to try and guess. That's called market timing, and there is mountains of evidence that the average market timer does worse than the buy-and-hold investor. As the great Peter Lynch said, "Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.".

Oh and he also said:
"The statistical evidence proving that stock index funds outperform between 80% and 90% of actively managed equity funds is so overwhelming that it takes enormously expensive advertising campaigns to obscure the truth from investors." 
and
"If you spend more than fifteen minutes a year worrying about the market, you've wasted twelve minutes."

Meaning buy and hold stocks based on your time horizon and financial need, not based on what you or someone you know thinks the stock market might do.

As to where to look for solid, unbiased financial advice, you want to look for a flat fee-only, advice-only advisor. Meaning they would charge you a flat one-time rate, or an hourly rate, to do work for you to evaluate your overall financial situation and recommend a path forward. To be least biased, it has to be someone who would not make money off the investment recommendations they gave you (i.e. they can't advise you to have them manage your money for a fee, or put you into an investment that they get a commission from).

The key terms to look for are "fee-only" and "advice-only". The fee structure can be a flat one-time rate, flat hourly rate, or flat subscription rate. I don't know it is within forum rules for us to recommend a specific advisor, or if it would be seen as advertising.

All the best,
-es
This post is for entertainment or information only, and should not be construed as professional financial advice. | | "Invest your money passively and your time actively" -Michael LeBoeuf
Caduceus
Posts: 3527
Joined: Mon Sep 17, 2012 1:47 am

Re: New at investing, general ?s

Post by Caduceus »

rgm1982 wrote: Thu Dec 02, 2021 12:02 pm
Caduceus wrote: Thu Dec 02, 2021 4:06 am Definitely do not buy into any managed funds with 1.25% expense ratios or trust anyone who has ever suggested that. Not sure why he'd market his funds as liquid. Index funds are equally liquid with lower expenses. Liquid doesn't mean risk-free. At the point you need the funds, it may have lost money, so you should not invest in things with money you need for the short term.

I don't think you need to make quick decisions. Stock market valuations are at all time highs. Even if you were to keep the $50k in cash for the next few months until you figured things out, it would be reasonable. It's not like you can get index funds at cheap valuations anyway at this point.
This sort of leads me into a few additional questions I have...first off, I understand stocks are high right now, and I've been told by a few friends that it's not the best time to invest, even in an index fund, it might be a good idea to wait until the market comes down a bit - with the limited knowledge I have that makes perfect sense even to me - buy low, sell high, yada yada.

That being said, how am I, a completely clueless jabroni, supposed to know when the best time to invest in a fund would be? I guess that's hypothetically what I would be paying for in a managed fund, somebody who would have a better sense of the timing of when to get somewhat aggressive with it because I sure don't.

That being said I'm thinking the advice to not use this guy's firm is probably right, he didn't charge for our appointment probably because he viewed it as a sale...so is there someone out there who can just sit down with me for like an hour and offer me solid, unbiased advice? I'd happily pay for this service if it were going to be something that would set me up well for the long haul, I just don't know where to look
The way to do it is to follow Warren Buffett's advice and dollar cost average into the market. I think it's reasonable to decide on how aggressive you want to be with dollar cost averaging based on market valuations. You could start investing $2,000 a month in broad market index funds to see how it feels (and become comfortable with market fluctuations) and do that for maybe six months to a year. If the market falls by 30% sometime in this one year period, you can invest a lot more or all of your spare cash.
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Wiggums
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Re: New at investing, general ?s

Post by Wiggums »

I think you should learn more about investing. Your friends are giving you bad advice. A 1.25% fee is a drag on the performance of your portfolio and is completely unnecessary today. There will be other fees on top of the advisor fee. You should understand manager risk before deciding that index fund investing is bad.
"I started with nothing and I still have most of it left."
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arcticpineapplecorp.
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Re: New at investing, general ?s

Post by arcticpineapplecorp. »

rgm1982 wrote: Thu Dec 02, 2021 12:02 pm This sort of leads me into a few additional questions I have...first off, I understand stocks are high right now, and I've been told by a few friends that it's not the best time to invest, even in an index fund, it might be a good idea to wait until the market comes down a bit - with the limited knowledge I have that makes perfect sense even to me - buy low, sell high, yada yada.

That being said, how am I, a completely clueless jabroni, supposed to know when the best time to invest in a fund would be? I guess that's hypothetically what I would be paying for in a managed fund, somebody who would have a better sense of the timing of when to get somewhat aggressive with it because I sure don't.
there is absolutely no evidence that an active manager can sidestep the downturns. they can't know anything that the rest of the market doesn't know.

they could get out after a market decline starts but they don't know when it's coming. (so they may sell after a decline, meaning they might cost you some money).

you could say, "well, at least they get out before the bottom, right?"

the problem is when do they get back in?

at the bottom, right?

how do they know when that will be?

they can't.

because they can't know the future anymore than you can. the future is unknown and unknowable. no one rings a bell telling you when the top or bottom of any market is.

so instead of getting in or out (this is black and white/all or nothing thinking) you should determine how much of your money you want to take risk with and how much you want to keep safe. those amounts would determine your asset allocation (AA). The more in stocks, the greater the potential for losses. But the tradeoff is the returns are likely higher, relative to a more conservative (less risky) portfolio which should have less losses and less gains. See for yourself:

https://investor.vanguard.com/investing ... allocation

the amount of risk is based on your need, ability and willingness to take risk:

https://www.cbsnews.com/news/asset-allo ... -you-take/

https://www.cbsnews.com/news/asset-allo ... tolerance/

https://www.cbsnews.com/news/asset-allo ... -you-need/

https://www.cbsnews.com/news/asset-allo ... ing-goals/

so figure out how much you're willing to lose and pick an allocation and stick with it, don't move in and out of the market (these are the worst drawdowns in the Great Recession when stocks lost 50%):

Image

then write an IPS to help you stick with your plan so you're not market timing:
https://www.bogleheads.org/wiki/Investm ... _statement

Swedroe explains why It's Better To Face The Correction.
In a September 1995 interview with Worth magazine, [Peter] Lynch put it this way: “Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.”
study this chart. understand it:

Image
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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rgm1982
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Re: New at investing, general ?s

Post by rgm1982 »

Caduceus wrote: Tue Dec 07, 2021 8:33 am

The way to do it is to follow Warren Buffett's advice and dollar cost average into the market. I think it's reasonable to decide on how aggressive you want to be with dollar cost averaging based on market valuations. You could start investing $2,000 a month in broad market index funds to see how it feels (and become comfortable with market fluctuations) and do that for maybe six months to a year. If the market falls by 30% sometime in this one year period, you can invest a lot more or all of your spare cash.
Ok, that seems like reasonable advice...are you suggesting to keep putting $2k into a different fund every month, and see which one does better, or keep piling more into the same fund, over time?
Last edited by rgm1982 on Tue Dec 07, 2021 1:53 pm, edited 1 time in total.
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rgm1982
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Re: New at investing, general ?s

Post by rgm1982 »

Wiggums wrote: Tue Dec 07, 2021 9:03 am I think you should learn more about investing. Your friends are giving you bad advice. A 1.25% fee is a drag on the performance of your portfolio and is completely unnecessary today. There will be other fees on top of the advisor fee. You should understand manager risk before deciding that index fund investing is bad.
I mean I would love to learn more about investing, but what resource should I be turning to to do so? I've read 4 books on it so far and each just leads me to more questions, I try to find financial advisors to just explain it all to me and instead they keep trying to sell me on funds, then I come to this site for some clarity and every poster is telling me different things...I'm pretty mentally exhausted on the whole thing and I definitely don't have the bandwidth for more books

Also just out of curiosity, where did I say that i thought index funds were bad? I think you might have misconstrued something somewhere
Caduceus
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Re: New at investing, general ?s

Post by Caduceus »

rgm1982 wrote: Tue Dec 07, 2021 1:47 pm
Caduceus wrote: Tue Dec 07, 2021 8:33 am

The way to do it is to follow Warren Buffett's advice and dollar cost average into the market. I think it's reasonable to decide on how aggressive you want to be with dollar cost averaging based on market valuations. You could start investing $2,000 a month in broad market index funds to see how it feels (and become comfortable with market fluctuations) and do that for maybe six months to a year. If the market falls by 30% sometime in this one year period, you can invest a lot more or all of your spare cash.
Ok, that seems like reasonable advice...are you suggesting to keep putting $2k into a different fund every month, and see which one does better, or keep piling more into the same fund, over time?
You can decide on an asset allocation and then split your money across those different funds. For example, you could put $1,000 into a U.S. stock fund and $1,000 into an international stock fund every month. And then read a lot about investing on this forum (there's actually a book written called The Bogleheads Guide to Investing, which I recommend.)

When you are starting, keeping it simple is fine. As you learn, you can tweak your plan.
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Re: New at investing, general ?s

Post by krafty81 »

If you are looking for financial advice, you can work with a "fee-only" financial advisor. They will provide advice through one or multiple sessions for a one-time fee. Also, companies like Schwab or USAA offer free portfolio advice when you set up accounts with them.
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Re: New at investing, general ?s

Post by Mr. Rumples »

Can't really say what to invest in and what not to, but I have learned a few things along the way. First, don't invest in something you don't understand. Ask questions and if the answer doesn't make sense, don't go with it. A lot of these folks selling investment products are salespeople first; your interests are secondary at best.

Morningstar.com has a learning classroom. Spend a few minutes every morning to learn and test your knowledge. https://www.morningstar.com/start-investing/classroom

Keep it simple. Looking back, I would have done almost as well had I just gone with Vanguard Star, but guess what? Even with the crash of 2008, I did better than the "experts."

No one can predict the future. Who would have predicted the San Francisco earthquake which triggered a series of events leading to the Panic of 1907; when Eisenhower had his heart attack on a beautiful sunny day in Denver, it triggered a market correction of 6%, the largest since the Fall of France in 1940...no one could have predicted that. Portfolios have to withstand fear and crisis and it takes time to build the confidence to tune out the noise and stick to an investment plan. By the times folks are selling, its too late.

I can remember - and I am serious - folks at work actually telling me Cabbage Patch Dolls were a good investment. For myself, I suppose due to my ignorance, crypto falls into the same category.
"History is the memory of time, the life of the dead and the happiness of the living." Captain John Smith 1580-1631
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arcticpineapplecorp.
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Re: New at investing, general ?s

Post by arcticpineapplecorp. »

rgm1982 wrote: Tue Dec 07, 2021 1:51 pm I mean I would love to learn more about investing, but what resource should I be turning to to do so?
a low cost target date retirement index fund will do better than 80% of the professional money managers.

which target date fund you choose is a matter of risk. you don't just blindly pick the one that most aligns with the year you plan to retire. you could, but you wouldn't understand the risk you're taking. so you need to look under the hood and see how much is allocated to stocks. then if you look at the chart i provided you understand what your potential for losses is based on how much is allocated to stocks (and assuming a 50% decline in stocks).

you get what the market gives. so own the market. unless you think you can beat the market. if you think your professional money managers will beat the market, let's see the evidence.

but how much of your money you allocate to risky assets (stocks) and how much to safe assets (bonds) is your asset allocation. you get there by understanding your need, ability and willingness to take risk. so read those 4 links i gave you on those areas.

a three fund portfolio is essentially like a target date fund with the exception that the target date will automatically rebalance as stocks/bond allocation changes due to rises/falls in stocks/bonds and a target date fund automatically decreases risk over time.

if you want an all in one fund, just pick a low cost target date index fund.

if you want the three fund solution read here:
https://www.bogleheads.org/wiki/Three-fund_portfolio

if you want to learn more, watch these short videos here:
https://www.bogleheads.org/wiki/Video:B ... philosophy
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
PoppyA
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Re: New at investing, general ?s

Post by PoppyA »

Answers to all your questions are here: https://www.bogleheads.org/wiki/Main_Page
investorpeter
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Re: New at investing, general ?s

Post by investorpeter »

It's not that complicated. You don't have to be an expert in Boglehead philosophy to start investing like a Boglehead. There's a lot of nuance, but the basic rules are pretty easy.

For someone just getting started with no knowledge at all, these are the basic rules:

1) There are only two asset classes you should focus on: stocks and bonds. Forget crypto, REITS, rental properties, Magic Formulas, etc. You don't need them, you don't want anything to do with them, and chances are very good that over the long-term, you will do much better without them.

2) You should only invest in INDEX funds. INDEX funds are passively managed funds that own everything in a market. So when you buy into an index fund, you own a little slice of everything. Historical evidence has clearly shown that owning the entire market of stocks is a much better strategy than trying to pick and choose stocks. I know it seems hard to believe, but the evidence is overwhelming. The vast majority of "professional" financial advisors who make a living giving advice about which stocks to buy and when, do worse than an equity index fund; sometimes much much worse. And the kicker is that these professionals typically charge more than 20x the fee of an index equity fund (1% ER vs. 0.05% ER) The fees are a big part of the reduced performance of actively managed funds, but there is also all of that buying and selling which creates friction costs that also result in underperformance. This is really the core truth of Boglehead philosophy.

3) So getting to the nuts and bolts of things, there are only 2 funds you need to own: 1) a stock index fund, and 2) a bond index fund. The stock index fund that is very popular around here is the Vanguard Total Stock Market (VTSAX). The ETF version of this is VTI. Another popular fund is the Vanguard SP500 index fund (VFIAX), or the ETF equivalent, VOO. For the bond index fund, there are number of choices, but I personally prefer the Vanguard Total Bond Market Index ETF, ticker symbol: BND.

4) Then the final decision is how much of each to own, which is called asset allocation, sometimes abbreviated as "AA". Stocks have higher returns on average, but higher risk. Bonds have lower returns, but lower risk. The general rule of thumb is that as you get older and closer to retirement, you want a high percentage of bonds. Your chosen asset allocation is a personal decision that only you can make, as it depends very much on how tolerant you are for a drop in stock prices. Common middle of the road asset allocations of stocks to bonds would be somewhere between 80:20 for someone still working to 40:60 for someone nearing retirement.

So that's about it. If you wanted to read more to get the fine details and nuance, many others have recommended excellent resources, like the Wiki. If you prefer going to the source, you could read Bogle's own words in this book: https://www.amazon.com/Little-Book-Comm ... 470102101

I hope that helps. Don't get overwhelmed with the seemingly different advice you are getting on this forum. People are actually telling you the same thing with different points of emphasis. There is a lot of nuance as well, that Bogleheads love to debate back and forth. Such as whether you need to include an "international" index fund to your asset allocation, and how much that allocation should be. I prefer to keep things simple, so my ideal portfolio would be just two things: an index equity fund and an total bond index fund.
golfrgirl
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Re: New at investing, general ?s

Post by golfrgirl »

PoppyA wrote: Tue Dec 07, 2021 6:41 pm Answers to all your questions are here: https://www.bogleheads.org/wiki/Main_Page
Best answer of all on here. :sharebeer
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