What Frustrates You About Investing? Please Help…
What About Investing Has You Feeling Stuck?
Key Ideas
- I want to know what frustrates you the most when it comes to investing
I need your help please…
I'm trying to understand what bugs you about investing. I want you to rant and share your frustrations.
The reality is I live in a very different investment world than most people. I want to help you, but the only way I can do it is if I know the problems you face. I need to know your reality so please take a minute and vent about your investing pains and frustrations.
Here's how you can help. Please leave a quick comment below that answers any one (or more) of the following questions:
- What is your biggest frustration with investing?
- What investment solution do you wish was available but can't find anywhere?
- If the “investment fairy” could wave here magic wand and solve any investment problem for you then what would it be?
- What bugs you most about the financial advice business? About financial advisors?
- Anything else relevant??
I really want to know your thoughts to any (or all) of the questions above. Whatever comes to mind is perfect.
I don't care if somebody else (or 50 other people) said the same thing already. I still want to hear it from you. I want to know your truth.
Seriously, I don't ask for favors often so please take a minute to share your thoughts. It doesn't have to be anything big. Whatever comes to mind.
Have fun with it. Let ‘er rip!!
Let's create a rant session together about everything that bugs you with how to invest money. My goal is to help you solve it (I'm designing a course this Spring), but I can only do that when you tell me what it is.
I really appreciate your help!!
Thank you.
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Perfectionism is my biggest frustration. With 20/20 hindsight on a million different ways I could have become a billionaire yesterday, I beat myself up consistently comparing my returns to what could have been. How do I find ways to be kinder to my best efforts?
Your site is definitely helping with biggest frustration with financial advice. My opinion of much of the advice is that it is profit and fear-based driven by people with less knowledge and less net worth than mine. Finding your site was wonderful in reducing that frustration.
Thank you for your willingness to show others what works for you. Look forward to more!
B_livefyre Thank you so much. You get my “favorite reader of the day” award for starting the conversation. (Plus, thanks for the kudos).
These are great insights that really help me. I’m guessing they will be very popular and reiterated by many readers as this conversation continues to grow.
Thank you for getting everything started with these great points! Who else has frustrations about investing and the financial advice business?? I’d love to hear them…
B_livefyre I would second what B_livefyre said. Perfectionism, and the nagging worry that I would be rich already if I had just “done it right” so far.
A second concern is contemporary; How to approach investing today, given that stock markets appear to be over-valued at the moment? I fully expect another 50%+ drop in the S&P 500 within the next year or two, before (hopefully) the markets bottom out for this long-term cycle. How can that be addressed?
Thank you,
– Jeff V
JMVFalcon B_livefyreThanks for sharing. Your concerns are echoed by many.
My biggest problem right now is lack of tools. I have a 401k (Transamerica), mine and my wife’s IRAs (Vanguard), Taxable investments accounts at Vanguard, and CDs and savings accounts at Wells Fargo.
How the heck do I rebalance those, and tell what collective return I’m getting? I’ve seen a plethora of Excel spreadsheets, sites like Morningstar, and none of them seem terribly useful or easy to use. Part of the reason is that there’s a large amount of data entry necessary, and without knowing how useful something will be in advance, I haven’t been willing to do the data entry necessary to evaluate some tools.
What do you use? What’s the short list of recommended tools?
schof Got it. So what I’m hearing is a frustration with tracking everything and the desire to consolidate all accounts in one spot and provide basic analytics such as investment return, etc.
Thank you! Very helpful.
schof I use Morningstar to track how my Roth IRA is doing relative to the S&P assuming the S&P is on DRIP. I count any cash I have sitting still as being “dead” money – it’s there but earning no interest. As for the others…I’m not sure, but it depends on what your benchmark is – have you identified what your benchmark and goals are? That will help determine how it should be tracked/rebalanced, etc. in my mind.
i have 2 peeves mainly.
1) be it in what kind of investing, what i cannot get a hang on is how my brain can consistently screw me up in terms of confirmation bias, outcome bias, recency bias, disposition effect. It will be better if we can all control our head
2) i am from Singapore, and I look for solutions for the people in my country who doesn’t want to get involved with wealth building so much and perhaps index investing in ETF is the way to go. the main advantage of passive investing is cost and we cannot keep our cost low. the ETF in our home country is so illiquid and high expense ratio. we have to look to USA and UK. Then we have to contend with the USA 30% dividend withholding tax and estate duty
I have most everything at Vanguard and loved the idea of having a targeted retirement date fund where they automatically take care of everything for you based on a pre-set retirement date. Unfortunately, moving deeper into bonds isn’t appealing at all given the horrendous rates so what can I do instead? In an ideal world, it would be nice if there were some sort of automated product that could take you comfortably into retirement, that you could set and forget, but there doesn’t seem to be. By the way, mint.com does a great job of tracking everything in one place and it is free. It just doesn’t exist in the UK yet so no help to me there, but if you are in the USA it is a great tool for keeping track of all your finances without the manual effort. Also, Vanguard says that you shouldn’t try to time the market, but it makes sense to me to pull out when it is near the top and likely to take a tumble and then buy when things have tanked in the stock market. Why doesn’t market timing work? There must be a simple mathematical way to do this without getting emotional about it.
talane Actually, there are simple methods that I will be teaching in the future. Stay tuned to the podcast for future guest experts. And yes, I hear you on those frustrating trade-offs between “convenience” products and loss of control.
Thanks for joining the conversation with this very helpful input!
Rybak.robert@yahoo.com I started investing in1969 after vietnam.did well over the years.but still say the market is fixed for the big banks the big guys at wall street.the little guy always get burned.i studying the market everyday since I retired three years ago .
Robert rybak Thanks Robert. I often have my suspicions as well, until I see the big banks make big mistakes that cost big bucks. Thanks for writing. I’ve noted everything.
As a background I am 24 and just
starting to learn about the world of Investing.I have not started investing yet but really want to.I have been really close to pulling the
trigger multiple times on Vanguard but my biggest problem is there are just
sooooo many options out there that I feel like I am constantly in a state of
analysis paralysis.I start to narrow
down my investing options just to get close but then I see a different option
and think…that may be better for me at this current time…leaving me to do
nothing.
Another large problem is just my
lack of understanding how everything works in the market.Understanding things like Dividends and how
they payout is new to me.Do I want to
invest all my money into a retirement account or would I rather put some in a
retirement account and then invest the others into a non-retirement account so
I can access it.
As a side note: I am closing on my
first property in two weeks and I plan to turn into an investment property
after a year or two of living there.I
was going to rent an apartment but after reading your wealth plan principles,
it made it clear that I need to start building assets and the earlier I can do
that the better.Thanks for all the
information you post!
Bryan_B Congratulations on your first property purchase. Given your age (and assuming it positive cash flow with fully amortizing fixed rate mortgage as I recommend) then you will never regret it. Good for you.
And thank you for taking the time to share your thoughts.
I have read a bunch of books in the past year, but I know that a little information is dangerous. I am paying too much in fees for my financial advisor and I want to take over the decision making myself, but I haven’t solidified a stance on what my portfolio mix should be. Bonds or no bonds? Boggleheads or not….I don’t want to wait another year, but this feels like an important decision, so I am a bit paralyzed – like Bryan_B below.
gatorm Awesome! Thank you.
A forum to rant?! My husband will be so happy I have new “ears” to hear me…
My frustrations with the financial investment profession:
This is what I really wanted to say to our advisor (but at least we finally fired him last week)…
1. Do not ever utter the words “this is a long-term approach” to me again. Ahhhh!!! That doesn’t change the fact that I have a question about something current; or want to know why my asset allocation includes 20% bonds when I have 30 years to invest and consider myself an aggressive investor. Yet that sentence is the only answer I ever got. Sets me off into a rant every time.
2. Or this sentence we often heard, “Let’s just build your foundation before we talk about stocks or other investments outside the current assets.” Excuse me? Isn’t this our money? If we have a question, then the time to talk about it is NOW! If my very sweet, well-meaning (but not overly financially inclined) husband wants to talk about owning Facebook stock, then by God answer his questions! Or better yet, teach him the fundamentals of how to look at a company and gage if investing in it is a good decision!
And if after that he or we still want to put our money somewhere the you don’t agree with…LET US MAKE THAT “MISTAKE!!”
I’m sure there are more, but those two sentences are literally most of what we heard when we had a question or wanted something changed. I knew we made a good decision to fire him when he was quick to get off the phone, and then sent me a TEXT to apologize for being short with me. Then, went on to say that “ya, it hurts a little, but I’ll get over it.”
Wow…Financial advising is a profession, right?? So, thereby made up of professionals?!
Leads me to my last frustration…
I knew it was right to fire him, but I honestly don’t know where to go from here. I now trust no one who works for any sort of large financial corporation. Our money will be transferred to Vanguard and it will be up to me (at least for now) to continue learning what I can, weeding through the differing opinions of the proper way to invest, and deciding how to allocate.
We have a unique situation in that our retirement is already essentially secured. Because of that, I want a unique approach to investing, but it all seems to be the same ‘ole thing; 80-90% equities with the rest in bonds, and move more and more toward bonds as we get older.
I get that finances should be boring, but I want to be actively involved and try unique and risky things with at least a portion of our portfolio. How do I find someone or information that is trustworthy to educate me or help me?
KateMH I loved your reply! Go Kate!
You brought a smile to my face this morning with the clarity of your language and frustration. I totally hear you and will definitely address these points in the future.
KateMH….
You should read the book “Backstage Wall Street.” It explains why you get the answers that frustrate you. Put simply, the advisor you are dealing with is a salesperson who probably knows less about the market than you do. You can jump from one firm to another, but they are all usually commissioned salespeople who follow guidelines that can be followed mindlessly. Which is why you keep getting the 80/20 pr 70/30 recommendations. I was a broker, and my training was sales and product knowledge. Product knowledge does not translate into market knowledge, it just allows you to explains how the product, say a mutual fund, works. It’s all about selling and earning commissions. When you hear that your advisor is number one at their company, that means they generated the highest commission. It does NOT mean they do the best for their clients.
This comment was emailed by a reader…
What frustrates me about investing.
1. It feels like I’m missing info that’d make me a better
investment, but i’m not sure what info I need, or where to get it
2. I feel indexing is the way to go, but when I compare some
active funds over indexes they have beat the index over 10 years, so that
leaves me confused.
3. So many options
4. I don’t understand technical analysis and why that’d have
anything to do with investing.
Thanks for sharing! All great inputs.
Financialmentor To me, Technical analysis, is the study of market momentum and when to act accordingly. Not for me. I would prefer developing the ability for Fundamentals Analysis, or is this a great company to invest in, which I can follow better. I believe market momentum is too random to really be analyzed.
This comment was emailed from a reader (obviously, it is helpful if people comment directly here, but I appreciate the input either way)…
Low yields on fixed
income and lack of inflation tracking investment options.
Hah! I’ll bet this will be a popular input. I’ll join the choir on this one. Totally drives me nuts. It is not fair that the government has waged war on savers with artificially low interest rates to the advantage of the big banks. Very frustrating!!
This comment was emailed from a reader…
I would be interested in learning about a
“daily/weekly routine” that successful investors put in place to
capture ideas, implement those ideas, and finally track those results.
There are so many web sites, tools, data formats, charts etc that getting
my arms around this information is difficult.
I like this one. I never thought of this as a “problem” before because it has always been my habit. I totally get it. Thank you for sharing!
One thing you should be aware of is the the average investor, according to a detailed study by Dalbar, a marketing research firm in Boston, has gotten results that are not even half of what the S and P 500 does. Check out their report on that. Very interesting.
Boomerst3 Clearly demonstrating that the average investor underperforms low cost passive indexing. Just be careful what conclusion you draw from that study. It’s is very easy to mistakenly make broad conclusions that aren’t fully accurate.
My biggest issues are lack of tools tools and ability to look back historically. I love Vanguard and the Boglehead approach, but I can not resist the lure of trying to beat the market in some ways. So I split my portfolio with the bulk in low cost Vanguard index funds and a much smaller portion in risky Mad Money trading for fun. However, this gets difficult in terms of consolidation. I get great advice from Vanguard, but I have to ask for it and after I ask they go do a bunch of analysis and come back with a set of recommendations, usually a large pdf. The plan, concepts, and advice are great. But they controlled all the inputs, after discussions with me, of course. But I want to run some numbers myself. So I would like to have access to their tools. Another problem with financial analysis is that it is “use and move-on”. Go to an advisor and they help you, maybe generate spreadsheets, pdfs and some plan. Go back to them 1 or 2 years later and if your situation has changed, which it will have, you kind of need to start again. So there is little support for long-term tracking of goals and looking back at why we did what we did.
What tools are the Financial Coaches and typical DIYer using beyond Excel?
Short version – tax deed investing and REO/general real estate investing.
Longer version
I do not understand or know how to find good real estate deals. I own a bit of rental property, almost by accident, and I has worked out great. I would like to buy more, but I’m not going to buy from a real estate agent -non of those are actually decent, they require a huge amount of money down, etc. Whether it’s REO or knowing where to look I don’t feel like I know how to invest in real estate.
Related to that I do a lot of tax lien investing in Iowa and Illinois. It’s a decent return on the money, not a lot of upfront work (it doesn’t feel like work to me, it feel like a treasure hunt), and ultimately very rewarding. Note, despite having had nearly 100 liens over 5 or so years I’ve never obtained a deed which is fine. I’d like to learn about tax deed investing – say in Wisconsin or Washington state, but haven’t been able to find a good source of information that I trust. I feel there would be good upside with minimal risk in tax deed investing based on what I’ve read, but haven’t been able to connect the dots yet.
hfl_property You may not realize this but I used to own a tax lien investment company. We developed a proprietary method for researching and sorting the liens to find the highest probability liens that would go to deed. It was a lot of work, but it was also very effective.
Financialmentor hfl_property I did read that in your book – I think it was the 18 essential rules book and you referred to not enjoying it as you felt you were taking advantage of people in bad situations. In cases I feel like I’d be taking advantage (elderly is a great example) I will send letters in advance of starting foreclosure as I want them aware and in one case even talked to the county office to try and encourage them to pay back taxes. I understand that perspective. Offline, any general info you can share about that I would be interested in learning about as well – tax lien investing has been a lot of fun for me. Thanks for the site. Off to work for the day.
My biggest frustration as an investor is knowing when the market is over priced or when it is a steal. I have heard it multiple times from the most successful investors you have to buy low. What does that mean? Wait for another 2008/2009? What are the triggers that allow you to know when something is priced low or too high? What economic indicators, PE ratios, etc allow you to make the right educated decision? Dollar cost averaging is great for people who have steady incomes, but is it the best way to play the market? Thanks for you help!
penn20 Thanks for sharing. I will be teaching all of this in the near future. I appreciate your input.
Lots of investors look for these signs. There are many out there who believe they should buy low PE stocks and sell high PE stocks. However, in this particular case, studies have shown no conclusive correlation to PE and market movements. There have been times the market has a high PE and it goes up, but it has also gone down. Same is true with low PEs. If there were truly indicators that gave the answers, there would be a lot more Warren Buffets put there. It’s not that simple.
Boomerst3 “Studies have shown no conclusive correlation to PE and market movements.” I hate to burst your bubble, but there have been numerous studies that have shown that PE is inversely correlated to future returns. To get you started on the road to truth, read this http://en.wikipedia.org/wiki/Price%E2%80%93earnings_ratio and pay attention when they mention Irrational Exuberance by Shiller.
live4something Boomerst3Thank you both, for your valuable inputs. And I’m really asking that this discussion not turn into a battle between buy and hold vs. market timing (however those terms are defined).
My goal is to really hear everyone’s frustrations – not decide if buy and hold or timing or valuation is valid.
I will be teaching all of that in future posts to this site so stay tuned.
With that said, I totally love people venting their frustrations with either position. I just don’t want to see arguments for or against a position in replies.
Everyone who is frustrated is right in their frustration. Period.
The most frustrating thing for me is an overabundance of personal opinions that may or may not apply to any one person’s own situation. Much of this comes from advertising and market departments in order to sell mutual funds, investment strategies, etc. but, psychologically this can be overwhelming even for a seasoned investor. “Tuning out the noise” becomes more difficult as the cacophony of voices grows louder all around us.
jeinfrank Great point!! I like how you put it – “tuning out the noise”. Duly noted. Can I also add in how frustrating it is that all the supposed “experts” contradict each other. How do you know who is right? Who can you trust? Is that also a frustration for you?
One other one – I saw you (Todd) would have a book coming out in the future about how buying and holding doesn’t make sense…. “Buy and Hold Myth – What Your Financial Adviser Should’ve Told You… But Didn’t! (Ebook) – See more at: https://www.financialmentor.com/educational-products/ebooks#sthash.5EVxymJt.dpuf” I ABSOLUTELY want to read that one as I am generally a buy and hold investor. I don’t feel like I know when to SELL some investments and if I do when I would get back in.
Perfect example – Netflix (NFLX). I’ve held it through the ups and downs, but could have done better with some general timing. I tend to stay away from timing as I’m far from great at it. I’ve always figured find a company I like and hold it. So that’s what I do.
hfl_property I’m working on it. Thanks for you enthusiastic input to motivate me to get it done.
My frustration is with “financial advisors”, usually brokers, who say you can time the market. Also, timing netflix,as mentioned here, is like flipping a coin
hfl_property Timing is impossible, You can develop a great model for the market and use it to decide if things are undervalued or overvalued. But companies don’t follow models. I have not found anyone who claims to be good at timing. But if you have a good model, I can see you almost always buying lower and selling higher. But you have to look at long term cycles and not at short term cycles. I don’t have what it takes to do it. It is extremely hard for me to decide when to buy and when to sell. There is too much of ‘me’ in the way. However, you may get lucky a few times. And there may be times it is obvious the market is overpriced or that there are great deals. If you see a market crash, can you say “time to buy” but the peaks are harder to count on. Just my opinion!
telsaar hfl_property telssaar, that has always been my perception which is why I’ve never been a timer of the market…doesn’t mean it isn’t frustrating 🙂 That said perhaps what I should have included was the other example (fingers not keeping up with the mind)…from a fundamental, not technical, perspective how do I evaluate when a business is no longer on solid footing. Let’s take the NFLX example again. I still think they are a decent business, but is there a good way of evaluating when they might not be. I don’t know that and I don’t necessarily feel like I know how to learn that.
Different examples: Sears and JC Penny’s. At one point they were both very solid businesses, now they both appear to be crumbling. Hindsight being 20/20, how could have one predicted that as businesses their time was past and it was a good idea to sell them not based on their stock prices but on their business fundamentals.
Apologies for not giving a better example of what’s in my head. I agree consistent market timing appears to be not feasible.
Thanks all! Great discussion Todd! Now I’ve learned if I ever want web traffic on a site all I have to do is ask people what they don’t like and the flood gates will open 🙂
My biggest frustration is with the financial services industry in general. High costs for products and hidden costs are among my first complaints. Todd, you’ve written about this extensively and I appreciate it and applaud your efforts. A secondary frustration is with investors themselves who believe there is such a thing as a free lunch and want high returns with little or no risk. I’m sorry, I don’t believe that exists.
smjuetten Sure I get it BUT holding through 2000-2002 and 2008-2009 was a great idea.
The problem with not holding is that you have to be right twice. You would have needed to know when to get out and when to get in. Warren Buffett said he can tell you the top and the bottom of every market….6 months after it happens.
Boomerst3 BUYS
Boomerst3 There is an article today that talks about the 4 stocks Buffett ever sold. LOL. How about the 1000 he sold within two year periods???? HALF TRUTHS
RLM smjuettenThanks RLM. I should have mentioned that I am a financial advisor with my only fee-only firm, meaning we don’t sell products or get paid commissions or even charge a percentage of assets. We use a flat-fee model for our services. And I agree that holding through the two corrections you point out was very difficult.
smjuetten RLM Got it. here’s the deal. Buy and Hold? you’re guessing too, you’re guessing that the returns of the past will repeat in the future. If this is 1929, it’s going to take you about 20 years to get even and if you’re retired with this buy/hold strategy trying to pull an income you’re dead. Your solution is not a good one and neither is timing the market. That’s my take.
RLM smjuettenAgain, everyone, I’m asking that this conversation focus on everyone’s frustrations with investing and the investment advisory business.
When the conversation moves into an argument between buy and hold vs. timing it crosses dangerous territory in “right-wrong” which will limit the conversation.
Everyone is right regarding their frustration. It is how they feel. I don’t want anyone being made wrong here. There is a time and place for each discussion.
This discussion is about people having a forum to vent their frustrations. I want to hear all of them.
Thanks.
smjuetten RLM http://www.youtube.com/watch?v=OE_N6mf8srI
He sells for reasons related to the stocks. Not whether something is down or up.
smjuetten Thanks Steve. Great to hear from you. Yes, the hidden costs are a big irritation for me. Why hide something unless you are doing something wrong? It doesn’t reflect well on the industry. Thank you.
Financialmentor I have a strong understanding of investment fundamentals, asset allocation, risk vs. return, etc. Regardless, I find myself caught in this trap of having too many ears. The crux of the issue is investing is inherently and often wildly unpredictable. Any number of people can be “right” at any given moment; much less so in hindsight when people have long forgotten the original tidbit. The confusion this creates actually feeds demand for more “experts” with differing opinions. This is where advisers can add alpha, helping clients cut through this noise and make a custom-tailored plan. Providing that education and opportunity for people to learn the why behind what they are doing is crucial if anyone has a chance for long-term investment and wealth building success.
Really? That the financial markets are completely rigged and that the correlation to the Fed QE and the market rising is over 92%. What else could be such a problem? We live in a matrix.
RLM I love it. Yes, the “risk on, risk off” days of recent government intervention/control have been a new twist and a new source of irritation. Thanks for bringing a voice to this frustration.
A big frustration of mine is when I speak with investors who don’t know their financial advisor,Sr. VP, President, or whatever they call themselves, is what used to be proudly called a stock broker. The investor believes their guy at Merrill or Wachovia watches their portfolio and is an expert on the market. Or, they believe that the firm’s analysts speak with their “advisor, and gives them direction. Also, they believe their advisor, who many times has the “CFP” designation, is an expert. Little do they know how worthless the CFP designation is when it comes to money management or advising on how to invest. It’s one course on investing. There are plenty of books that describe how the brokerage business works, and that there is no education requirement to be a salesman at most of the firms out there, but investors don’t read those books.
Boomerst3 I understand that PE ratio is not the sole determining factor when investing in stocks. What I am asking is what indicators does Financialmentor use to determine market pricing. This question could be applied to stocks, bonds, commodities, etc.
penn20 Boomerst3FinancialmentorTypically, you’ll see the CAPE (cyclically adjusted price earning ratio – 10 year average) on the earnings side and Q-Ratio on the asset side of the equation used in most credible research. When researching you’ll find that focusing on the specific indicators is not all that relevant (except in unusual circumstances) because they are highly correlated and usually provide similar signals at similar times. With that said, it can be helpful to blend an asset based indicator with an earning based indicator on the valuation front to balance unusual fluctuations in earnings. Hope that helps.
Boomerst3 Crazy, isn’t it!! Yet, it happens every day. Thanks for sharing.
How there is so many investing outlets out there that give you cheap or sometimes free seminars on value investing or financial freedom only to surprise you with a bombardment of marketing, advertising, brainwashing and persuasion to choose the specific company or investing brokers of their choice. I still realise what theyre doing and I still go in the hope of learning at least something from every seminars.
One big gripe is that most of the “experts” have a vested interest in the advice they are recommending, which is not always disclosed. I also hate that the professionals who you go to for help, even “certified” financial professionals, sometimes don’t have enough knowledge to be advising others and regularly give bad advice.
Another, smaller gripe, is that the same concepts are repeated over and over again in advice columns and stories and magazines – I wish that there was a way to cut through all the fluff and get to the heart of an issue.
But my biggest gripe is that we have a ridiculous set of laws that make the entire financial services business entirely more complex, less efficient, and less profitable than it should be. Investing in the markets is complex enough. Having to deal with all the time-wasting pointless rules and limits and paperwork, well it makes me want to move somewhere else.
I would love for the “investment fairy” to give me clear, actionable information so that I can manage my finances. I would love for a simple way to compare my portfolio performance (or portions of it) to different benchmarks to be able to gauge performance. I would love for a simple way to track and report it all.
live4something Awesome! Great feedback. Thank you!
If there was a tutorial on how to do due diligence, that would be helpful. It’s awkward to invest money when you don’t really know what to buy or how to buy and then go through a brokerage when you’ve never used before. I would like to know how to pick and buy stocks, funds, and bonds. I don’t use financial advisors because I’d rather know how my money is being spent than to trust someone who might know less than I do. If you could point me to some books on how to invest, that would help a lot.
blueshirt1 Make sure to check out the next podcast coming out in 2-3 weeks with Michael Kitces. We will explain an entire financial advisor due diligence process. Right up your ally.
i remember Todd talking in Jaime Turdy’s podcast so long ago on passive investing and here is the MSCI World index with dividends reinvested in rolling 20 year, 15 year, 10 year and 5 year periods.
kyith
Below, I’ve provided my analysis of the S&P 500, Note that I assumed a constant dividend rate of 1.5% and added that back to the stock price. A similar study to your study but presented in a different way. What is interesting to me is how the risk is reduced by holding the investment for ~100 months.
telsaar kyith thanks for sharing. it seems it is truly better that way. i was surprised because i had results that showed with and without dividends for MSCI World (sorry had to cater to the international folks) it seems todd said statistically 20 years, but my short 43 year duration shows 15 is just as positive.
here is the comparison against the non dividend http://www.investmentmoats.com/passive-investing-2/msci-world-rolling-returns-over-201510-5-years-net-of-dividends-reinvested/
kyith telsaar20 years is based on U.S. data. The world index smooths out periods of overvaluation in specific countries (think U.S. today, 2008, and 2000) by averaging with undervalued countries likely to outperform (think Greece, Spain, Russia, etc.). This explains the shorter required holding period to realize a positive return. The phenomenon is extremely well documented – mathematical expectancy is inversely correlated to valuation at the beginning of the holding period. Nothing new here.
Again, as stated above. I fully understand there are buy and hold advocates in the group and I have no problem with it. There is nothing wrong with buy and hold if you are willing to tolerate the miserable risk/reward ratio that occurs from periods of overvaluation and/or low interest rates – like we have today. Again, it is a completely valid strategy and meets all the criteria for validity.
My goal is to understand the frustrations real investors feel about investing and the investment advice business – in their own words.
Thanks for sharing.
Financialmentor kyith telsaar hi Todd, thanks for sharing your thoughts. apologies if this is off topic.
kyith FinancialmentortelsaarNo worries. I appreciate your input. I just wanted to be careful and keep things directed.
1. Day traders, I wish they wouldn’t.
2. Getting good info when I need it. Getting the right info when I’m studying companies. I’ve settled to only investing in indexes because I couldn’t get the right info without paying hundreds of $$ in fees to have access. However, this is not a bad plan. But I also believe that investing in well screened companies can be a better plan. It is hard work though…You got to know what a good price is and what too high is. You got to know the company is sound both in product and in finances. The hard part is you have got to have a sound philosophy/model for the market. And you have to have “guts” to stay with the program when the market does the opposite of your anticipation.
3. Knowing the fact that there are people with plenty of money playing around with my savings (i.e. attempting to sway the market by using their money to cause large jumps and dives)
4. That governments and reporters presume that the market is speaking about a political situation when it takes an upswing or a dive. It could be those rich people in #3 above but I don’t want them to have any more say anyway.
5. You can’t trust financial advisers for reasons of conflict of interest, or they may not know what they are doing.
6. Fees, Why do companies charge such high fees. Luckily, Vanguard and Ishares are respectably low on their fees on the index ETFs that I purchase. With a bonus, TDAmeritrade has free purchases and sells on some of the core index ETF, however, note that there are terms attached.
7. Interest rates on cash accounts. I believe we should all rebel against certain investments till they offer a decent interest. Take Bonds vs CDs CDs are insured (FDIC) But Bonds are not. Why would I invest $50K and put at risk with a company for 1% interest with a Bond when I can get 0.5% on a CD and the principle is insured. How much would you pay to protect your $50K? Wouldn’t you pay $250 to protect a principle of $50K!(?)
8. The poor use of PE. Everyone is looking at the price when earnings rate is the real problem. I never see anyone present the earnings side of this equation, they always talk about the price side.
9. That company CEO’sget paid soooo much. That also goes with sports players and stars. That money should go to the stockholders or the employees.
10. That the FEDs are affecting my investments.
Enough for Now, Thanks,
telsaar Great feedback. Thanks.
Things I can’t control are insider trading, market manipulation, and the proliferation of free (and oftentimes bad) investment advice.
Things I can control, with discipline, are my emotions of ‘Fear and Greed’. The greed of ‘easy money’, and the fear of ‘losing it all’. Emotions can turn investing into gambling. By compartmentalizing 95% of my retirement investment in indexed Mutual Funds (401K), and 5% in my Roth IRA retirement ‘gambling fund’ of growth stocks, and ETFs, I can ‘somewhat control’ my emotional responses.
I would like to know how to take the emotions out of investing.
Richard WM Your first sentence really hit home with me. Thanks for bringing the whole “emotional side” frustration into the conversation.
Another thought; if I wanted to learn more about financial planning, or pursue a career in financial planning, what would be the best we to get involved? I am more of a DIY guy with our money, and I am always trying to learn more where I can. It would also be an alternate career path, if layoffs hit my profession.
I read a lot about investing and my greatest source of frustation is well .. me 😉
– i am not very patient regarding wealthbuilding and want to take the speedlane and because of that I tend to make hasty, illadvised decisions.
– the Information out there is overwhelming and I readily admit I’m having a hard time figuring out which is relevant for me and which is just background noise. Furthermore I do not wish to give up control .. or parts of my hard earned investment returns (fees).
The investment solution I am looking for is an oportunity for small money real estate investing with more direct control than a REIT. Like an investment club.
The magic fairy helps me diversifying my portfolio, teaches me patience and provides the tools to watch it all grow and to keep the grip in it.
Most advisors here (Germany) work for their provisions. Therefor I can’t be sure if he is giving me the best advice for my or his personal situation. I tend to find the latter 😉
Esarie Wow. Great inputs. Thank you so much.
I have had all the calitators do the math and still don’t know when enough is enough.
Is leverage something that you have to do when it doesn’t fit your way of thinking? To keep peace with my better half
95% in Ira best way to retire early 52 years old
Roarky That frustration in your first sentence is why I wrote the “How Much Money Do I Need To Retire?” book. It is only 5 bucks on Amazon or free if you are a Prime member. Did you read that book because I really tried to solve that frustration? Thanks for sharing all the others as well!
The hardest part for me is getting started. There is so much information out there, where do you even start. I’ve had people tell me I need an IRA, but after I looked into it I think Roth IRA would be a better option for me.
Also, Esarie makes a great point. Its hard to tell whether financial consultants are looking out for you or their own personal situation (ie the wolf of wall street) which really kind of scares me… Not sure who to turn to or who I can trust…
AirReef Ahhh, yes! The bait and switch upsell. Gotta love it. Thanks.
steftacular Great points! Thank you for sharing.
And also, thanks for reiterating points you agree with made by others so that I can see the consensus of opinion.
Much appreciated!
Brokers (advisors) get prospects from seminars. It’s part of their marketing efforts to get new clients. They give you a free meal for the right to hopefully sell you products, especially annuities, which have the biggest commissions out there. Next to life insurance.
Any “advisor” who sells you investment products is a salesman. Not saying it’s all bad, but you need to be aware of that and act accordingly.
My biggest problem is the computers that the big trading firms use that execute trades in seconds. Some time back one of those companies computers sold stocks massively and every trading firms computers started selling and then they suspended trading figured out it was a mistake made by the first company and reset the market back to the opening bell. As a little guy if I made that mistake it would have been too bad, so sad.
Second investing has been marketed as the only way to build wealth for the masses and has become herd mentality, where everyone rushes into the next big bubble such as tech sector till it bursts.
Financial advisers have you fill out a questionnaire, asking what your risk tolerance is and how much market downturn could you bear without losing sleep ad when that number comes, they don’t say time to sell sell not sure where the bottom will be all you get is the same song and dance of hold on. If I say 25% I sure don’t want to be in the market while it drops to a loss of 40%.
Woody57 Very difficult indeed. I’m not a fan of the program trading stuff either. I have yet to see a good argument made that it serves anyone except the institutions profiting from it. I’ve seen them try, but I remain unconvinced. Thanks for sharing your thoughts.
Have you thought of putting a 25% stop loss on your stocks, if your advisor isn’t doing it for you?
Hi, Todd.
In terms of stock market investing, my biggest frustration is the time is takes to research and determine where to invest, only to have a regional, national or global event send me back to the drawing board. I can’t educate myself quickly enough in terms of micro- and macro-economics, so the unpredictability of it all is paralyzing.
I own a significant amount of real estate, and I enjoy the work involved. My point is that it IS work; it is not the passive income/investment solution that many gurus make it out to be.
I would love to invest in something – something reasonably passive – that would not only appreciate over time, but provide cash flow at the same time, all while having a risk that is low enough to allow me to sleep comfortably at night.
Is it possible? I’m not so sure…
Don’t get me started about financial “advice”… Most advisors that I have come across are poorly trained, motivated by self-interest, and have a CYA mentality that is so ingrained, they can’t possibly provide any real advice – even if they could – for fear of being held liable for anything they say.
The above relates solely to the “traditional”, commission-based financial advisors, and not the fee-for-service
Hey Todd!
One of the things that gets me is a lot of things that you want to do require $$ which many people today don’t have. I know the saying “You gotta have $$ to make $$” but it’s really true today. Am I wrong? I’m all ears.
jeromecha Half truth in reality, but it doesn’t matter for this discussion because your frustration is all that matters.
In an effort to be helpful, I will say there are leverage principles that overcome that limitation.
But again, it’s not about write-wrong. It’s all about what frustrates you, and I hear your frustration. Thanks!!
Hi Todd,
Long time reader but first time comment here.
I’m currently doing a postgrad study and living on a stipend. Before doing this study, I had a full-time job and able to invest regularly. Pursuing a PhD is my dream indeed, but it hurts feeling helpless and not being able to grow my investment as I did before. To make matter worse, sometimes I cash out (withdraw) my investment just to compensate the high cost of living here. I’m afraid I’ll lose all of my saving/investment as soon as I got my PhD.
Looking forward hearing from you.
ARasendria The frustration I’m hearing is the inability to save more. Now that you are using your time to better yourself you aren’t earning as much thus you are withdrawing savings instead of adding to it. I wish there was a magic solution, but alas, it is all inviolable math. You can live on less or earn more. Those are the only two choices to increase savings.
Hi Todd, just want to add something more. Not on myself but frustration is i am helping a lot of junior staff with their financial problems. we are not so much a debt country if they are 25 years old, perhaps student debts did escalate to a big amount.
But what i see of young people is that they couldn’t find places to save more money to channel to saving/building wealth. Yet when it i suggested, they don’t want to change their lifestyle. Its as if they have a misinterpretation of happiness versus how much they spend on, and my frustration is how to CONvince (either con or persuasion haha) them to make them realize that.
kyith Yes, a very common problem – combination of entitlement mentality and a statement of preference for immediate lifestyle over long-term freedom. Thanks!
Financialmentor kyith perhaps i can share with you what one of my colleague who is much younger’s value gauge, where i got the person to rank the budget category which one values the most.
Todd
1) Life Insurance with a savings element such as Whole and Universal…it’s impossible to understand how these are structured. Plus the “Illustrations” are always optimistic. Are these investments any good for tax reasons and can they be used effectively in retirement i.e. taking “loans” against the collateral “cash value”.
2) Risk of stock market is not understood by anyone as far as I tell. (Black Swan’s etc).
3) Does the Finance sector render any value to society?
4) Why are foreign investments always classed as riskier than domestic?
5) We’re told to that trying to “time the market” is a waste of time. But of course at some point you have to!
I agree. I am looking into these for possible tax free retirement income as a supplement. The whole life guy criticizes the fixed index universal guys proposal, and vice versa. How does one know what’s the truth?
paulbturner Great input! I forgot about the life insurance point you made so thank you for adding that to the conversation. Much appreciated.
My main investment dilemmas are:
1) A wealth of highly contradictory advice on core investment strategies coming from many different sources and authorities. What makes this most problematic is that each source speaks in an authoritative “my way is the only right one” tone and claims to base it on historical evidence and research. With everyone basing their investment theories on “research” and “data”, the only way to choose a theory seems to be to validate their research or data yourself, which is virtually impossible for the common man!
2) Not a lot of great low-cost and easy-to-use investment options for beginning investors.
3) Difficulty in coming up with an appropriate allocation. All of the passive investment models claim to go with a “simple” portfolio, but then give much contradictory advice on appropriate allocation models (do I include real estate? how much foreign? value vs growth?).
4) An obsession with extreme wealth or models that seem to often cancel out the common man who has accepted a moderate income for a fulfilling job, like in the nonprofit sector. I don’t want to, nor do I expect to retire by 40. I can’t triple my job-related income and don’t want to spend every waking hour on second and third jobs because I have a family. Nor do I have a talent to fix up properties or the health and/or energy to do lots of extra side jobs.
5) Models that are not designed for larger families. (i.e. more than 2 kids. I come from a large family and have 4 kids).
pjalsevac Fantastic input. Duly noted. Thank you so much for writing. I really get all these points the way you put them together.
pjalsevac 1 and 3 are my frustrations too.
My problem with advisors is they all give the same advice like machines. You walk in they ask your risk tolerance then they divide your assets into each group to diversify. They then take a percetage in some form. I buy and sell real estate. This lets me use my creativity and see returns quickly. My experience in the stock market has been boring. It goes up a bit and then it goes down. I know I need to diversify into other things
No one has been able to answer my question on rental property vs. REIT investing. My wife and I have four rental properties nows. Due to the small town we live in, and our accelerated payment schedule to pay each off in 15 years, each property has a negative cash flow. We take pride in our rentals and invest in them. Our principle is that we would live in every one of them, but this runs counter to cash flow. Basically, my question is, would we be better off, financially, investing in REITs vs. actual rental property? Related to this question, how should we review the math for making this decision? The single-family houses don’t cause much of a hassle factor, given we proactively fix issues and have great tenants.
Todd – great podcasts. I listen to every one, multiple times, during my 50-minute daily commute. Solid advice and great guests.
Travis
I hate the mindless way that S&P 500 index funds get touted as some magically compounding must have investment. The index contains so many morally compromising entities (with anti-consumer/anti-worker/anti-community/anti-earth practices) like Philip Morris, Halliburton, Facebook, Walmart, Coca-cola, Pepsi. I know many thoughtful caring people who think smoking/sodas is a societal evil yet invest without a second thought to such funds.