I’m gonna take a stab at it and say that the people who stuck with it are already PF buffs and that the people who quit within the first few paragraphs are the ones who most needed to stick around. As you said, it’s crucial stuff. Except I don’t blame them one bit. Why would you spend all that time writing an important, info-dense article and spend so little time tailoring it to the people who you most needed to reach? They don’t care about the technical details. But they do care about making their money grow and they just want the advice as concise and straight-forward as possible. They certainly didn’t get that here today. I suggest reading Ramit’s posts on knowing your audience, at iwillteachyoutoberich.com.

So now we’ve got to find a way, and the time, to consolidate info on our various portfolios.

Ah, for the 36 hour day.

Maybe a future post for beginners that goes over the steps to evaulate Mutual Fund performance.

I believe we help each other make the same overriding point: Anyone can cherry pick information to spin data in their favor; everyone has a certain bias to a certain view.

Now we begin to touch upon the MOST important aspect of investing–behavior.

We probably also agree that investing is subjective and that each person should spend time discovering their own perspective…

Thanks for adding to the discussion…

“There is no truth. There is only perception.” Gustave Flaubert

However, two factors are not taken into account. First, this scenario assumes that you will never go all-cash. This is unrealistic, and in fact almost never happens. It’s great theory, but if no one ever does it why continue to tout it?

Second, this particular strategy seems to have worked for the decade in question….but what about the next decade? What about the previous decade? What happens to those numbers if we shift them forward or back a few years?

Finally, in that article the only thing that made any significant difference in the end-result was when they considered a non-retired person who continued to add money, half of it into a bond fund which has been range-bound between $9.50 and $10.50 for ten years.

So – how many reading this thread were able to match those results this decade?

During this “lost decade” where an investor would have lost money investing in the S&P 500, other asset classes, such as bonds, performed reasonably well. In fact, a simple combination of index funds, including bonds and international stocks did quite well during the so-called “lost decade.”

For more of a “Get Rich Slowly” reader approach to investing success during the lost decade, check this NY Times article:

http://www.nytimes.com/2010/01/02/your-money/stocks-and-bonds/02money.html?scp=1&sq=it+was+hardly+a+lost+decade&st=nyt

For me, the calculation isn’t too tough, Have to find the deposits, 401(k), IRA, etc, as well as mortgage paydown, which is a deposit. To keep it pure, I pull out the house value as I’m only interested in active investments. My history is to be a bit aggressive, in up years I beat the market a bit, in down years, I am down a bit more.
(BTW, don’t forget the 401(k) match, for this exercise, it’s a deposit, not ‘return’. It’s good, but it’s not 5-6% more return.)

2. I look at my portfolio everyday, if for no other reason because I update Quicken by daily downloading all my financial transactions. What that does is give me a gut level feel for how the market jumps around. I’ve done this now for over 20 years, so I’ve got a pretty good feel and it helps me to make decisions (e.g. just let my portfolio ride out the recession, and am now back on track). Understanding what the market does, by watching my own portfolio, gives me a better feel for what financial news really means than does any pundit/news/blog/advisor (or my emotions!).

P.S. I now read GRS more often than I read Morningstar because hearing what others are doing and thinking provides more and better ideas than most traditional financial sites (um, yeah I read more for the comments than the original articles – sorry JD).

@JeffB good tip – I’ll give it a shot

Thanks for your response, Robert. I like that way of putting it.

Rob

I also happen to agree with Tyler that index funds should not get a special pass. Yes, they are generally better than active mutual funds by virtue of their lower costs, but they are not the be-all end-all. Our country cannot keep up the level of consumption (and resulting stock market growth) of the past 25+ years without decimating the planet.

Perhaps preservation of capital and income generation should be the goal of investing, rather than “hoping” for capital gains.

any ideas?

1 – the typical investor will always underperform (http://www.marketwatch.com/story/american-investors-predictably-stupid-losers-2010-06-01)

2 – no one ever believes that *they* are the typical investor

It’s a vicious cycle…

Oh NO!!! Don’t let this article make you feel like you can’t manage your own funds! That’s horrible! No no no. He’s not only giving very complicated advice, but like Kevin says, that 5% of advice that’s all the complications is bad! You will actually do BETTER on average if you do less work than Robert is suggesting.

JD has a really great article somewhere in the archives about very simple investment strategies that will match the market using Vanguard funds. Let me see if I can find it and link to it… I think he recommended VBINX. Maybe it was this one?: http://www.getrichslowly.org/blog/2009/12/30/getting-started-with-asset-allocation/

And there’s another really great article about using Vanguard’s lifecycle fund which means you don’t even have to do your own rebalancing or figure out what your risk tolerance etc. are– you just have to pick a target retirement date and you’re set. Here: http://www.getrichslowly.org/blog/2010/07/07/choosing-a-target-date-fund/ (One of the best posts GRS has had on the retirement topic, I think.)

It is seriously nowhere NEAR as complicated and scary as Brokamp is making it sound.

“If the average return is 10%, why is it that the average investor typically underperforms the market by up to 15%?”

Expenses and emotional decision making. Specifically, loads, fees, and management expenses charged by mutual funds, and emotional decisions like selling stock when it plunges, and chasing winners after they’ve already had their skyrocketing growth.

“I dont get how the same people who like to say ‘past performance is no indication of future returns’ will turn around and in the next breath say ‘so pick index funds, because the past performance of the US stock market is ~10% growth each year’”

The reason is because those mutual funds are investing in the same market as the index funds. They’re not two completely separate problem spaces. They’re all buying the same stocks – but mutual funds charge higher fees.

That is, if the market does in fact cease to rise, then not only will your index funds stall, but so will your mutual funds, minus the fees.

No matter how badly the market does, mutual funds must do worse on average, because of their higher fees.

“Is there anyone else who thinks: That’s why I pay someone to do this for me?”

Bella, trusting a financial advisor to pick the right funds for you is like trusting a new car salesman to pick the right car for you.

They’re operating in a perpetual conflict of interest (your needs vs. their commission), and 99 times out of 100, they’re going to act in their own self-interest. The Financial Advisor is going to sell you the funds that make him the most profit, and the car salesman is going to sell you the most expensive car he can convince you to buy.

Also, I didn’t know kitties can climb ladders. This changes everything.

I think everyone is aware of the LONG-term track record of the stock market. But the question is whether or not the current malaise is a plateau or a long-term sideways move. The return may be 10% but that misses two points:

1 – does that 10% include the last decade?
2 – if the average return is 10%, why is it that the average investor typically underperforms the market by up to 15%? (see Barber and Odeon, summarized here: http://wallstcheatsheet.com/breaking-news/economy/how-do-individual-investors-manage-to-lose-money-in-the-stock-market.html)

” Another interesting finding of this study was that an average individual investor would have been better off by not trading. “

Why do index funds get special case status in this equation? The continued performance of these funds basically depends on the continual exponential growth of the American economy, and when you get right down to it, no exponential growth curve that requires actual, physical resources (people, energy, cars, houses, all the things the economy depends on) can continue forever. Eventually it hits a peak.

Maybe you’ll argue there’s no way this will happen in the next hundred years, but even if so, it would be interesting to see when you think it *could* happen. What conditions would be required before you would stop recommending index funds?

I mean, with a 150-year history of a 10% return, the return could drop to 0% tomorrow, and stay there for 50 years, and you could still be claiming, after 50 years of no returns “7.5%” returns over the long term.”

When would you decide the market had fundamentally changed?