Finance? We Don't Need No Stinkin' Finance!

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creamcitian
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Finance? We Don't Need No Stinkin' Finance!

Postby creamcitian » Tue Apr 17, 2007 5:10 am

So, it seems like equity-indexed annuities aren't the answer - what's a guy who doesn't want to lose his money to do? I've watched over the last two decades as people I've known have gotten wiped out in stock market crashes losing their 401(k)s, IRAs and everything else because the professionals that were investing for them messed up and bought into one kind of bubble or another.

If a pro can't figure out how to invest, how can I? I understand compounding interest and all the potential good of investing money, but I work VERY hard for my money and I don't want to turn 50 (or 60 or 70) and see it all disappear.

What's a low risk tolerance guy to do?
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Postby brad » Tue Apr 17, 2007 5:50 am

Well, you can stick it all in low-risk funds (bonds, money market, etc.) and pray that there's not too much inflation, since inflation is likely to eliminate most of the gains you make from low-risk investments. But at least you won't risk losing the principal.

If you own your own home, have a relatively low cost of living, and are flexible, there's an argument to be made that inflation doesn't have to matter so much. It is possible to establish a relatively inflation-proof lifestyle. Buy solar panels or a wind generator and make your own electricity; then it won't matter if power costs $3/kWh when you retire. If gasoline costs $40/gallon when you retire, you could do without a car, or live on a sailboat and travel that way. Grow your own food. Be frugal. Continue to work part-time in retirement. There are lots of solutions.

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JerichoHill
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Postby JerichoHill » Tue Apr 17, 2007 6:01 am

Diversify your portfolio. Hedge it.

I have in mine a US stock index fund, a european stock index fund, and a contrarian fund. Pretty much 1 is always doing well. I think Bogle got it right.

I don't think bonds or such are the answer, too low risk, and they barely beat inflation.

Also, don't rely on professionals. A good many of them only look after their bottom line, which is different from YOUR bottom-line
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tinyhands
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Postby tinyhands » Tue Apr 17, 2007 7:55 am

The two most important things you can do are to learn
1) You cannot time the market
2) You cannot pick individual stocks

Some professionals hope that you won't learn these lessons because they make money from you whether they're right or wrong and over the LONG term they're wrong. There may be a "hot manager" right now, but was he the hot manager last year? What about 5 years ago? And is the hot manager from 5 years still hot? These are the people betting on the bubbles to which you refer. The lesson is, buy indexes and stay invested for the long term. The statistics (Ibbotson) show that there has never been a 20 year period in which the market did not make money. We all know that past performance does not guarantee future returns, but the odds are in your favor. Yes, there will be individual ups and downs, but you must force yourself to ignore them. Long term.

Another lesson worth learning is
a) You do not have to beat the market.

This is probably contrary to everything you ever read, but I promise you that it's 100% true. Investing in the stock market is NOT a competition against every other investor. It's true that the stock market doesn't create money, it merely transfers it from one person to another, but that has nothing to do with how much return on investment you need. All you have to do is beat inflation, the rising cost of goods and services in the future.

Some will argue that they expect their savings to work for them, earning a return greater than that negated by inflation. By all means! But the market return, 6-8% in terms of historical average, is still much better than inflation. So you don't HAVE to drive yourself crazy chasing outrageous returns if simply matching the market (indexes, see above) will still enable you to retire.

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Postby plonkee » Tue Apr 17, 2007 8:54 am

There is always risk. And inflation risk is the most insidious.

If you can pick a safe investment that will beat inflation by a little, then that could be your safest option. Over here, there are tax-free savings accounts that beat inflation by 2-3%. Failing that, you'll need to consider government bonds (?)

My best suggestions. Don't forget inflation. Pick something boring.
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Low risk

Postby Walt » Tue Apr 17, 2007 10:15 am

It seems like you know what you want and what you don’t want. Going for the big return is a wild ride and I am with you, I don’t want that, but at the same time I need my money to double in a reasonable amount of time. There are four battles that we fight, in order to get our money to work hard for us….
1. Taxes
2. Inflation
3. Interest Rates
4. Procrastination
The first three we have very little control of but the Forth is all us. For low risk investors go with a well balanced mutual fund portfolio. I would suggest a three part strategy, one part bonds, one part Blue chip and one part Growth. For your safe money Corporate and Muni bonds conserve principle and beat inflation…..

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Re: Finance? We Don't Need No Stinkin' Finance!

Postby MossySF » Tue Apr 17, 2007 10:37 am

creamcitian wrote:So, it seems like equity-indexed annuities aren't the answer - what's a guy who doesn't want to lose his money to do? I've watched over the last two decades as people I've known have gotten wiped out in stock market crashes losing their 401(k)s, IRAs and everything else because the professionals that were investing for them messed up and bought into one kind of bubble or another.

If a pro can't figure out how to invest, how can I? I understand compounding interest and all the potential good of investing money, but I work VERY hard for my money and I don't want to turn 50 (or 60 or 70) and see it all disappear.

What's a low risk tolerance guy to do?


First, you have to remember most "pros" are salespeople. Their job is to generate commissions for themselves. And if they also do a good job for you, that's a nice side effect.

Second, if you do nothing, you are guaranteed to lose your hard earned money anyways to inflation. So you dilligently save up money in a money market and it's worth 500K when you're 70. Big deal -- you'll blow through that in 5 years and be dependent government welfare. Losing all the money in bad stock picks would have had no material difference.

Third, you are near the mark with the bubble comment. Buying into a bubble is not a bad thing -- it's buying in at top that's the problem. I bought into the dotcom bubble and didn't suffer much because I bought shares before, during and after. An investment plan on mostly autopilot is the key -- that let me buy when shares were really cheap the few years after the bust. Those cheap shares + the dividends/distributions reinvested for more cheap shares, has meant my portfolio gains have nearly tripled since the '00 dotcom peak.

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Postby Dylan » Tue Apr 17, 2007 11:00 am

Weigh your investment risk against the risk of not having enough money in the future. You may decide it’s worth taking less risk to sleep better in exchange for having to save more now, delay retirement or spend less money in retirement.

Tinyhands is absolutely right, you don’t have to beat the market. Doing so over the long term is nearly impossible anyway. Beware of the “professional” who suggests otherwise.

There are two distinctly different types of investment professionals that both call themselves advisors or something similar (they are actually regulated by two different sets of laws and rules). One type is licensed to sell securities, and the other is licensed to sell advice. However the ones that sell securities far out number the ones who sell only advice. If you’d like to read my opinion about why so many “pros” get it wrong, see, “Why So Many Advisors Are Incompetent” at http://www.investmentintelligencer.com/ ... y_adv.html

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Postby finance girl » Tue Apr 17, 2007 8:45 pm

whoa, deep breath. Sounds like you or other folks you know have had bad experiences with sales people ("financial advisors" = salespeople).

I don't know anyone who "lost it all" in the .com bust, and if you do then that individual was way undiversified into just .com IPOs, and even then bad business model .com IPOs.

Take a look at passive (meaning unmanaged) index mutual funds, like Jericho mentioned, if you want to do dollar cost averaging, and ETFs if you are looking to do batch investing (e.g. hey I just got my tax refund, what should I do with it?).

Index mutual funds and index ETFs are highly efficient (meaning low cost to you and low turnover in portfolio) and pretty much match whatever index it represents.

Might you lose money? Perhaps, but it's not likely in the long run. But it isn't the same as laggard, actively managed mutual funds that may have diminishing points of return (meaning, where you are only making single digits after the sales commission, which you pay when you go through a salesperson oops I meant "financial advisor") :P

creamcitian
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Postby creamcitian » Fri Apr 20, 2007 4:46 am

Thanks everyone for all the tips in this and the other thread I posted - I appreciate all the help.

What I've always thought (and still do now) is that investing isn't worth my money. Perhaps I'll put my money in one of those online savings account that return 4-5% but that's it. The rest? Well, I don't trust any paid financial whiz I've ever come across and I don't have the knowledge (despite having a business degree and reading a bit about investing) to feel I can get a decent return on my money without potentially losing it all in a boneheaded maneuver.

I wish you all the best of luck! If you see some 70 year-old-guy waiting tables at your favorite restaurant in a few decades come over and say hi. :)
Stupid finance.

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JerichoHill
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Postby JerichoHill » Fri Apr 20, 2007 5:41 am

Cream,

Just get a ROTH IRA, and put your money into total market indexes, get it automatically dedudcted each month, and forget about tha tmoney. youd be fine. Despite the stinky market my vanguard IRA has returned about 4.5% so far this year...and were just barely through a third!
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