Dinner with the Diehards: A Chat About Investing

It's been a long time since I wrote about investing at Get Rich Slowly. I haven't abandoned the subject, but my mind has been on other things. Besides, I've been practicing what I preach. I've invested my money in low-cost index funds (and some bonds), and I never make a trade. Because I know it pays to ignore financial news, I have. Earlier this week, I peeked at my portfolio for the first time since May. You know what? It's doing just fine — even without me checking the balance every day.

Although I haven't been writing about investing, I've continued to further my personal education on the subject. Whenever the mail brings the latest issue of the AAII Journal — the publication of the American Association of Individual Investors — I read it. (The latest issue just arrived today!) I've also been reading books about investing. In fact, I've just begun David Swensen‘s highly-regarded Unconventional Success: A Fundamental Approach to Personal Investment; so far, it's fantastic. Look for a review when I return from Europe.

And the other night, I had dinner with the Diehards.

Note: For those of you who aren't familiar, Diehards (also called Bogleheads) are fans of indexed mutual funds — funds that track the movement of stock market indexes — as popularized by John Bogle, the founder and retired CEO of The Vanguard Group. These Diehards discuss investing in the Bogleheads investment forum. From my experience, they're friendly, smart, and knowledgeable people.

 

I attended the first meeting of the Portland Diehards two years ago, but I've only managed to make it to one quarterly meeting since then. On Tuesday, I made it a priority to meet the group to talk about investing over Chinese food. There were six of us: J.D., Loren, Kris (not my Kris), Ron, Van, and Gary. We each brought different experience and perspectives to the table, which made for an interesting couple of hours talking about investing.

Spouses with different investment goals
As we ate snow-pea chicken and hot-and-sour soup, we asked questions and shared advice.

For example, I asked how you should invest when you have a different risk profile from your partner. I, for example, am fairly risk tolerant; I'm willing to take chances in expectation of higher returns in the future. My wife, on the other hand, is not. She'd rather sock money into low-risk investments that also produce low yields.

Van suggested that we split the difference. That is, we should take half of our investment capital and invest it the way I want, and take half to invest the way my wife wants. So, if I want 80% in stocks and 20% in bonds, but she wants 40% in stocks and 60% in bonds, then we'd average that to a 60-40 split in favor of stocks. (Which, co-incidentally, is how my money is invested right now!)

Valuation, risk, and return
The group spent some time discussing the concept of risk. Loren is near retirement, and seems tempted to chase investments that are currently offering high returns.

Gary — who offered lots of sage wisdom throughout the night — asked Loren, “What rate of return do you need on your investment to fund the rest of your life? That should determine where you put your money. If you need a 10% return on your money to fund your life, then you need to be in stocks. But if you only need 2%, why risk it?”

Gary also noted that it's important to take valuations into account. That is, you shouldn't just blindly buy a particular investment vehicle, whether that's stocks, bonds, or commodities. Obviously, it's impossible to know whether an investment is going to go up or down in the short term, but you can make a pretty good guess as to whether something is under- or over-valued in the long term.

As a prime example, gold would seem to be over-valued now, just as housing was five years ago. And a little less than two years ago, it was pretty clear that stocks were under-valued. Gary's not saying you should chase whatever is tanking; he's just saying that if you've been making regular investments in gold, for example, but the market seems high (like now), then maybe it makes sense to suspend your investments — or even to sell.

Tangent: The whole gold craze drives me nuts. Didn't people learn anything from the housing and stock bubbles? What makes them think this is different? And the commercials on the radio? Puh-lease! Gold is high, so I should buy? Isn't that the opposite of smart investing?

 

Do-it-yourself investing
I thought it was fascinating to listen to Van, who is trying to educate herself so that she can direct her own investments. She's new to this, and trying to learn as much as possible so that she can make her own decisions. “None of the financial advisors I've talked to really knows what's going on either, so I might as well do it myself,” she says. She figures that she'd rather make her own mistakes than pay somebody else to make mistakes for her. So, she's educating herself by reading books and coming to meetings like this Bogleheads gathering.

All of us agreed with her, I think, which probably isn't surprising. Loren said, “No matter who you talk to for advice, never forget that you are the boss of your own money.” I agree with this 100%. In fact, in May I published a guest post at Boing Boing about the importance of DIY finance. (No need to look it up; I'll be posting it here at GRS in a few weeks.)

Picking stocks — or not
Van is especially interested in learning how to pick stocks. Ron, the chief Boglehead in our group, cautioned Van, saying that from his experience, the default position should be to start with (and perhaps stick with) index funds. His argument is that if you're going to do anything other than:

  • Invest in the entire market
  • With the lowest possible fees
  • With the most reputable dealer

Then you need to be able to state your reasons for doing so. You might have good reasons for not sticking with this default, but if you don't, and if you can't state them, then why take chances.

Note: For the record, the default position would lead you to buying index funds through Vanguard. I vary from the default in that I buy index funds from Fidelity. Why? Because Vanguard doesn't offer the type of retirement account I need for my business. I started there first, but they sent me to Fidelity.

 

Once again, Gary shared the wisdom of his experience. “I started investing by picking stocks myself,” he told Van. “When that didn't work, I went to a full-service broker and paid him $400 a trade to pick stocks for me. That didn't work either — and it cost more — so I went to a discount broker to get my fees down. But I still couldn't match index funds. So, I gave up. I'd rather spend my time playing golf than picking stocks. Now I'm in index funds, in ETFs.”

Shared wisdom
We talked about a few other topics, as well, but this post is already running long. I'll skip the bits about certificates of deposit, investing in gold, and handling a windfall. But I do want to pass along a couple of quotes I liked:

    • Always be a saver,” Kris said. She stressed that no matter what your life circumstances, if you make sure you're a net saver — that you're spending less than you're earning — you'll be fine. (Her advice reminded me of the “Always Be Closing” speech from Glenglarry Glen Ross. Maybe I should do a version with “Always Be Saving” — and less swearing!)

 

  • Gary is an advocate of boosting your income. “Your net worth doesn't go up from your investments,” he said. “It goes up from your earning power.” His point is that you're not going to get rich from the stock market — you're better off developing your human capital and mining that for money. “If it's important for you to accumulate a lot of money, you pretty much have to go into business for yourself,” Gary said.

Meetings like this are invaluable. They're a chance to exchange ideas with fellow investors, and to profit from their success and mistakes. I highly recommend finding a similar group in your area. There's no need to be intimidated. It's fine to show up and just listen if you feel like you don't have anything to contribute. I feel lost a lot of the time, but the more often I do things like this, the less lost I become.

This may be because I take notes. I filled my ever-present notebook with four pages of scribbles, including books to borrow from the library, websites to visit, and concepts to consider. (And, of course, writing this article helps to reinforce much of what I learned.) I already have December's meeting on my calendar. I'll be back for more Chinese food and more convesation with the Diehards.

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Nicole
Nicole
10 years ago

I read in a Salon article that Suze Orman invests the bulk of her assets in treasuries. Why take chances if you don’t have to?

Wayne Mates
Wayne Mates
10 years ago

This is an interesting group and I suspect there may be one in my area. I will have to look it up. I like the idea of spouses investing their money differently. My wife and I each have our own careers and different tolerances for risk. Although we both are heavily weighted in ETFs, I have more funds in stock and she has a higher percentage in bond funds. It works out well. We each take responsibility for our own investments and sit down once a yeara and compare notes. The “market hasn’t moved a whole heck of a lot… Read more »

Mike C.
Mike C.
10 years ago

Well, you’re one idea about investing (gold) seemed to be a big “no”. Let’s remember this post and see where gold is in 2 years.

Mike Piper
Mike Piper
10 years ago

I consider myself a Boglehead. The Bogleheads’ forum is, in my opinion, the single best place to find investment advice on the internet. The number of knowledgeable investors there is unbeatable.

Jonathan
Jonathan
10 years ago

Great article and a lot of great takeaways, particularly the quote: “I’d rather be playing golf than picking stocks.” I remember reading an article somewhere that said, if you look into the mirror and you see Warren Buffett looking back at you, then you might have a chance at being successful with stock picking…otherwise you’re better off with low cost index funds. Though, I think it’s a good idea to point out that some people like picking stocks out of pure interest, doing the fundamental analysis, expressing a view, etc. If you’re not spending money that you need (analagous to… Read more »

Andrew
Andrew
10 years ago

The majority of investors must take chances because earning 2-4% in treasuries will not allow one to retire and live comfortably unless you already have many millions and can live off the interest while keeping your principal intact. People always discount the fact that they could potentially live 25-35 years after retirement, and if you are still young, you need that growth to fund your future. I beg readers to go learn alternative ways to invest. The rationale for investing in index funds is typically that “most mutual funds don’t beat the market and they’re run by professionals so why… Read more »

Everyday Tips
Everyday Tips
10 years ago

I would have loved that dinner!

I must say I do agree, I am not sure that financial advisers have any better idea of where to invest than anyone else right now.

I had contemplated gold at one point as I worry about inflation, but I just couldn’t get over the price. I have basically been sticking to my index funds. Like you, I have kind of stopped watching the market real closely. I don’t know if I am just focused on other things, or if I am just frustrated. But you are right, the market has been doing ok.

Kat
Kat
10 years ago

JD, I was wondering how it works that you are so split with finances from your wife (no joint accounts) but then you care what the other is investing in for retirement. Is this a recent development since you started getting your finances together, or have you two always considered your retirement a joint issue? But then why you didn’t count your present money as a joint issue? My marriage is the opposite, I know how much my husband puts into his retirement accounts (and the total amount in January, since annually we do a report of our net worth… Read more »

dak9779
dak9779
10 years ago

Asset allocation worked in the 90s and 2000s. It will not work in the foreseeable future. Bonds have record low returns. Any rise in interest rates will destroy holders of bonds. Stocks have been flat for a decade. And with inflation, the return has been negative. With high unemployment and a high level of public and private debt, the economy will be flat for an extended period of time. Stocks and bonds will not be the answer as many “intelligent” advisers claim.

Rob Ward
Rob Ward
10 years ago

Warren Buffet himself said just about everything the Bogleheads espouse in a few sentences:

http://www.fourhourworkweek.com/blog/2008/06/11/061108-picking-warren-buffetts-brain-notes-from-a-novice/

And J.D. – I couldn’t agree more with your sentiments on gold! (especially the ridiculous commercials).

April
April
10 years ago

This sounds like the kind of meeting I’d shy away from attending, and that’s exactly why I need to go to one! :/

I’d love to make some real life contacts with people who are seasoned investors or just interested in learning more (like me).

Steve
Steve
10 years ago

I’ve been such a fan of this site over the past or so. I live in Washington, DC and am interested in finding not-for-profit organizations that have a strong mission of educating the public about sensible personal finance. I’ll start searching the web but thought some readers may be currently supporting one of these organizations. I’m looking for opportunities to volunteer and provide financial support. Thanks.

kj
kj
10 years ago

Kat (#8) had my exact question – if your finances are totally separate, and that works for you, why do you give a rat’s patooty how the other invests? I guess it gets to another question I’ve always wondered about those with separate finances – when it comes time to retire, do you pool your assets then so that you both can enjoy your retirement, or would one say to the other, “Sorry about your luck – you should have had the foresight to save more/longer/make better investment choices! I’ll be traveling for the next few weeks – have a… Read more »

Troy
Troy
10 years ago

Why is it that “investing” has to always be tied to the “market”. Stocks or bonds? For most people, and that includes most readers here, you are not investing, you are guessing. You are putting your money in a stock, or an index fund and hoping it works out, and using statistics, history, and feelings to justify it. I am all for stock investing if you know what you are doing. But most people don’t. That is why most people net lose. There are countless ways of investing your money that don’t involve the stock or bond markets. Collectibles, starting… Read more »

Ely
Ely
10 years ago

Grr, are we going to have the separate vs joint drama again? If you care about the other person, you care about how they invest. You just don’t get to DICTATE. People with joint finances seem to assume that separate accounts = separate lives. kj, is that how you would treat your spouse in that situation? If not then why do you assume I would? Most people with separate finances are able to act like adults and share use of their money without actually sharing accounts. (Not all, I know.) It’s actually kind of smart; each person can bank/invest/spend as… Read more »

J.D. Roth
J.D. Roth
10 years ago

@Kat (#8) and KJ (#13) Every couple handles their finances differently. Few have completely separate finances, just as few have completely joint finances. There’s always some level of separation. In our case, Kris and I keep mostly separate finances. When we were younger, they actually were completely separate because we had few shared long-term projects. We just didn’t have the money for that. Even after we bought our first house, our finances were completely separate. When we moved into our current house, we opened a joint account to act as an emergency fund for home repairs. To this date, that… Read more »

Earin
Earin
10 years ago

You say gold is a no-go because of its current price. IMHO you take the wrong angle to look at it, it’s the dollar who has become weak! With all the current situation of enormous debt which probably will not be paid back, the whole work market…etc. Gold does not earn any interest is an often argument. But thats not the reason why you buy it. Gold is valuable for keeping your wealth. Inflation or deflation are no longer a risk. Gold is valuable to humans for thousands of years and will remain valuable. Compare that to some colored paper…… Read more »

Rob Bennett
Rob Bennett
10 years ago

From my experience, they’re friendly, smart, and knowledgeable people. I’ve had lots of experiences with the Diehards/Bogleheads. Actually, the Bogleheads.org forum was formed to escape me! I had begun posting honestly on safe withdrawal rates at the Diehards forum in July 2005. There were lots of community members there very interested in exploring Valuation-Informed Indexing and the realities of stock investing in general. But there were also a few “leaders” who very, very much did not want people knowing about the grave flaws in the Buy-and-Hold Model. This group insisted that Morningstar.com (which hosted the board) ban honest posting, Morningstar.com… Read more »

Mindy
Mindy
10 years ago

Hey J.D.,

You mentioned that Vanguard didn’t have the type of retirement account you needed for your business. I am curious, what type was that? I thought they had everything for the self-employed business owner.

Thanks!

J.D. Roth
J.D. Roth
10 years ago

@Earin (#17) I find your argument unconvincing. I’m not choosing between gold and cash; I’m choosing between gold and other investment vehicles, including stocks, bonds, and real estate. Nearly all of these provide significantly better long-term returns than gold. And with gold at its current highs, there’s no way in hell I would consider it a sound investment. Why do I think these other investments are better? Let’s use your “gold still buys a tailored suit” argument as an example. Tell me, how many tailored suits could you buy if instead of putting your money into an ounce of gold… Read more »

J.D. Roth
J.D. Roth
10 years ago

@Mindy (#19)
I needed a self-employed 401(k), which Vanguard did not offer in 2007. They told me to try Fidelity, which did offer that account.

Kat
Kat
10 years ago

Ely, I wasn’t assuming anything. I remember times that JD had said that he and Kris had completely separate finances, he was deep in debt and she was saving like mad and she didn’t really know how deep in debt he even was. That IS separate financial lives — she had no say in his debt and he had no say in her savings, they were not sharing any money. As for kj’s question about saying no to giving the other money for a trip in retirement, we even saw that for the trips JD wants to take now with… Read more »

Jennifer
Jennifer
10 years ago

#15 Ely Thank you for articulating my thoughts exactly! I’ve been trying to find an argument against the whole notion that if you don’t have joint everything, you must hate each other/trying to scam every dollar off one another argument. We have separate accounts, but a joint budget. We track what we spend, and generally take turns paying for things. And no, we don’t try to split it exactly down the middle, it’s more of: you paid for groceries so I’ll pay for the gas, type of thing. The best thing about separate finances: We both keep a close eye… Read more »

Steve
Steve
10 years ago

I don’t buy the gold argument either. It’s only worth what people say it’s worth, and by that I mean is has no real industrial or survival value. People do not need it and a lot of people go their entire lives without it. To me, gold is like the Dutch Tulip bubble, only it’s taking longer to play out. Eventually people are going to realize it’s just a piece of soft, shiny metal with little practical value. In addition, these companies on television and radio that want you to buy gold are just trying to cash out for themselves… Read more »

Kelly J
Kelly J
10 years ago

So what qualifies as a good reason? I’m an extremely beginner investor only investing a minimal amount (my investment portfolio is just over $1000). I’ve just been picking companies I like to invest in whose stock I can actually afford to buy that I see as doing well in the near future and tend to favor dividend over non-dividend as a way to increase my small investment. The money isn’t enough to really hurt me if I lost it all so I’m just seeing it as a chance to get my feet wet for now.

Million Dollar Journey
Million Dollar Journey
10 years ago

J.D, it would be interesting to see your investment strategy in a post. I’m in agreeement, index investing is the best strategy for most DIY investors out there as it takes the emotion out of investing and requires very little upkeep and research.

All the best!

uncertain algorithm
uncertain algorithm
10 years ago

While I’m always skeptical of gold, I think that Mish provides a better defense of the yellow medal than I could (or would, as I don’t like the idea of investing in gold as a commodity): Gold does well in times of economic stress, especially in the senior currency – in this case the US dollar. It is the only commodity whose long term trendline is intact from 2000. Gold is money and as money it should do well in deflation in the country of the senior currency. It did. In credit-based system, especially where credit dwarf money supply, credit… Read more »

Sam
Sam
10 years ago

Retirement accounts funded during a marriage are NOT owned by each individual, they are marital assets. I understand the default advice given in this article, I agree that it generally does make sense to stick with low cost index funds for most people. But, we’ve been working towards doing more and more self directed investing, i.e. investing in particular stocks. This type of investing can actually be less expensive because there is just a trading fee, not a management fee for a mutual fund or fund fee for and index fund. At present we are using small amounts of money… Read more »

David/moneycrashers
David/moneycrashers
10 years ago

The best part of the post is that woman stating that most financial advisors don’t really know what’s going on…or better yet, they don’t really know much that you can’t learn for yourself.

More power to the DIY investors.

Earin
Earin
10 years ago

@JD As I said in the end, the main use of gold is preservation of ones wealth. During crisis gold is the only wealth preserving asset that exists – the dollar or stocks aren’t. Why do you think Governments and Federal Reserve Banks also have Gold? Because it is s shiny? What did people value most during war and big crisis? Some colored paper? Some stocks? Some electronic number in a banc account? What did happen with all the money people put into banks like lehman brother and others? Any left? The last 30-40 years stocks etc. might certainly have… Read more »

Old Historian
Old Historian
10 years ago

Thanks for the column, JD. Well-written and compelling story about what it’s like to meet with like-minded people to help each other sort out the issues associated with trying to make the most of our investments, with the least risk. I personally find talking to the Bogleheads/Diehards feels “like coming home” — they are generally fiscally conservative, a bit reserved, likely to not advertise what THEY do, but listen to you and explain what they have learned, and seen work and not work…they are not a bunch of type “A”s, but they do have a (mostly dry and quiet) humor,… Read more »

Bruce
Bruce
10 years ago

A couple of points. 1. The first is if you want to compare stock market, real estate, gold returns over the last 100 years it is best if you do it on a global (and not American) scale. Now, I anticipate the global returns could likely repeat themselves over the next 100 years as well, but I doubt the US is going to have nearly as big of a piece of the pie that it did. The US had a tremendous benefit due to the world wars that destroyed productive capacity across the globe. 2. Americans don’t set the price… Read more »

Dan
Dan
10 years ago

The simplest advice for an intelligent person, but novice investor, is to use your best judgement and hire a fee-based investment advisor. If you have no knowledge of markets, even thinking of investing in individual stocks or commodities is a terrible idea.

Even mutual funds become confusing when you consider open/closed, fees, manager performance, etc.

Adam J
Adam J
10 years ago

I do some stock picking. I invest in companies with technologies that I feel will be important in the next few years. These technologies are within my field, by the way, and I feel like I have a pretty good handle on the direction things are going from a technology standpoint, so I leverage that. Obiously I do check the financials to make sure I’m not throwing money at a company that is haemorrhaging cash, but it’s mainly driven by my understanding of their product and the problems it solves, the way their solutions work from a technical standpoint, first-hand… Read more »

Tyrel
Tyrel
10 years ago

I know I’m going to get a lot of heat with this question, but has anyone considered using a financial planner, even at a young age? We’re throwing together a site to bridge the gap between investors and advisors… but just wondering if anyone uses an advisor to help understand their needs?

Kevin M
Kevin M
10 years ago

Million Dollar Journey said:

“I’m in agreeement, index investing is the best strategy for most DIY investors out there as it takes the emotion out of investing and requires very little upkeep and research.”

I disagree, I don’t think there is ever a set-it-and-forget-it method when it comes to investing. If there is anything the last few years have taught me, it is that I need to keep an eye on long term trends in the market and try my best not to get caught in another bubble.

Shara
Shara
10 years ago

I want to hear about your conversation about windfalls. I’ve always thought the psychology of windfalls is interesting and really demonstrates your “It’s more about mind than math”.

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