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 an article 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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There are 37 comments to "Dinner with the Diehards: A Chat About Investing".
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?
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 in the past several months staying pretty much in a close range. Because of that, I have stated puttin some money into dividend paying stocks with some pretty high yields. Since I won’t need the capital for a while (I hope), I am not too concerned about how the underlying stock does.
Nice article!
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.
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.
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 someone paying for green fees for your golf hobby), then I don’t see a problem with it. It’s a great way to see beyond the funds and indices, and see and analyze the companies that comprise them. Personally, though, I keep my stock picking and analyses purely theoretical ;p
You really should do a Glengarry Glen Ross take of ABS…Always Be Saving! First place, you get to “early retirement”, and spend your life secure financially. Second place, you organize your checkbook and start a budget. Third place…there is no third place!…you end up living paycheck to paycheck! Brilliant…
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 should I try to beat the market.” The truth is that the mutual fund system is flawed and there are several factors that prevent mutual funds from outperforming while individual investors still can. For one, you are not pigeonholed into one investment strategy or asset class like mutual funds are. You have the flexibility to move with the market, and aren’t required to be 80% invested in stocks at all times. Also, you can keep your transaction costs lower than the 1-2% you’re paying the mutual fund each year by using a discount broker.
The secret that no one wants you to know is that there are hundreds of ways to beat the market returns. The key is to do your own research, practice, and find a system that works for you. And don’t think for one second that investments that are “overvalued” can’t still go up for years or that “undervalued” investments must go up. I do very well by buying stocks that are at all time highs and holding them until they start to go down. I will never sell at the absolute top, but I’m usually holding the market leaders, which will rise the most in favorable conditions. And if the market turns, I don’t hold them.
The two keys to remember about investing have been and always will be to “cut your losses quick and ride your winners” and that “the market can remain irrational longer than you can remain solvent.”
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.
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 together) but not what the funds are, and I manage my own funds too, as if he didn’t exist. Worse case, if either of us become widowed, our retirement savings are exactly what we would have wanted them to be. Best case, we live a long retirement together and merge funds then, but in the meantime we are both contributing a decent amount. Otherwise, we are joint everything today — savings, checking, loans.
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.
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).
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).
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.
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 good time at work!” How does that work? (And this is not a rhetorical quesiton – I’m very curious how folks like you envision the future)
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 a business, classic automobiles, antique’s, real estate, land, livestock, schooling, investing in a start-up business, etc.
I have never understood the fascination with the stock market for those who don’t follow it closely. The rule I have always followed is do not invest in anything you do not understand or cannot control.
Most people do not understand the markets, and virtually no one has control over them. At least when you pick an individual stock you control the ownership. Mutual funds, including index funds remove the control aspect completely.
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 they see fit, and if one person’s allocation doesn’t work out so well, the couple is still fine. One couple gets to try TWO ways of doing things; it’s like having automatic backup, since you never really know what’s going to happen and how things are going to turn out.
Thanks for a great post, and for linking to the Bogleheads forum! I may have to get in on that. And get my husband in on it too! 😀
@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 has been our only truly joint account.
Our retirement accounts belong to each of us as individuals, and ultimately she and I make our own decisions about what do with them. Having said that, I think we both recognize that eventually the other person may need to rely on that money. While our present income and expenses are individual, when we’re older, things really may have to merge. And because of this, we listen to what the other person has to say. Does that make sense?
So while we don’t have joint retirement accounts, we make choices based on shared goals.
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…
One often used exemple is the following. 100 years ago you could get a tailored suit for 1 ounce of gold. Now you can still get a tailored suit for an ounce. Let’s so how much you can get for 1000 dollars in 100 years…
No one says you should invest everything you have in gold. But it should have a place in every portfolio
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 refused, and the “leaders” asked that everyone move to this new forum where they could immediately ban anyone expressing “unapproved” views. The rest is history!
All that said, I link to the Bogleheads.org discussions at my “Passion of the Day” feature more frequently than I link to any other site. I completely agree that the Bogleheads are smart as smart can be and that MOST community members there are friendly as can be as well. The problem is that the few bad apples happen to be the people with power over what can be said at the board. I think it would be fair to say that the integrity of the board was compromised in a very serious way on the day honest posting was banned and that this reflects poorly on the entire community that meets there.
I certainly wish the Bogleheads the best. I believe that there will be a day when I will again be posting and interacting with all my friends there on a daily basis and we will all once again be learning exciting stuff about investing in general and indexing in particular.
Indexing is wonderful but we must permit honest posting at all investing boards and blogs if we are to overcome the mistakes that were made when Bogle and the others developed the beta version of Buy-and-Hold, which contains some very dangerous stuff in it (the big problem is the failure to warn investors of the need to lower their stock allocations when prices reach insanely dangerous levels).
Rob
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!
@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 100 years ago, you’d bought bonds instead? And how many tailored suits could you buy if you’d put that money into stocks?
I don’t have the answers in front of me, but I do know that the long-term real (after-inflation) return on gold and real estate is about 1%. The long-term real return on bond is about 2.4$. And the long-term real return on stocks? About 6.8%, which is on average 5.8% per year more than gold.
I could have a couple of hundred tailored suits if I’d put that money into stocks instead of gold.
Gold vs. cash isn’t the correct comparison — it’s gold vs. anything else. And in that case, gold almost always loses.
@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.
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 his wife, he would have to come up with the money for his half himself, his wife isn’t expected to just give it to him now, so why would she be expected to give it to him in retirement? It’s fine to do separate finances that way if it works for you, but I don’t get why this division stops at retirement, especially if JD never had a financial turnaround, that would have been very unfair that his wife spent her working years saving and then has to pay his way when he retired.
And this isn’t about dictating or even caring about the other’s investments, it is about CHANGING your OWN allocations to meet the other’s half way — JD’s example was that he wanted an 80-20 split but put his own money into a 60-40 split. That’s different than him putting it into an 80-20 while his wife did 40-60, as they likely have different amounts in their accounts to start with and put different amounts in regular contributions. It’s not trying really trying two ways of doing things if they both change their allocations to moderate when one really wanted risky and one really wanted safe.
I understand why JD cares with his comment that in retirement that their money will probably merge and now they have shared goals. Without those shared goals NOW I really don’t understand how that would work in retirement to start merging without one taking advantage of the other.
EDIT: For the comment below me: no one said that if you don’t have joint everything that you hate each other – the question is why do separate living expenses now, separate goals, live financially as if you are unrelated roommates with no say in each other’s daily finances, and then care what the other is investing in for retirement? I don’t see why it is any meaner to say no to paying for a trip for you when you are 30 than when you are 70. No one is assuming that in retirement one would let the other starve – that’s what social security is for anyway.
#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 on our credit card statements, and because we know what we bought, we don’t have to chase one another down to ask about what the charges are. I know what I bought on my credit card, he knows what he bought on his, and any charge we do not recognize is fraudulent, and we can deal with it right then and there, rather than have to wait to clarify with another person.
And Ely already talked about the investment aspect. We can invest as we see fit, and if one of us makes a bad decision, we can fall back on the other person.
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 and their investors.
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.
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!
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 itself (and the value of credit marked-to-market on the balance sheets of banks) is of paramount importance.
Those who insist inflation is about prices, as well as those who view inflation as an increase in money supply alone (ignoring credit), are going to continue to get the economic picture wrong.
If you are focused on prices or money supply alone, you are focused on the wrong thing.
In a fiat credit-based economy, where credit dwarfs money supply, changes in credit is what’s important, not changes in money supply, not nominal changes in prices.
It’s as simple as that.
We are not experiencing the same economic issues as other time frames, and I’m afraid that other analogies won’t work this time around. That being said, if commodities continue their rise (and I think some will), gold wouldn’t be the greatest choice. People will eat long before they’ll need gold.
But Mish has a point; the Federal Reserve won’t be able to waive its magic wand out of this crisis (nor the government for that matter). And I dislike the idea of my tax dollars – only coming from cash holdings – going to the unemployed. Holding on to commodities encumbers the government from taxing it; they don’t know it exists (assuming you hold to commodities off the electronic system).
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 but we have had some good success but also recognize that based on when we bought we likely could have bought anything and it would have gone up (we bought a good chunk in March/April 2009).
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.
@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 been the best return on invest. But the next few years are going to b very difficult and uncertain. Especially for the US and Europe.
And I repeat. Don’t invest everything in gold. But the same as real-estate, some stocks, gold should be in your portfolio
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, and unlike many investors you can find on the internet, seem to mostly have nothing to prove, and just want to genuinely share the knowledge.
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 of gold. So, if you’re basing your judgement on gold based on the commercials in the USA there is another 95% of the world who could care less. What should matter is what the Chinese, Japanese, Indians, etc think of gold. Would they prefer it to the USD? Would they prefer it to their own fiat currency?
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.
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 knowledge using their products, etc.
Of course, and I think this is key, this is done more for fun than to make money. It’s “extra” money.
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?
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.
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”.