Learn More About Money from an Investment Group

I love to learn. That's part of what makes me who I am. And so I spend large chunks of time pursuing passions like astronomy and Spanish…and investing. Sometimes I'm asked if I have a method for picking up new skills and new knowledge. “Not really,” I say. “I just try to keep an open mind and to absorb as much information as possible.”

As you've probably noticed around here, I try to never say “THIS IS THE WAY THINGS ARE!”. Sure, at any give time I have a set of beliefs — I currently believe index funds are the best investment for me (and many others), for example — but I'm never so locked into any given belief that I'm unwilling to change my mind.

So, I continue to explore opposing viewpoints. I listen to new ideas. And, every once in a while, one of these new ideas will stick, will change the way I think. That's the way I learn.

Passive investing — with an open mind
For me, one of the best ways to learn about money is by listening to others who have been successful. I've found it profitable to seek out mentors, for instance. Plus, I like to gather with groups of like-minded folks to share ideas. So, once or twice a year, I attend the meeting of a local investment group — the Diehards.

I've written about the Diehards a couple of times before (2008, 2010). This is a report on the most recent meeting.

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.

 

As followers of John Bogle, you might expect most of these folks to be passive investors, but that's just not the case. Many of these folks are actually active investors (though everyone seems to make decisions informed by the principles of passive investing). This group has a wide variety of approaches to investing based on their own goals, risk tolerance, and opinions about the economy. But each person comes to these meetings ready to learn more about investing, and to share their stories.

Keeping a level head
Most members of the group are retired. I'm not. I feel like this gives me an advantage. I'm able to pick the brains of people who are twenty or thirty years older than I am. For instance, every meeting I learn something new from Bruce about preferred stock.

Bruce teaches in the financial planning program at a local university. He's a vocal advocate of preferred stocks, which are a sort of hybrid between bonds and common stocks. “I don't need capital appreciation,” he says. “I want capital preservation. And income.” It's all Greek to me, but it's also intriguing. Now I want to learn more about preferreds. (To find out more about preferred stocks, check out Quantum OnlineI'm going to!)

At this meeting, I sat next to a woman named Kris (just like my wife). At the last meeting I attended, she stressed the importance of always being a saver. At this meeting, Kris said she no longer worries about market downturns. “I've been investing since 1968,” she said. “I've been through this three or four times now, depending on how you count. I don't like when the market drops, but I also know that if I wait five years, then things will be fine.”

Loren, too, tries to keep an even keel when it comes to investing. “I don't try to make my rebalancing too accurate,” he said. “I've never been sure what the right balance is in the first place!”

Andy says that he does his best to follow the investment mantra “buy low, sell high”. “When something's down, I buy it,” he told us. “It's hard — it goes against human nature — but I do it. I try to stay broadly diversified.”

This led the discussion back to Harry Browne's permanent portfolio. There are many ways to approach safe, steady investing, but Brown has some specific recommendations for his own Permanent Portfolio:

  • 25% in U.S. stocks, to provide a strong return during times of prosperity.
  • 25% in long-term U.S. Treasury bonds, which do well during prosperity and during deflation.
  • 25% in cash in order to hedge against periods of “tight money” or recession.
  • 25% in precious metals (gold, specifically) in order to provide protection during periods of inflation.

Because this asset allocation is diversified, the entire portfolio performs well under most circumstances. One of our members practices this investment philosophy, and has done well with it. He actually hopes to write a book providing a modern update of the technique.

Near the end of the meeting, Bruce pointed out that a recent article in the Journal of Financial Planning once again showed the terrible, terrible drag of expenses on the returns of the average investor. (You can read the article here.)

Strength in numbers
It's certainly possible to learn about investing from books and blogs and magazines. But I think meeting and exchanging ideas with other people adds a new dimension to the subject. That's why I think 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.

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Emily Hunter
Emily Hunter
8 years ago

I’d really thought that visits to investment clubs would be quite boring, with plenty of irritating old investors talking about subjects that would have interested me had I understood what they were talking about. You’ve shed some light on it – though now I just need to get something to invest! 🙂

BB
BB
8 years ago

I like index funds too. I invested in them for nearly 20 years, until spouse and I decided we needed professional help reaching our retirement goals.

Perhaps, J.D., you might consider write a post on picking and working with a professional financial consultant one day.

SB @ One Cent At A Time
SB @ One Cent At A Time
8 years ago

Learning is always welcome to me. Whichever route it comes, through investment club or reading blogs. There’s a online investment club ‘iClub’ I want to pursue that one first, before joining local clubs.

Before I started blogging I had no clue about Tax Lien investing. We learn everyday and we should be open to it. Even if your investment is giving you excellent return, you might learn even a better investment in these clubs.

Nicole
Nicole
8 years ago

I read an article somewhere that people who joined investment groups tended to make more risky stock purposes and trade more frequently than they should, thus dragging down real returns with fees. Investment groups encourage active rather than passive investing, on average, but passive investing is actually better.

If one were to join an investment group, the best option would probably be to make sure it was through the Bogleheads.

Nicole
Nicole
8 years ago
Reply to  Nicole

purchases, not purposes

Mike Piper
Mike Piper
8 years ago

I can’t recommend the Bogleheads Forum highly enough. There’s really no better place to go for a second opinion on one’s portfolio. I had the chance to attend the official Bogleheads reunion this year — what a great time. In addition to meeting Jack Bogle himself, I got to meet and chat with authors William Bernstein, Rick Ferri, Allan Roth, and Mel Lindauer. The reunion is open to everyone, but the spots fill up quickly after it’s announced on the forum. This was the first year I moved fast enough to secure a spot. Would love to meet some GRS… Read more »

Bruce
Bruce
8 years ago
Reply to  Mike Piper

I agree with Mike. Bogleheads is the place to go to get a second (or even first) opinion on ones portfolio. The knowlegebase is great. The only downside I’ve seen is that it is a bit xenophobic at times favoring USA centric ideas and allocations.

El Nerdo
El Nerdo
8 years ago

I love posts like these and I’m always surprised they don’t get more responses, but I suppose people have little to say here compared to subjects like “tell us what you do for _____,” which are always blockbusters (people love to talk about themselves).

Still, just chiming in to say please keep these posts coming… they are highly educational, even for those of us who are just getting out of debt, or struggling to amass a 6-month emergency fund. They offer a preview of attractions to come and the motivation to keep going.

babysteps
babysteps
8 years ago
Reply to  El Nerdo

Also, love the links – the article about what portion of investment returns accrue to the financial firms vs. the investor was great!

Alex
Alex
8 years ago

Wow, I’ve never heard of such investing clubs before. They sound really interesting and I am personally interested in learning more about preferred stocks myself. I think the asset allocation proposed in the Permanent Portfolio is quite conservative, but that may be just because I’m fairly young for this audience. Thanks for sharing!

Ross
Ross
8 years ago
Reply to  Alex

I agree that the allocation proposed in the permanent portfolio seems extremely conservative for anyone under 50. In my opinion, there is no point to having cash in your portfolio if you have a decent emergency fund. A couple other things that don’t make sense about that portfolio: -25% in gold? I am not anywhere near that scared of inflation, but if I were I would prefer TIPS since they offer 99% of the security against default, are just as good against inflation, and are not subject to wild price swings. Gold can go down as well as up! Also,… Read more »

the frugallery
the frugallery
8 years ago

I was a member of an investing group years ago. If I were to do it over again, I would seek one out on my own instead of getting invovled with friends. I ended up going along with decisions because I didn’t want to upset anyone. No one really knew what they were doing and most of the purchases were made based on brand-awareness rather than the company’s financial status/forecast.

Kolton
Kolton
8 years ago

I have been putting a lot of my time and effort into learning from the ‘ink’ (books and blogs) but you truly make a good point. It is a better and smarter choice to invest your time with other like-minded investors. There are great advantages to both of these strategies, but nothing beats being able the ‘pick’ the brain of a likewise investor.

Carrie Hetu
Carrie Hetu
8 years ago

There is something to be said about learning in numbers. I have often thought of getting involved in an investment group. What do you think would be some of the con’s of an investment group?

Elaine
Elaine
8 years ago

The inherent problem with index funds is you will only ever get average returns. Hey, that’s fine to spread out the risk in a small portfolio, but true asset allocation would involve investing beyond funds.

Additionally, there is a modest price inflation simply because a company is held in all the major indexes regardless of underlying strength.

Anyway, JD! Can you write more about how to find investment groups?

Brian
Brian
8 years ago

One way to get better than average returns on an index fund is to put more money in when it goes down. It seems funny that a huge fund like vanguard Wellington would drop so much with such stable stocks and 30 percent bonds, but it does. People sell when the market goes down and you can increase returns by taking advantage of that without having to research the best companies.

John Pilch
John Pilch
8 years ago

In the section “Keeping a level head” I thought that it was implied that those who keep their heads don’t invest in anything… exciting (i.e. something other than preferred stock and bonds). I think you can still have a good head on your shoulders while investing in slightly more risky stocks, just know exactly what you’re getting yourself in to before you do it!

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