Investment Thread

[The Gordog]

Have been planning for full retirement for several years now. Have built various models to represent our current holdings/savings and project savings needs/implications over the remaining income-earning years.


Q1: Models include projected Social Security benefits as a part of our annual income. How should we value these numbers? At a 100% of estimated benefit? Something less based on concerns for program solvency? I reach age 62 in 2025. Wife in 2027.


Q2: What's a useful/sensible compounded annual growth rate to use in my models for $$ parked in the market for a 20-year run?

I'm way late to this party, but just in case some others may benefit:

A1: My firm (Garrett Investment Advisors) recommends subtracting 1% for every year between now and your full retirement age. If you are 55 like me that would be 67-55 = 12(%). There are three factors at play here. First, the political risk of reductions. It may be minimal, but it is non-zero. Second, the fact that increases do not truly keep up with inflation in the sectors that seniors consume disproportionally more than the rest of society, namely healthcare. Third, lots of people stop working before their targeted retirement date due to forces beyond their control. This is important because your benefit is based on your best 35 years of income. Let's say you are a college professor, and you took a while to get your Ph.D. You may not have significant income until age 30. If you stop working at age 60, you will have five years of near-zero income. Your estimate will have assumed you kept working right up to age 67 and will thus overstate your actual benefit.

A2: The answer depends entirely on your risk tolerance. Not everyone can tolerate the volatility of an all-stock portfolio, even with a 20-year time horizon. If you have accumulated significant assets, you may wish to reduce exposure no matter how long your outlook is. The largest barrier to successful investing is emotional decision making (fear and greed). If you are invested out of synch with your risk tolerance, you will likely succumb to one of those emotions. So find a fee-only, fiduciary advisor who has a tool (I use Riskalyze, but there are others) that can pinpoint your risk tolerance with more specificity than the old-school Conservative/Moderate/Aggressive buckets. The advisor should be able to match your investments to your risk and tell you what the long-term expected return is. For most people, unless you have an unusually straightforward portfolio, this is not something you can do yourself, unfortunately. The good news is that an hourly planner should be able to do a checkup like that for a one hour fee.

[YmoBeThere]

Schwab lowered online trading commissions to zero this week. Several others followed suit.

[Reilly]

Schwab lowered online trading commissions to zero this week. Several others followed suit.

I saw that from TDAmeritrade. Here's an article about it all -- driven by Robinhood: https://www.cnbc.com/2019/10/02/the-...p;par=sharebar

[fuse]

I'm way late to this party, but just in case some others may benefit:

A1: My firm (Garrett Investment Advisors) recommends subtracting 1% for every year between now and your full retirement age. If you are 55 like me that would be 67-55 = 12(%). There are three factors at play here. First, the political risk of reductions. It may be minimal, but it is non-zero. Second, the fact that increases do not truly keep up with inflation in the sectors that seniors consume disproportionally more than the rest of society, namely healthcare. Third, lots of people stop working before their targeted retirement date due to forces beyond their control. This is important because your benefit is based on your best 35 years of income. Let's say you are a college professor, and you took a while to get your Ph.D. You may not have significant income until age 30. If you stop working at age 60, you will have five years of near-zero income. Your estimate will have assumed you kept working right up to age 67 and will thus overstate your actual benefit.

A2: The answer depends entirely on your risk tolerance. Not everyone can tolerate the volatility of an all-stock portfolio, even with a 20-year time horizon. If you have accumulated significant assets, you may wish to reduce exposure no matter how long your outlook is. The largest barrier to successful investing is emotional decision making (fear and greed). If you are invested out of synch with your risk tolerance, you will likely succumb to one of those emotions. So find a fee-only, fiduciary advisor who has a tool (I use Riskalyze, but there are others) that can pinpoint your risk tolerance with more specificity than the old-school Conservative/Moderate/Aggressive buckets. The advisor should be able to match your investments to your risk and tell you what the long-term expected return is. For most people, unless you have an unusually straightforward portfolio, this is not something you can do yourself, unfortunately. The good news is that an hourly planner should be able to do a checkup like that for a one hour fee.

Is there a tool like Riskalyze for consumers/investors? The marketing on their website looks interesting.

[YmoBeThere]

I saw that from TDAmeritrade. Here's an article about it all -- driven by Robinhood: https://www.cnbc.com/2019/10/02/the-...p;par=sharebar

Yeah, the stocks of the companies involved sank due to the news. One analayst noted that the declines were approximately proportional to the revenue each company generated from trading commissions. So, the declines did make some sense.

[fuse]

Online trading fees are like ATM fees.
Really don’t make a whole lot of sense other than a blatant corporate cash grab.

I wish I had ideas, I still think there has to be a better shared risk model between financial advisors and investors that would benefit both.

I’ve still not dipped my toe into roboinvesting; guessing it is a matter of time.

[budwom]

Online trading fees are like ATM fees.
Really don’t make a whole lot of sense other than a blatant corporate cash grab.

I wish I had ideas, I still think there has to be a better shared risk model between financial advisors and investors that would benefit both.

I’ve still not dipped my toe into roboinvesting; guessing it is a matter of time.

Yes, there definitely needs to be a good shared risk model. Lacking that, a competent "advice for a fee" person can be helpful, one who does NOT want to personally fondle your money, just give advice.
I continue to be appalled and saddened by the prevailing model of "advisors" who put clients into "investments" (I use the term loosely) which pay handsome fees to the advisor...Scandalously bad, self-serving behavior, and it's come to be widely accepted.

[Reilly]

... there definitely needs to be a good shared risk model. Lacking that, a competent "advice for a fee" person can be helpful ...

We've seen the stories over the years of athletes who've made tens of millions of dollars, yet end up broke/declaring bankruptcy. I've long thought "a competent 'advice for a fee' person" would be the answer there. Athlete, I will *not* take X% of your earnings; rather, you pay me a flat fee (reasonable) and in return I tell you where to put your money ... and I'd make them pay off a condo for themself, for their mom, and set up some minimum guaranteed income for life ... then give them the rest to blow through how they wish ...

I believe Bob Barnett (https://www.wc.com/Attorneys/Robert-B-Barnett) uses a pay-for-services model for athletes (may have repped Grant in some matters) ... rather than a "I'll take X% of the deal" type arrangement ...

[budwom]

We've seen the stories over the years of athletes who've made tens of millions of dollars, yet end up broke/declaring bankruptcy. I've long thought "a competent 'advice for a fee' person" would be the answer there. Athlete, I will *not* take X% of your earnings; rather, you pay me a flat fee (reasonable) and in return I tell you where to put your money ... and I'd make them pay off a condo for themself, for their mom, and set up some minimum guaranteed income for life ... then give them the rest to blow through how they wish ...

I believe Bob Barnett (https://www.wc.com/Attorneys/Robert-B-Barnett) uses a pay-for-services model for athletes (may have repped Grant in some matters) ... rather than a "I'll take X% of the deal" type arrangement ...

yes, it's truly tragic how many athletes have squandered their money with insane "investments." I do understand the forces at work, as many of these guys had not much growing up...suddenly having a lot of cash presents enormous
problems (as well as opportunities). I have often thought that somehow, players associations should get behind the concept of BIG percentages of salaries being placed in some kind of escrow, but I do understand how paternalistic that is...

[YmoBeThere]

I thought the shared risk model was all these hedge funds that started up and retained a not insignificant potion of the founders assets?

[budwom]

I thought the shared risk model was all these hedge funds that started up and retained a not insignificant potion of the founders assets?

I believe their standard is the two and twenty model: they keep two percent of your assets each year no matter how they perform (nice for them) and 20% of the profits...so they don't exactly share that much risk at all. Maybe you're referring to something else, though...from what I hear, the two and twenty model is under some pressure...

[left_hook_lacey]

yes, it's truly tragic how many athletes have squandered their money with insane "investments." I do understand the forces at work, as many of these guys had not much growing up...suddenly having a lot of cash presents enormous
problems (as well as opportunities). I have often thought that somehow, players associations should get behind the concept of BIG percentages of salaries being placed in some kind of escrow, but I do understand how paternalistic that is...

I thought I saw a documentary once that explained how leagues like the NFL and NBA had a training(mandatory?) course on personal finance that all rookies had to complete after before the start of their first season.

I think all college graduates should have to attend a course like that before their first job.

I'm a novice at investing, but I'm 1,000% more knowledgable than I was in my early 20's. I had no idea at all until meeting with a 401k advisor at work.

My parents either didn't know about investing, were too poor to invest, or are secretly millionaires and haven't told me yet. 😂

[bundabergdevil]

I saw that from TDAmeritrade. Here's an article about it all -- driven by Robinhood: https://www.cnbc.com/2019/10/02/the-...p;par=sharebar

Just received a notice from USAA that they are doing the same through April 2020.

[budwom]

I thought I saw a documentary once that explained how leagues like the NFL and NBA had a training(mandatory?) course on personal finance that all rookies had to complete after before the start of their first season.

I think all college graduates should have to attend a course like that before their first job.

I'm a novice at investing, but I'm 1,000% more knowledgable than I was in my early 20's. I had no idea at all until meeting with a 401k advisor at work.

My parents either didn't know about investing, were too poor to invest, or are secretly millionaires and haven't told me yet. 😂

Regarding financial education, I have no idea what Duke does, but I would (theoretically) love to put together a program for our one and done participants to really get them to understand how important it is to be aware of financial issues...management issues as well (hello, Zion)...

[Bluedog]

I believe their standard is the two and twenty model: they keep two percent of your assets each year no matter how they perform (nice for them) and 20% of the profits...so they don't exactly share that much risk at all. Maybe you're referring to something else, though...from what I hear, the two and twenty model is under some pressure...

There was a recent Planet Money podcast that convered this. I too thought the two and twenty model had largely been usurped. Somewhat surprisingly (to me at least) is that their analysis found the average hedge fund fees are something like 1.7% AUM and 18% performance. So while not quite 2/20 anymore, still pretty darn close apparently.

[budwom]

There was a recent Planet Money podcast that convered this. I too thought the two and twenty model had largely been usurped. Somewhat surprisingly (to me at least) is that their analysis found the average hedge fund fees are something like 1.7% AUM and 18% performance. So while not quite 2/20 anymore, still pretty darn close apparently.

Business Week just had an article about this...the BIG move these days is to private equity, and they still, by and large, get the two and twenty percents...hedge funds are on the descent now....
Furthermore more, the private equity industry has done a TON of lobbying, and as such they have retained their tax break which taxes much of their earnings as capital gains (even if they ordinarily wouldn't be)...

https://www.bloomberg.com/quicktake/private-equity

[JNort]

Hey all, I was just wondering what, if any recommendations some of you may have for learning about and getting started when it comes to investing in stocks?

For reference I have money saved up that's not doing much just sitting in my account which I realize is much better than most of America but it feels wasted there. If I wanted to take 5k of it and look towards options where should I start looking? Excluding 401k and Roth IRAs that is because I already have both.

If you don't feel comfortable sharing on this thread please feel free to PM me and it would be greatly appreciated. You don't need to share your own secrets but direction here at the minimum would be nice, cause I know nothing on this stuff and when I try to read up on it I get lost quickly. Makes sense considering growing up I only ever failed a single class... Finance. At least I'm consistent, so best to consider me a child when discussing this stuff.

[Jeffrey]

Hey all, I was just wondering what, if any recommendations some of you may have for learning about and getting started when it comes to investing in stocks?

For reference I have money saved up that's not doing much just sitting in my account which I realize is much better than most of America but it feels wasted there. If I wanted to take 5k of it and look towards options where should I start looking? Excluding 401k and Roth IRAs that is because I already have both.

If you don't feel comfortable sharing on this thread please feel free to PM me and it would be greatly appreciated. You don't need to share your own secrets but direction here at the minimum would be nice, cause I know nothing on this stuff and when I try to read up on it I get lost quickly. Makes sense considering growing up I only ever failed a single class... Finance. At least I'm consistent, so best to consider me a child when discussing this stuff.

I'd recommend this book...

https://en.wikipedia.org/wiki/The_Li...ense_Investing

[YmoBeThere]

One up on Wall Street - Peter Lynch

[Jeffrey]

One up on Wall Street - Peter Lynch

Would you give your child a stock picker’s book?

Don’t misunderstand me, it’s a solid read for someone wanting the responsibility of selecting individual stocks.