Investment Thread

[Jeffrey]

- Any thoughts on peer to peer lending? I'm thinking stuff like Prosper.

Personally and professionally, I think unsecured personal loans currently offer the best risk adjusted lending returns. I got aggressive, in this market, 2-3 years ago.

Personally, I bought Lending Club stock but sold it shortly thereafter. After more research (which a prudent investor would have done before buying), I was not impressed by management and sold immediately upon Goldman's entry. IMO, solid management should be able to make serious green with the spreads. Goldman will.

I also considered buying actual Lending Club loans, but the scale was not sufficient for my needs and desires. So, I personally started doing direct unsecured personal loans.

IMO, someone with lending knowledge, skills, and abilities can successfully utilize P2P lending as a current alternative to bond investing, provided the scale is worth their effort.

[Bluedog]

Anyone using the Personal Capital website/app?

I've heard good things. I view it as an alternative to Mint, which I've been using for many years (I like that Mint was started by a Duke dorm mate of mine, Aaron Patzer). I will admit Mint was better before it was bought by Intuit.

I've used Personal Capital for the last several months -- I like it. The general take is that Mint is better for budgeting/personal finance and Personal Capital is superior for investing/asset allocation. Given that I pay more attention to the latter myself, it suits my needs. Some people don't like financial aggregation tools as they think it adds another potential security breach, but I'm not overly concerned with that given my large accounts have two-factor authentication on. Personal Capital is great for net worth trends, asset allocation, seeing your personal return, and just having everything nicely in one place. I use an Excel to track my allocation anyways, but having the return is interesting (although I don't think it's 100% accurate given the complexities around tracking all transactions and positions, but it's close enough).

Note that they WILL reach out to you with a phone call to offer financial advice/services at the beginning, but I politely declined and it stopped (if you don't answer, they WILL continue to call/email). I think I did get a few calls the first couple months, but haven't gotten anything since, so wasn't too bad of a nuisance. They sell it as "free" at first, which I'm sure it is, but want you to eventually pay for advisor services is my understanding. But I'm not interested in those services, so I don't pay them anything. By and large, the interface is really slick and easy to use and I find it helpful and interesting, so I'm a fan.

[Bluedog]

Personally and professionally, I think unsecured personal loans currently offer the best risk adjusted lending returns. I got aggressive, in this market, 2-3 years ago.

Personally, I bought Lending Club stock but sold it shortly thereafter. After more research (which a prudent investor would have done before buying), I was not impressed by management and sold immediately upon Goldman's entry. IMO, solid management should be able to make serious green with the spreads. Goldman will.

I also considered buying actual Lending Club loans, but the scale was not sufficient for my needs and desires. So, I personally started doing direct unsecured personal loans.

IMO, someone with lending knowledge, skills, and abilities can successfully utilize P2P lending as a current alternative to bond investing, provided the scale is worth their effort.

I'd agree, but the marginal increase in return is not worthy my effort personally. I'm lazy and for my "fixed income portfolio" am primarily using stable value (in 401k) as well as CDs and Money Market funds (which are finally paying reasonable rates again and you can get tax-free ones with a municipal MM, 1.3% tax-free isn't the worst). Not going to get 4-5% returns like bonds have historically returned, but if you want to avoid the bond market and have low volitility/risk assets, those are the alternatives I'm choosing for now.

[Reisen]

That's good. Very good. But you got started at a good time (post internet bubble) and the GFC, while painful on a percentage basis, didn't likely cost you a lot of dollars (because you were early in your saving/investing career). The rub will come when you have a significant portfolio and the market tanks. Sticking to your plan then won't be nearly so easy.

This is true. Because I married before the GFC, my wife works, and I manage both of our investments, I (we) had more saved in 5 years than had I been single. That said, I'm amazed how many people I know have moved out of equities going as far back as 2011, or 2014, or around the last election.

I think what actually formed my viewpoint was badly mistiming the housing market. We bought in 2005, and would have bought sooner, but I kept reading about housing bubbles. If we had pushed that up 12-24 months, we would have saved a massive amount of money. "Experts" scared me off in 2003 and 2004, and even though we were upside down for a while after the GFC, I'm still glad we bought in 2005 and didn't wait any longer.

[fuse]

Great, let's discuss.

You've owned a bond fund and elected to invest a very small percentage into it. Why?

You've owned stock funds during 2008 & 2009 and prudently did not liquidate, correct? You know that over an extended period of time (such as the 20-25 years until you retire and the 30+ years you will hopefully live in retirement) stocks will most likely earn the best returns, correct?

Do you believe interest rates will increase (maybe, substantially) during the next 24 months? If so, would now be a good time to invest in a bond fund?

If you would prefer an alternative to stocks, then my next post may address a better option.

Not sure I have great answers, so perhaps I’ll start with the always applicable “the ceiling is the roof”.

The best answer I would have is risk management and avoiding volatility.

The next best answer would be my broker CFP generating a little bit of FUD on my portfolio being too aggressive/too risky.

Diversification might be another answer.

Still thinking about your questions :-)

[fidel]

Not sure I have great answers, so perhaps I’ll start with the always applicable “the ceiling is the roof”.

The best answer I would have is risk management and avoiding volatility.

The next best answer would be my broker CFP generating a little bit of FUD on my portfolio being too aggressive/too risky.

Diversification might be another answer.

Still thinking about your questions :-)

I like the cliffhanger.

Knowing that rates will increase (the tax cuts are going to overheat the market is my uneducated guess), its a good question how to prepare.

The stock market is at an all-time high, interest rates low but rising.

I wouldn't go all stocks, as that just brings more risk than the bond fund depression due to increasing rates.

While bond fund valuations will fluctuate, the bonds themselves will still produce mediocre returns as long as they are held. So the question is do you care about the fluctuation (will you sell and therefore realize the losses) or is that just the bump in the road to where bond returns are higher (they will be, rates are increasing) and the valuation returns as well.

Are you going to suggest out of bonds and into cash?

Which gets me to this being a great time to borrow money.

[Jeffrey]

For those who invest in a 401k, here's a couple questions...

How much are the administrative cost and who pays them (employee or employer)? The administrative cost pay for the day-to-day operation of a 401k plan such as plan record keeping, accounting, legal and trustee services.

How much will employee, instead of employer, paid administrative cost decrease your 401k's projected balance when your retire?

What are your options if you are paying high 401k administrative cost?

[Reisen]

For those who invest in a 401k, here's a couple questions...

How much are the administrative cost and who pays them (employee or employer)? The administrative cost pay for the day-to-day operation of a 401k plan such as plan record keeping, accounting, legal and trustee services.

How much will employee, instead of employer, paid administrative cost decrease your 401k's projected balance when your retire?

What are your options if you are paying high 401k administrative cost?

I work for a large company (70k employees). Ours is $14.50 per quarter, paid by the employee (ie. $58 per year). Employees with balances below $5k are exempt.

[Jeffrey]

I work for a large company (70k employees). Ours is $14.50 per quarter, paid by the employee (ie. $58 per year). Employees with balances below $5k are exempt.

Exactly, that makes all the difference. I think we will see a very significant difference, if someone working for a small company (less than 100 employees) posts their fees.

I also suspect many, maybe most, people do not know the answer.

[fuse]

Exactly, that makes all the difference. I think we will see a very significant difference, if someone working for a small company (less than 100 employees) posts their fees.

I also suspect many, maybe most, people do not know the answer.

I searched my corporate intranet and can’t find a reference for a fee anywhere. I’m going to keep looking and in the meantime remain naively cautiously optimistic there is no fee and the company is bearing the cost.

[Jeffrey]

I searched my corporate intranet and can’t find a reference for a fee anywhere. I’m going to keep looking and in the meantime remain naively cautiously optimistic there is no fee and the company is bearing the cost.

Yep, it's a dialogue some employers do not want to have. Some disclosures commingle it with other fees making it hard to determine. Legally, it must be disclosed.

[YmoBeThere]

Administrative fees paid for by my company except for fees tied to loans as well as changes due to Domestic Relations orders.

Asset based fees of between 0.02%(S&P 500 fund) to 0.41%(Real Return fund invested in TIPs, commodities, and real estate).

[InSpades]

I work for a large company (70k employees). Ours is $14.50 per quarter, paid by the employee (ie. $58 per year). Employees with balances below $5k are exempt.

Out of curiosity I looked up my own... I work for a US subsidiary of a very large foreign corporation. Our administration free was $16.50 per quarter (so $66 per year). Seems pretty reasonable. Nothing about the fee being waived for low balances.

[fuse]

Controversial question to lure out some more professional perspectives on money management.

Why are there not more shared risk models in money management?

The industry standard seems to be 1%, win or lose.

I’d love to see a model where the client and manager can agree on a growth target, and then move to a shared profit model.

For example, the money manager might offer a contract to guarantee a 10% return, and accept the risk for underperforming means no pay, in return for a split of gains above 10%. At 15%, a 50/50 split would mean the client realizes 12.5%, and the money manager 2.5%.

I know the above model is wishful thinking/dreaming.

I just know I’d feel better about asking someone to manage money on my behalf if I felt like that person had a vested interest in mutual success.

Good idea, or bad idea? Why or why not?

[YmoBeThere]

Why do that when you could charge 2 and 20?

[budwom]

Controversial question to lure out some more professional perspectives on money management.

Why are there not more shared risk models in money management?

The industry standard seems to be 1%, win or lose.

I’d love to see a model where the client and manager can agree on a growth target, and then move to a shared profit model.

For example, the money manager might offer a contract to guarantee a 10% return, and accept the risk for underperforming means no pay, in return for a split of gains above 10%. At 15%, a 50/50 split would mean the client realizes 12.5%, and the money manager 2.5%.

I know the above model is wishful thinking/dreaming.

I just know I’d feel better about asking someone to manage money on my behalf if I felt like that person had a vested interest in mutual success.


Good idea, or bad idea? Why or why not?

Great idea, but it would ruin the nationwide scam of money management (yes, I know, there are some good advisors out there).

[Rock-of-Truth]

For example, the money manager might offer a contract to guarantee a 10% return, and accept the risk for underperforming means no pay, in return for a split of gains above 10%. At 15%, a 50/50 split would mean the client realizes 12.5%, and the money manager 2.5%.



Good idea, or bad idea? Why or why not?

Bad idea especially for an investor with a lower risk tolerance. Instead of focusing on the investor and their goals and objectives an adviser will focus purely on return, ignoring the risk factor. Even more so, Guaranteed 10%!?!?! Talk about irrational exuberance.

[Jeffrey]

IMO, a lot of what a pro does is very expensive babysitting. IMO, retail investors are wasting massive amounts of money due to their unwillingness and failure to assume accountability and responsibility for their financial future. Lack of financial discipline, laziness, and ignorance are costing most retail investors much more money than they will ever realize. Heaven help the fools!

[Jeffrey]

Why do you assume that a DIYer will stick to his or her plan when the going gets tough? The research suggests that few do. In fact, I recall even many dedicated Bogleheads bailing in 2008.

One of many examples of lack of financial discipline.

[Ggallagher]

I retired two years ago and had the good fortune to have had access to a 401-K plan that did well throughout my career and had a generous matching funds feature. All of us should be so lucky . Anyhow, after I retired I realized there was one thing I could have done more wisely, so I thought I'd share it here in case it can help anyone else.

My "problem" was that I was able to contribute a substantial amount of after-tax money into the same account that held all my pre-tax contributions. Obviously having a nice pile of money that's sort of complicated to un-pile isn't the worst thing that can happen to someone in retirement. Fortunately I had an opportunity to segregate those funds after I retired, and that's going to make using the money in the future easier, and it also shields me from some tax losses that I would have incurred if the money had remained together in the same account.

That said, I have a few caveats:

1. This may only have direct, current application to any of you who are in a similar situation to me - I'm 68, and began investing in my 401K and some IRA's pretty much at the earliest opportunity I had about 35 years ago. It is that situation that provided me with a window that allowed me to break apart my pre-tax and after-tax funds.

2. I can't answer much in the specifics of how this window works. I would not have known about it if it hadn't been pointed out by an advisor with the company that manages my former employer's (International Paper) retirement funds for their retirees -- that management group is the Empower Company. Also I would not have taken advantage of it had I not signed up to have part of my retirement money managed by our bank (Fifth-Third here in Cincinnati). I was kind of bothered by how desperate the Empower advisor was for me to make the change - it really seemed like a super hard sell. And my personal financial advisor at Fifth Third was not initially aware of the window I could use. She checked with one of the bank's senior advisors, and he came back with, "Yes he can do this, and he should do it right now". Turned out to be good advice.

2a. And before I get to the last caveat, at least in my case, I'd say that engaging the financial advisor at the bank was a good move. While I was very pleased with how my retirement planning had worked out for my over the last thirty or so years of my career, it turned out to be pretty helpful to have a professional advisor to bounce questions off. And thankfully, the chunk of money I moved from my old 401k into the bank's management has performed very well over the last two years.

3. Lastly, for those of you following this thread who still have a way to go before you retire, while the above info will likely not apply directly to you (the window will be gone, Congress will change the laws, or who knows what...). It's still something that you should figure into your planning and stay on top of.

Don't know if this will help any of you - but it certainly was beneficial for me.