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kaz
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Individual investment Primer
Jan 12th, 2020 at 11:21am
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How to invest.   First, what not to do as an individual investor.  Fundamental analysis or technical analysis.   Why?

Technical analysis - Technical analysis is looking at trends in stocks and buying and investing quickly (often day trading).  There are lots of books and tools.  The bottom line is that while there is academic evidence that in a transaction free environment technical analysis can slightly increase your returns, those systems never over the long run beat the transaction costs you are constantly incurring along the way.

Fundamental analysis - Fundamental analysis works ... for institutions.  It does not work for individuals.  Why?  They know more than you do.  You're working with a subset of the information they have.  And they know EVERYTHING that you do and more unless you're insider trading, in which case you're going to jail anyway.

This is good news, not bad news.  Why?  Because you can leverage THEIR fundamental analysis.   They've already done it for you.  The prices are already far more accurate than you could ever do on your own.  So don't waste your time and effort.

So how do you leverage their work?  Focus on four things.  Diversification, transaction costs, fund management costs and taxes.

Diversification.  I invest in 10 funds inside tax sheltered (IRA) accounts.  9 are Vanguard ETFs.  One is the Vanguard High Yield fund (junk bonds).   I like Vanguard ETFs because of the super low costs.  But I've never found a junk bond fund as good as the Vanguard open ended junk bond mutual fund.  So it's the one non-ETF I own.

Those ETFs are carefully selected to cover US stock (large & small cap), international stock (large, small, developed, emerging), bonds (US & international) and REITs (US & International). 

Cash:  I have my cash transactions (CDs, t-bills) on rolling schedules so a portion comes up every year for renewal.  This is for when I retire, so I don't have to sell things prematurely to raise cash.

Transaction costs.  I just almost never sell investments other than for taxes (below).   I just steer new money in to continually rebalance.

Fund management fees.  Those ETF charge as little as a few hundredths of a percent a year compared to funds an adviser will sell you of often even 2%.

Taxes  For my money outside my IRA, I buy an array of stocks.  I donate appreciated stocks rather than cash to charity.  You can deduct the full stock value, including the gains.  You can also write off $3K in tax losses per year.  So, imagine you have the following portfolio:

Stock 1:  $10,000 (with a $3,000 gain)
Stock 2:  $5,000 (with a $2,000 loss)
Stock 3:  $8,000 (with a $100 gain)
Stock 4:  $7,000 (with a $200 gain)

You can donate stock 1 to charity and write off the full $10,000, including the $3,000 gain without paying tax on the gain).  You can sell stock 2 and write $2,000 on your taxes.  You can just hold stocks 3 and 4 and reinvest the $5,000 from selling stock 2 into something else.   Within your mutual funds, there are lots of gains and losses, but you can't do this because you can only deal with the net totals of the fund.  So outside your tax sheltered account, you want to effectively have your own fund.

It's good if you have lots of tax sheltered money so your overall portfolio stays diversified though when you do this.





Advisor  One other thing.  People are so stupid the way they hire advisers.  When you let them steer you to loaded funds, you easily pay 10s of thousands a year for investment advice.  It's far better to hire an adviser who does NOT get paid commission but you write a check to.  It's amazing that people will not write a check for say $1,000, but they will pay $20,000 from their fund so they don't see it.  Asinine.

I don't hire help, don't need it.  But it's critical to realize if you do
  

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SkyChief
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Re: Individual investment Primer
Reply #1 - Jan 12th, 2020 at 11:44am
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kaz wrote on Jan 12th, 2020 at 11:21am:
People are so stupid the way they hire advisers. . . .

I don't hire help, don't need it.  But it's critical to realize if you do

I was lucky to find a top-shelf investment planner. 

He's VERY expensive, but he delivers.   I've been getting 14% returns on my investments since 2007.  Which is outstanding performance. . .  better than he promised.

I meet with him every year to evaluate performance, but my eyes glaze over because he gets into some deep shit and uses investment hypotheses I don't understand.  We always end up with "If it ain't broke, don't fix it."

My portfolio today is essentially identical to what it was 12 years ago.   Grin
  

Governments will always devise ways to deprive an honest man of his money or property, and claim that it's legal.
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kaz
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Re: Individual investment Primer
Reply #2 - Jan 12th, 2020 at 11:59am
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SkyChief wrote on Jan 12th, 2020 at 11:44am:
I was lucky to find a top-shelf investment planner. 

He's VERY expensive, but he delivers.   I've been getting 14% returns on my investments since 2007.  Which is outstanding performance. . .  better than he promised.

I meet with him every year to evaluate performance, but my eyes glaze over because he gets into some deep shit and uses investment hypotheses I don't understand.  We always end up with "If it ain't broke, don't fix it."

My portfolio today is essentially identical to what it was 12 years ago.   Grin 


From your last comment, it sounds like he and I have similar views.

In the end though, there is no free lunch.  In finance, you get risk adjusted returns for your investments.  That means higher returns are for higher risk.  There's no way around that.  That's why I focus on diversification and costs.   Those are in my control.

The key is the pay structure.  I hope you write him a check and he's not selling you loaded funds.  That's ALWAYS the way to do it.  If he's the real deal, he would always agree to that.

BTW, EVERYONE tells me they have the most wonderful financial adviser.  EVERY SINGLE PERSON.  That's the primary role of a salesman, right?  To make you feel reassured, hold your hand and pat your back? 

I'm not saying he's not good.  Just you should question if he is actually good at finance or at managing you.  Because EVERY SINGLE FVCKING PERSON In the country has the most amazing, wonderful investment adviser.  And I know for a fact it's a sleazy industry that gives overall terrible, self serving advice
  

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SkyChief
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Re: Individual investment Primer
Reply #3 - Jan 12th, 2020 at 12:23pm
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kaz wrote on Jan 12th, 2020 at 11:59am:
I'm not saying he's not good.  Just you should question if he is actually good at finance or at managing you.  Because EVERY SINGLE FVCKING PERSON In the country has the most amazing, wonderful investment adviser.  And I know for a fact it's a sleazy industry that gives overall terrible, self serving advice.
I'm very happy with the man.  He said BEFORE I hired him (or even met him) "I will get you 12% returns on your portfolio." 

The portfolio has performed better than he promised - 14% returns.
  

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kaz
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Re: Individual investment Primer
Reply #4 - Jan 12th, 2020 at 12:34pm
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SkyChief wrote on Jan 12th, 2020 at 12:23pm:
I'm very happy with the man.  He said BEFORE I hired him (or even met him) "I will get you 12% returns on your portfolio." 

The portfolio has performed better than he promised - 14% returns.


OK, but that didn't address anything I said.

Your financial salesman has no magic investments that I or anyone else don't have access too.

If you're paying your financial salesman loads, someone else could give you the same advice a whole hell of a lot cheaper.

Does he ever call you and say wow, amazing development!  Blah blah blah.  You need to move some money into this quick!

He doesn't know shit.  He just found out his kid needs braces and he needs to generate some loads.

Again, it's absolutely amazing that I know what a self serving, sleazy industry it is, and I can't find one person who doesn't just have the most amazing financial salesman where they get just amazing, spectacular returns.

BTW, how do you know what you're getting?  Your financial salesman told you?  Those stats are highly manipulable.

Here's one trick.  They have a loser fund for a decade.  So they sell it and don't count the losses in the return.  The "14%" is only appreciation of the investments you still own.

It's like a football game.

The Rams won, 21-17!

Um, no, they didn't.   They lost 24-21.

Yes they did.  The CB who gave up that TD, the team waived him.  So the TD he gave up doesn't count and we won!

Um ... no, it doesn't work that way ...
  

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SkyChief
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Re: Individual investment Primer
Reply #5 - Jan 12th, 2020 at 2:41pm
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kaz wrote on Jan 12th, 2020 at 12:34pm:
Does he ever call you and say wow, amazing development!  Blah blah blah.  You need to move some money into this quick!
He has NEVER done that.  He has on occasion called me to suggest that I remain calm and not get caught up in trading hype.  And I'm glad he did. 

kaz wrote on Jan 12th, 2020 at 12:34pm:
. . I know what a self serving, sleazy industry it is, and I can't find one person who doesn't just have the most amazing financial salesman where they get just amazing, spectacular returns.

BTW, how do you know what you're getting?  Your financial salesman told you?  Those stats are highly manipulable.
Again, he's not a financial salesman.  He's a retirement planner.

My retirement plan has worked perfectly for 12 years, and we have no regrets.  When I kick, my stock annuity transfers to the wife.  At that time she can liquidate it (capital gains taxes might apply), or leave it alone.
  

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kaz
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Re: Individual investment Primer
Reply #6 - Jan 12th, 2020 at 3:16pm
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SkyChief wrote on Jan 12th, 2020 at 2:41pm:
He has NEVER done that.  He has on occasion called me to suggest that I remain calm and not get caught up in trading hype.  And I'm glad he did


That's a good sign that he does have some integrity even if you're overpaying him

SkyChief wrote on Jan 12th, 2020 at 2:41pm:
Again, he's not a financial salesman.  He's a retirement planner


Unless you're talking about a CPA or someone you're paying by the hour out of your pocket, that's still a salesman.  It's like saying he's not a car salesman, he's an Audi salesman

SkyChief wrote on Jan 12th, 2020 at 2:41pm:
My retirement plan has worked perfectly for 12 years, and we have no regrets.  When I kick, my stock annuity transfers to the wife.  At that time she can liquidate it (capital gains taxes might apply), or leave it alone.


OK.  But you could get the same and pay less.  Hire a CPA or financial planner you pay out of your pocket by the hour to give you advice only.  Meaning you do NOT give them the money to invest.  They give you a plan and you go buy Vanguard and other low cost funds yourself.

Doesn't it bother you at all that financial sales are filled with high cost, low moral con men who's job it is to make you feel comfortable and sell you, and yet every freaking person in the country tells you they don't have that, they have a great adviser?

Doesn't it make you question at all?  That's all I'm trying to do, make you question it.  I don't know your adviser.  But I do know if they're selling you loaded funds, their interest isn't aligned with yours
  

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kaz
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Re: Individual investment Primer
Reply #7 - Jan 12th, 2020 at 4:12pm
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SkyChief wrote on Jan 12th, 2020 at 2:41pm:
When I kick, my stock annuity transfers to the wife.  At that time she can liquidate it (capital gains taxes might apply), or leave it alone.


BTW, annuities are a terrible way to invest.  They come with, you guessed it, high fees!  They're great for your financial salesman.

There is only one reason that I know of to turn an inheritance into an annuity.   If the person you're leaving money to is financially irresponsible and you don't trust leaving them with a block of cash.  Otherwise, there are way cheaper ways to invest in the same thing.

Gawd I hope it's not tied to some sort of universal or whole life policy.  Those are even worse for fees.   And they come with an insurance provision you almost certainly don't need at your age.

I believe from what you've said you're retired and your kids are grown.  There are only two reasons you'd have a life insurance policy at this point.

1)  Your wife was a stay at home mom and your retirement income is almost all you.  So if you died, she'd have nothing to live on

2)  You have some sort of special circumstance like say you have a child you care for who is permanently mentally or physically disabled and if you died, the money isn't there to care for them.

Other than that, you should not have a life insurance policy much less whole or universal life other than to make your financial salesman rich.

A couple other warning flags.

1)  They have you invested in munies.   Unless you're misleading me about your income (which you have every right to do) and you're in the top tax bracket, you should never own munis.  Why?  They are priced for people in the top tax bracket.  Yes, they are State tax free, but they pay lower interest because of it.  Unless you're in the top tax bracket, you shouldn't even consider them. 

2)  Your financial salesman has you buying strips in a non-tax sheltered account.  NEVER do that.  Strips accelerate taxes.  They get slightly more interest, but not enough to offset the accelerated taxes.  Buying them in tax sheltered accounts depends on several factors, it's less obvious either way
  

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SkyChief
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Re: Individual investment Primer
Reply #8 - Jan 12th, 2020 at 4:22pm
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kaz wrote on Jan 12th, 2020 at 3:16pm:
Doesn't it make you question at all?  That's all I'm trying to do, make you question it.  I don't know your adviser.  But I do know if they're selling you loaded funds, their interest isn't aligned with yours
He doesn't sell loaded funds.  Like I said, my portfolio is the same as it was when I established it 12 years ago. It has grown in value by re-investing, but the funds are the same ones I started with.

I got the  'set-it-and-forget-it' plan.  It has worked perfectly, so I have no reason to question it. 

He even sends us a Christmas card each year.   Smiley
  

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kaz
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Re: Individual investment Primer
Reply #9 - Jan 12th, 2020 at 5:15pm
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SkyChief wrote on Jan 12th, 2020 at 4:22pm:
He doesn't sell loaded funds


So he works for free?  You don't write him a check and he doesn't sell you loaded funds?   Wow, sounds like a great guy.   How does he eat?
  

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