On the Money... (Financial Advice/Lessons)

[dismalist]

(Clean--yes! I remember you from OtM and thought your comments were really useful.)

As for "beating the market," like I said, I'm still quite new to this, but to my thinking there's a wide wide margin of difference between investing in Index funds (like those from Vanguard or Fidelity) that basically track the whole/or some subsection of the market and the GameStop Whatever-That-Was that happened.

I always thought you basically needed to be a financial guru with everything perfectly in place AND I thought you needed to be rich before you were allowed to think about investing. I think of myself as a pretty conservative investor in equities... pretty much funds.

Absolutely!

But one must be aware of the risk in any individual investment or combination of investments and be willing to bear it.

High return requires high risk! Or luck. Or insider information. :-)

[clean]

I always thought you basically needed to be a financial guru with everything perfectly in place AND I thought you needed to be rich before you were allowed to think about investing. I think of myself as a pretty conservative investor in equities... pretty much funds.

I am not saying that everyone can be or beat a professionally employed investor.  For one thing they have a lot more resources and they are paid to think about this every day, day in and day out.  However, there are a lot of reasons that small investors can do just as well as 'the big boys'.

While Peter Lynch (retired from the Magellan Fund) was one of the greats, in his books, "One up On Wall Street" and Beating the Street (if I remember the titles correctly), mutual funds have a lot of restrictions that the little guy may not have.  Also, lynch would have suggested investing in What you know.  Perhaps there is a company in your area that is easy to follow for YOU but not going to be followed by those that have to make the trip from the money centers? 
Mutual funds have to invest in companies that have a minimum stock price (sometimes $5 a share, but you can invest in companies that are trading for $3 if they are good values!)
Mutual funds can only invest so much ... There can only be so many 20% owners!  And they usually have to stop investing long before they become 5% owners, so for small firms there is only so much they can put in.  And for THEM, that small amount, even IF it is a 'home run' wont really move their returns much.

Finally, mutual funds have to report quarterly their book. They have to report their top holdings.  You can go to the library , pull up a mutual fund's Morning Star report and see what THEY think are the best stocks (what they are holding!) 

So, yes, you can invest directly in mutual funds, and if that is what makes you comfortable, that is what you should do.  However, IF you are inclined to find good stocks at reasonable prices, there are ways to search for them.  IF you find them before the mutual funds notice, or if you find them before the mutual funds restrictions let them in, you can come out quite nicely, IF You choose to undertake the research! 

There is no sin in investing in mutual funds, though!   

[dismalist]

I don't think that "mutual funds" have come up on the thread. Rather, discussion has been about "index funds".

Mutual funds are managed. The point is to have non-managed assets, because managing is expensive, and management can't do better very well anyway. Thus, index funds beat mutual funds.

[namazu]

I don't think that "mutual funds" have come up on the thread. Rather, discussion has been about "index funds".

Mutual funds are managed. The point is to have non-managed assets, because managing is expensive, and management can't do better very well anyway. Thus, index funds beat mutual funds.

Isn't an index fund (at least sometimes) a subtype of mutual fund?
Also, there are no-load (i.e., commission-free) mutual funds.

[dismalist]

I don't think that "mutual funds" have come up on the thread. Rather, discussion has been about "index funds".

Mutual funds are managed. The point is to have non-managed assets, because managing is expensive, and management can't do better very well anyway. Thus, index funds beat mutual funds.

Isn't an index fund (at least sometimes) a subtype of mutual fund?
Also, there are no-load (i.e., commission-free) mutual funds.

-Could be, I suppose.
-Yes, but they would be managed. Management takes its cut.

[clean]

Isn't an index fund (at least sometimes) a subtype of mutual fund?
Also, there are no-load (i.e., commission-free) mutual funds.

Yes, an index fund is a mutual fund (in that a mutual fund is a company that invests in other companies).
No load, 'Commission free"... Well this gets sticky. They may not have a commission to buy or sell, but they are not 'free'.  The no load funds will charge higher fees, (no matter if they are tracking an index or being managed). 

[dismalist]

We're getting at too many words here. The important differentiation among groups of securities is managed versus non-managed.

-A fund might be managed. This costs money, whether booked as a fee or taken out of capital.

-A fund might be non-managed. This is an index fund, with "fund" meaning nothing. Saves the management fees. One can pick an index as risky or safe, or as narrow or as broad, as one likes.



-One can pick one's own stocks, i.e. manage one's own fund. There's nothing inherently wrong with that, so long as one is aware of the risk/return relationship one is getting into. Then, there's the covariance of returns between pairs of securities, but never mind. :-)

[Volhiker78]

Index funds are great for small investors - probably  everyone in the fora.  It's hard to beat Vanguard in this regard - just a matter of which fund matches what you are comfortable with regarding risk/reward.  I've always reinvested dividends in my bond funds and this has paid off over the long haul.  A much smaller percentage of my portfolio is in individual stocks.  Peter Lynch's book mentioned above was good guidance for me.  I try to find established, undervalued companies with a growth potential that I can understand.  I tend to buy and hold so I make few stock transactions over a year.

[new_anth]

The definitions being provided above would've been *such* a help to me when I started... Just to add my own understanding to the mix:

A fund can be a mutual fund or an ETF (exchange traded fund). They're both "funds" (i.e., groups of stock and so that when you buy one share of either a mutual fund or an ETF, you can a little bit of all the different stocks that make up that fund). A key difference is how mutual funds and ETFs are traded: ETFs can be bought/sold during the trading day, just like any stock; mutual funds are bought/sold only at the end of the day.

An *"index" fund* is a mutual fund or an ETF that's supposed to mirror an "index" like the S&P 500 or Nasdaq 100. Those indexes are groups of stocks that have been selected because they're important and so, in getting an index fund, you're tracking the progress of those stocks. This helps because while individual stocks might have a bad day, the composite indexes trend up over time. The S&P 500 is the index most of my index funds track because it's like a "greatest hits" of US stocks, but there are others to choose from (Nasdaq 100 is tech heavy, for instance).

There are mutual funds and ETFs that don't necessarily track any index, but instead are supposed to give people exposure to certain sectors or industries... so, for example, there's an ETF called iShares MSCI Mexico (ticker is EWW) that basically buys stock in a broad range of companies in Mexico. [point of clarification: I don't own EWW and never have... and I think the ticker is a weird name.]

ETFs tend to have lower expense ratios, but that's not always the case. And ETFs can be "actively managed."

[Vkw10]

I find Humble Dollar useful for financial information. It started as a guide, with short posts like Mutual Fund vs. ETF https://humbledollar.com/money-guide/index-mutual-funds-vs-etfs/, then added daily blog posts by a variety of contributors, most telling brief stories about their own financial lives.

The site is generally aimed at middle class people who are slowly working their way to secure retirements, often while bringing up a family, or who are now enjoying retirement and hoping to leave a bit to their children. I especially like the guide, with its brief explanations. I use the "Buy a House?" entry in one of my classes, as an example of a general rule that has exceptions. I've been focusing on the Roth IRA sections lately, trying to figure out if I want to convert some of my 403b to a Roth IRA early in retirement.

[Hibush]

Here are some specific examples of the cost of several vehicles for investing in a security that tracks the S&P 500 index.

Symbol	Type	Name	Annual Expense per $1000
VOO	ETF	Vanguard S&P 500 ETF	$0.30
SPY	ETF	SPDR S&P 500 ETF Trust	$0.95
VFIAX	MF	Vanguard 500 Index Fund	$0.40
FXAIX	MF	Fidelity 500 Index Fund	$0.15

The S&P index has been cooking along in the 10 to 15%/yr range, so it doesn't make that big a difference whether the cost is 0.1% or half that. What you want to avoid are the funds with expenses >1%.

The 10-year return on these options varies only slightly. $1000 would have turned to $3,500 with a range of $30 from the highest to lowest. You can see that much fluctuation in the course of a week.

[secundem_artem]

I'm getting within spitting distance of retirement.  Frankly, I've avoided all of the usual web sites in favor of having a well diversified portfolio for both my TIAA Cref and my Roth IRA accounts.  I use a private advisor for my Roth investments - of course the fees are higher than TIAA but he's also been advising on my TIAA funds at no charge and I'm doing well in the market.

That said, I am rapidly coming to believe a million dollars ain't what it used to be. 

[clean]

That said, I am rapidly coming to believe a million dollars ain't what it used to be.

Here are 2 articles (probably the same article, posted in 2 locations) from 5 years ago.  I use them in my FInance classes to alert the students that they should be targeting at least $2 Million as a starting point.

https://www.washingtonpost.com/news/get-there/wp/2016/04/25/2-million-is-the-new-1-million/?utm_term=.9989ab039a2a

https://money.usnews.com/money/personal-finance/articles/2016-03-31/is-2-million-the-new-1-million-for-retirement-savings

[dismalist]

Careful, people: One wouldn't want to scrimp and save while young and active to have plenty of cash when old and decrepit -- or dead -- for that matter. :-)

[clean]

Careful, people: One wouldn't want to scrimp and save while young and active to have plenty of cash when old and decrepit -- or dead -- for that matter. :-)

Nor would one want to fiddle youth away and have no other options but to work to make ends meet when 'old and decrepit'.

I am sure that there is some fable about ants and grasshoppers.

(though I think that the unpublished end is that the ants eat the grasshopper before the end of the winter!)