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It always baffles me when my highly paid engineering coworkers refuse to manage their own investment portfolios and insist that a professional needs to do it. A

by geor9e 2y ago

It always baffles me when my highly paid engineering coworkers refuse to manage their own investment portfolios and insist that a professional needs to do it. All you have to do is buy a Vanguard index fund ETF at Interactive Brokers or something similar. They have such agency and competence in everything else, but think finances are unknowable. Even just a 0.5% fee adds up to a huge percentage of your net worth gone after a few decades.

chii 2y ago
The thing is, contrary to normal expectations, experts in financial investments don't come with expected increase in returns. You surely don't normally expect people to be their own doctors, or electricians, or any sort of professional work themselves (other than their own field). And yet, it is not the case for financial investment. This is counterintuitive, despite being absolutely true. But without decent exposure to the literature and education about it, it is very easy to not know or find it baffling that a low cost index fund is the optimal for the average person. Not to mention the myriad of tiktoks and finfluencers claiming otherwise!
- danielmarkbruce 2y ago
  Hmm i wrote almost the exact same thing at the exact same time...
- lostmsu 2y ago
  This is wrong for most professions except doctors, who actually can't be their own doctors for obvious reasons.
  - geor9e 2y ago
    >who actually can't be their own doctors for obvious reasons. Is it weird that I, thought by many to be a smart and worldly person, have zero clue what any of those "obvious" reasons would be? I have an engineering degree and I'd be my own engineer. I might get second opinions, i.e. chit chat with co-workers, but not for everything.
danielmarkbruce 2y ago
It's actually quite counterintuitive for many folks than an index fund could beat a pro. In most fields, trained professionals add value. It's also not known to many folks in concrete fields like engineering that some fields/disciplines are mostly total bs. Like, 90% of economics and finance is absolute nonsense. Once you add those together, it's not surprising to see what you are seeing.
- eduction 2y ago
  I’m a Jack Bogle diehard index investor, but the idea that most economics and finance is BS strikes me as deeply incorrect. Not everything is long term retirement investing. Most car and home owners in this country would be SOL without modern finance, for starters, and I suspect a great many vacations would simply never happen if credit cards didn’t exist. Even renters these days live in buildings largely financed by either banks, reits, private equity, etc and underpinned by securitization. And when it comes to business lending the entanglements with corners of financial services that look nothing like mutual funds only get more extensive. Just because you don’t know much about it doesn’t meant it’s nonsense.
  - kortilla 2y ago
    > most economics and finance is BS strikes me as deeply incorrect But it’s true based ok numbers. All of these “professionals” as a whole are not beating passive investors. Modern finance isn’t the reason we have credit cards. Those were common 30+ years ago. Additionally, someone taking a vacation they can’t afford that they finance via credit cards is not an example of success.
    - eduction 2y ago
      No, “modern” does not mean “in the last 30 years,” but credit cards have evolved extensively in that time. Without contemporary (vs modern ) credit cards you don’t have airbnb, you don’t have online airline booking, you are not putting things on your visa in other states much less other countries. Credit cards have changed a LOT. If you think debt is the main way credit cards enable travel you are missing a ton. But the fact is that is a key function too, regardless of whether you approve. Most of the country and world are not living as comfortably as folks on this board. Appreciate what we have instead of dismissing a whole industry as useless. It seems useless until it goes away, sort of like the police, competent politicians, etc etc. I’m a passive investor too but there needs to be some ACTIVity happening for those index funds to make money. Startups, restaurants, hair salons, housing developments, and factories don’t get any money without expensive humans you dismiss as useless making decisions in the field of financial services and economics.
zaik 2y ago
A 0.5% fee doesn't seem unusual also for an ETF. Or am I being ripped off?
- hiddencost 2y ago
  Being ripped off hard. Shovel your money into VTSAX, get .04% . Fidelity actually has lower fees.
- geor9e 2y ago
  It doesn't seem unusual to folks, because marketing teams circulate that number for the dozens of banks and startups salivating for your blood, I mean business. I'd advise you to do the compounding math in a spreadsheet to see what exactly that fee becomes after 30 or 40 years. But if you want to skip the spreadsheet, it's in the magnitude of 0.005*years as one would intuitively expect. Meaning, in 30 years, a whole 15% of your final net worth was stolen by that 0.5% fee alone. Half a percent a year at a time. Compare that to Vanguards 0.03% - or in 30 years, less than 1% of your net worth stolen. I'd rather give up 1% of my life savings than 15%. Especially when it's proven time and time again that you get nothing in return for that fee.
alecco 2y ago
It's still wrong advice. Stocks are not the only way to invest your savings if you are retail. Money markets are less fashionable but much better at the moment but those don't give juicy commissions and arbitration to the financial industry. Index funds fueled this stock bubble. And BlackRock/Vanguard knew exactly how to play it. P/E makes no sense, and nothing else makes sense. Good luck.
- geor9e 2y ago
  You might be completely right - stocks have historically had famous crashes. But they've always recovered in time, because they represent ownership in productive businesses. A great tool to see the exact numbers for stocks over the last 150 years is http://www.moneychimp.com/features/market_cagr.htm http://www.moneychimp.com/features/market_cagr.htm The main takeaway is they fluctuate a lot, so if you need a guaranteed profit in 10 years they're not for you. But if you'll probably leave your money in 20 years, you'll probably double or quadruple your buying power by the end. That risk is why index ETFs with a retirement target year in the name shift your porfolio to treasury bonds, as the target year approaches. There's a lot of people in your camp that think the stock market's a bubble. And there's a lot of people in the camp that AI is going to become a multiplier on the GDP, warranting further growth. And all these ideas are priced in. I'm young with high risk tolerance so I'm still 100% stocks. But I still advise people to manage their own portfolio and just choose their ratio of index funds to treasury bond, according to risk tolerance. The tickers I'd use are VTI for stocks (risky but averaged 9.3% for 150 years) and VUSTX for treasury bonds (4.3%). Buying those two things is super simple - no manager siphoning off 0.5% (i.e. 10-15% by retirement) needed.

by geor9e 2y ago

chii 2y ago

The thing is, contrary to normal expectations, experts in financial investments don't come with expected increase in returns. You surely don't normally expect people to be their own doctors, or electricians, or any sort of professional work themselves (other than their own field). And yet, it is not the case for financial investment. This is counterintuitive, despite being absolutely true. But without decent exposure to the literature and education about it, it is very easy to not know or find it baffling that a low cost index fund is the optimal for the average person. Not to mention the myriad of tiktoks and finfluencers claiming otherwise!

danielmarkbruce 2y ago
Hmm i wrote almost the exact same thing at the exact same time...
lostmsu 2y ago
This is wrong for most professions except doctors, who actually can't be their own doctors for obvious reasons.
- geor9e 2y ago
  >who actually can't be their own doctors for obvious reasons. Is it weird that I, thought by many to be a smart and worldly person, have zero clue what any of those "obvious" reasons would be? I have an engineering degree and I'd be my own engineer. I might get second opinions, i.e. chit chat with co-workers, but not for everything.

danielmarkbruce 2y ago

It's actually quite counterintuitive for many folks than an index fund could beat a pro. In most fields, trained professionals add value. It's also not known to many folks in concrete fields like engineering that some fields/disciplines are mostly total bs. Like, 90% of economics and finance is absolute nonsense. Once you add those together, it's not surprising to see what you are seeing.

eduction 2y ago
I’m a Jack Bogle diehard index investor, but the idea that most economics and finance is BS strikes me as deeply incorrect. Not everything is long term retirement investing. Most car and home owners in this country would be SOL without modern finance, for starters, and I suspect a great many vacations would simply never happen if credit cards didn’t exist. Even renters these days live in buildings largely financed by either banks, reits, private equity, etc and underpinned by securitization. And when it comes to business lending the entanglements with corners of financial services that look nothing like mutual funds only get more extensive. Just because you don’t know much about it doesn’t meant it’s nonsense.
- kortilla 2y ago
  > most economics and finance is BS strikes me as deeply incorrect But it’s true based ok numbers. All of these “professionals” as a whole are not beating passive investors. Modern finance isn’t the reason we have credit cards. Those were common 30+ years ago. Additionally, someone taking a vacation they can’t afford that they finance via credit cards is not an example of success.
  - eduction 2y ago
    No, “modern” does not mean “in the last 30 years,” but credit cards have evolved extensively in that time. Without contemporary (vs modern ) credit cards you don’t have airbnb, you don’t have online airline booking, you are not putting things on your visa in other states much less other countries. Credit cards have changed a LOT. If you think debt is the main way credit cards enable travel you are missing a ton. But the fact is that is a key function too, regardless of whether you approve. Most of the country and world are not living as comfortably as folks on this board. Appreciate what we have instead of dismissing a whole industry as useless. It seems useless until it goes away, sort of like the police, competent politicians, etc etc. I’m a passive investor too but there needs to be some ACTIVity happening for those index funds to make money. Startups, restaurants, hair salons, housing developments, and factories don’t get any money without expensive humans you dismiss as useless making decisions in the field of financial services and economics.

zaik 2y ago

A 0.5% fee doesn't seem unusual also for an ETF. Or am I being ripped off?

hiddencost 2y ago
Being ripped off hard. Shovel your money into VTSAX, get .04% . Fidelity actually has lower fees.
geor9e 2y ago
It doesn't seem unusual to folks, because marketing teams circulate that number for the dozens of banks and startups salivating for your blood, I mean business. I'd advise you to do the compounding math in a spreadsheet to see what exactly that fee becomes after 30 or 40 years. But if you want to skip the spreadsheet, it's in the magnitude of 0.005*years as one would intuitively expect. Meaning, in 30 years, a whole 15% of your final net worth was stolen by that 0.5% fee alone. Half a percent a year at a time. Compare that to Vanguards 0.03% - or in 30 years, less than 1% of your net worth stolen. I'd rather give up 1% of my life savings than 15%. Especially when it's proven time and time again that you get nothing in return for that fee.

alecco 2y ago

It's still wrong advice. Stocks are not the only way to invest your savings if you are retail. Money markets are less fashionable but much better at the moment but those don't give juicy commissions and arbitration to the financial industry. Index funds fueled this stock bubble. And BlackRock/Vanguard knew exactly how to play it. P/E makes no sense, and nothing else makes sense. Good luck.

geor9e 2y ago
You might be completely right - stocks have historically had famous crashes. But they've always recovered in time, because they represent ownership in productive businesses. A great tool to see the exact numbers for stocks over the last 150 years is http://www.moneychimp.com/features/market_cagr.htm http://www.moneychimp.com/features/market_cagr.htm The main takeaway is they fluctuate a lot, so if you need a guaranteed profit in 10 years they're not for you. But if you'll probably leave your money in 20 years, you'll probably double or quadruple your buying power by the end. That risk is why index ETFs with a retirement target year in the name shift your porfolio to treasury bonds, as the target year approaches. There's a lot of people in your camp that think the stock market's a bubble. And there's a lot of people in the camp that AI is going to become a multiplier on the GDP, warranting further growth. And all these ideas are priced in. I'm young with high risk tolerance so I'm still 100% stocks. But I still advise people to manage their own portfolio and just choose their ratio of index funds to treasury bond, according to risk tolerance. The tickers I'd use are VTI for stocks (risky but averaged 9.3% for 150 years) and VUSTX for treasury bonds (4.3%). Buying those two things is super simple - no manager siphoning off 0.5% (i.e. 10-15% by retirement) needed.