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I know what a mutual fund is. I can even engage in a semi-literate discussion involving things like alpha, beta, inverted yield curves, and etc. On the other hand, I’d be lost in an in-depth conversation with the likes of a Grossman, Clements, or certain other HD contributors. So how much knowledge does one actually need to manage their own investments without the need for paid help?
There isn’t that much to know. Stock or bond ETFs, what percentage in each and start investing early in your life. As much as you can.
I tried it for a long time. I think it works, I think
https://humbledollar.com/forum/dart-board-investing-what-me-worry-i-may-not-be-a-good-example/
A quote from Jason Zwieg of the Wall Street Journal: “It’s remarkable how much you have to learn to find out how little you need to know.”
If I went from debt to Powerball winnings, I think I would hire someone. As a normal investor over decades, starting with a few good books and your bank/brokerage site would maybe be a good first stop. As Jonathan headed education at a bank, I would be curious to know if he thinks the banks/brokerages do a good job for the new investor. I cannot keep up with the amount of material that Fidelity and Morgan Stanley kick out. TIAA could do a better job, ironically for all their work in the education industry. I started by reading Your Money or Your Life way back and went from there.
So much depends on both the investor and the advisor. If you combine an ignorant investor with an unscrupulous advisor, all kinds of mayhem can result. Favoring fee-only fiduciaries will help. But before an investor walks into an advisor’s office, he or she needs at least some financial education. All too many, alas, go in totally ignorant — which is astonishing when you think of the financial stakes involved.
Not much, just the basic concepts and learning to be patient and let time work its magic. Avoid chasing rainbows and pots of gold.
I have no doubt I could have accumulated more or paid less in taxes, But I still met my goals doing it myself. Here is a link to my blog and a post about what my investments have done in the last year, good, bad or so, so.
What I do know I learned from listening to others and reading. Expert? Not close. Satisfied? Very much.
How do I know? I measure myself constantly against averages and median. Net worth overall, by age, by active or retired, by location. By total investments, by where we stand in income and net worth percentiles. I’ve done that for decades. I don’t like being average or median.
If you have enough, and it sounds like you have more than enough, why on earth would you bother with comparisons? There are a lot of people in the world who have more than I do, and a very great number who have less. So what?
So what is right. It means nothing to anyone except me. It is how for decades I measured my progress.
Keep in mind I started work after high school as a union mail boy at minimum wage while I watched many high school friends off to college – Harvard, Princeton, etc. I had personal goals to achieve and financial measures were one way to do it.
Sixty some years later I have nothing to prove and “so what” is fair, but I can’t help myself.
I assume that your notion of average is the mean. The median and mode are two other measures that are also commonly considered types of averages. Please consider this a friendly note for your future reference.
I used average and median so yes, mean and median. If average is the mean, what’s wrong with what I used?
Because average isn’t always used to refer to the mean, your use required readers to infer that you were referring to the mean. It also sounds a bit weird to say I don’t like being average or median when median is a type of average.
Yep, slow and steady win the race.
I need to spend a little time on your blog. An un-leashed Quinn has got to be fun!
From my experience you don’t need alot of investing knowledge. The first book on investing I purchased wat Jonathan’s “25 Myths You’ve Got to Avoid..”. That and along with his “Getting Going” columns in the WSJ covered most everything important. If you follow what is taught there, you’ll be in pretty good shape.
That said – you do need more than just investing knowledge to manage your investments. Most importantly, you need to know yourself. What are your goals, tolerance to risk/volatility, strengths and weaknesses with regard to managing finances…etc.
To the question, mastering only three concepts is required to do it yourself:
Managing Costs.Diversification.Asset Allocation.
I’m relatively new here andthis is my first post .
A couple of books that made me rethink the need (or more accurately did I want to take on the cost both in dollars and performance) for paid help are the Bogleheads guide to investing and the Bogleheads guide to the three fund portfolio. The Bogleheads guide to investing makes the point eloquently about the cost of a advisor on a percentage. In the last couple of years I picked up an online financial management tool called Wealthtrace that then made me completely comfortable doing it on my own. It provided me with a detailed analysis of my situation and allowed me to run various scenarios to look and my tax liabilities. You can get more help when needed, on an hourly basis. I paid to have my plan looked over by someone at Wealthtrace on an hourly basis ( who is a CFP) and we did it in 45 min, best money I ever spent because it gave me peace of mind.
The retirement section of Humbledollar is a tremendous read as well and provides a tremendous education ( I’m suggesting my son start there).
On the other hand I can’t talk my sister out of her Edward Jones representative managing a large 401K rollover into a bunch of managed funds with high expenses because she doesn’t want to. It’s costing her a large amount of money .. but shes happy and can afford it I suppose.
Some people choose to do it themselves some don’t. It doesn’t take a lot of skill but it does take the will. I will say it can add to peace of mind to be able to have someone available to take a quick look at it from time to time just for validation ( but only on an hourly basis)
Another respected online financial management tool is New Retirement
The idea for this post actually came from talking to a recent retiree friend of mine. He hasn’t rolled his 401k yet. He has interviewed several advisors and isn’t impressed. He’s plenty smart enough. He understands allocation and he knows which ETFs to use to make it happen. But it’s as if he’s looking to become an expert stock picker to beat the market.
Another very good friend of mine is always complaining about paying fees to his advisor. He’s got a nice 7 figure nest egg, so I assume Vanguard would help him diversify properly.
I have suggested to both these guys to take the ETF path. Friend #1 needs to forget trying to become the next Warren Buffett. Friend #2 just need to take the plunge.
But nobody listens to me.
I am convinced that one needs very little knowledge during the accumulation phase of their life. I’m still currently in this phase so I’m confident in this stance. But the complexities around taxation, social security, Medicare, and estate planning have me wondering whether I will need some help later in life.
My hunch is that I will hedge and as I approach retirement, will seek out professional help on a limited basis as issues arise but avoid “assets under management” advisors, instead paying a professional to help with setup and review of a given issue or strategy.
Brent there are some great draw down calculators on the internet to help with retirement planning.
Medicare supplement decisions can be confusing. I use an agent who only does health insurance and Medicare supplements, as well as the ACA. She shops the plans for me every year and is always around to answer any question.
Does that mean she has you in Medicare Advantage? That is often a bad choice as you get older.
Kathy, my agent won’t sell Advantage. Nor a good choice for anyone with assets to protect.
I agree that MA is a bad choice, but in that case do you just mean she shops for Part D plans? In most states Medigap plans are allowed to use medical underwriting which means you are usually stuck with your first choice.
Part D for sure, yes. This year both my and Chris’s premiums dropped to $0.
I have talked to many people who have never had an annual review with their agent.
Regarding our Medigap plans, aren’t we allowed to switch to a different carrier if we keep the same plan?
I suppose I could Google for this question.
Depends on your state. In almost all states the answer is no. I wanted to switch from UH Plan F to Plan G but I failed medical underwriting and was refused. The situation would be the same if I wanted to change carriers, unless one waived underwriting.
I don’t favor MA because of limits on access, but I don’t understand the connection with assets.
With the MA plans, it’s my understanding that some coverages for major procedures may be limited, leaving the individual with potentially huge out of pocket costs. Not a big deal if you’re broke and can’t pay. Big deal if you have assets they can go after.
I’m with David. I am aware of concepts like beta and yield curves, in the same way I am aware of quantum mechanics and string theory. Just as I can live successfully in the physical world without understanding the latter, I can invest successfully without understanding the former.
The most basic decision in investing is your asset allocation. Since that’s a function of your age, your ability to take risk and your need to take risk, it’s as much a psychological as a financial decision. Once you’ve made it, all you need are plain vanilla index funds. If the information section of this website doesn’t have all you need, I suggest the wiki at https://bogleheads.org/
I’m comfortable with investing and staying away from things I don’t want to get involved with. I’d like to have more knowledge on tax strategies. I need a good tax advisor who will sit down at the coffee shop discussing strategies. I read many articles about it, but those seem to be for someone in an ideal world.
Not a lot of knowledge for managing investments – a simple target date fund will get you there. For other aspects of finance – such as spending down when retired and social security claiming strategy, etc. everyone is likely to need help.
Dan, compared to the financial wisdom of Jonathan Clements and Adam Grossman, I am probably in the stumble, bumble category however I do have years of experience, which may count for something.
I would say that your ability to manage your own investments depends upon your risk tolerance. If you are conservative minded, it should be very easy to track your progress. However, more complex instruments of investing might require a little more guidance and, as you will know, everything has a tax angle, I happen to think that is the more difficult problem to navigate and you might have an advantage there.
There is also fear and greed to be dealt with. I have an over abundance of fear, and so the majority of my investments are in the conservative category which aligns with my age and stage of life as far as risk is concerned. So you will also want to take your particular situation into consideration..
Just to allay any fears, you might have about your investing style. You may wish to engage a financial planner who is a fee based advisor you could do this intermittently rather than commit to a full-time advisor.
Good luck Dan. you seem to be doing very well. I admire your courage and ambition in carving out a new career for yourself in retirement with your tax business.
Added: Dan, you must be an old movie buff too.
I didn’t miss that the title of your post is from a line spoken by Fredo in The Godfather movie.
Too funny.
Marjorie, that line must be embedded in my subconscious. I only remembered it from the Godfather when reading your post.
I would be considered the opposite of you. I don’t understand the concepts that you listed as I am a simple index investor who saved early and often. Since the people you list also believe in the same concepts I could converse with them without difficulty. I suggest you ignore the former, and learn from the latter. If you do then you should have no difficulty managing your own money.
As I have taught my daughter nowadays you don’t even need to be smart to amass a significant portfolio. Just follow the above precepts and use a target retirement fund.