Most NON obvious thing for new investors

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
notsobright
Posts: 77
Joined: Thu Jun 28, 2012 9:07 pm

Most NON obvious thing for new investors

Post by notsobright » Wed Mar 06, 2019 10:15 am

So after 10+ years of lurking and managing my own finances, I am still always a bit shocked at how non obvious it is when looking at returns or graphs of ones bond allocation in a portfolio that it does not include dividends.

I was confused for the longest time thinking that bond returns seemed to always be worse than just holding cash, but most charts don't automatically include re-invested dividends as part of the return.

What's more flabbergasting is the most used stock charts to this day still don't provide a toggle to apply the dividends payed out as part of the return. Google, Yahoo, Apple, almost every major one!. As a new investor you may just think the daily volatility of bond funds is basically all they have going for them, and that is far from correct. I've found using the website https://www.portfoliovisualizer.com/ the best way to view bond funds so that the dividends are by default represented.
Last edited by notsobright on Thu Mar 07, 2019 10:18 am, edited 1 time in total.

dbr
Posts: 32818
Joined: Sun Mar 04, 2007 9:50 am

Re: Most NON obvious thing for new investors

Post by dbr » Wed Mar 06, 2019 3:44 pm

All presentations of "growth of $10,000" chart the results of total return. See the info here: https://investor.vanguard.com/mutual-fu ... file/VFITX Also reported there are the average annual returns for different recent periods.

However, you are correct that it is easy to be confused by the different presentations of data one might find

JW-Retired
Posts: 7181
Joined: Sun Dec 16, 2007 12:25 pm

Re: Most NON obvious thing for new investors

Post by JW-Retired » Wed Mar 06, 2019 4:13 pm

notsobright wrote:
Wed Mar 06, 2019 10:15 am
What's more flabbergasting is the most used stock charts to this day still don't provide a toggle to apply the dividends payed out as part of the return. Google, Yahoo, Apple, almost every major one!.
Morningstar typically shows "growth of $10000" performance charts which already has the dividends and capital gains added in.
https://www.morningstar.com/funds/XNAS/VTSAX/quote.html
Dunno about the others as they don't clearly say what they are doing so I've never bothered using them.
JW
Retired at Last

bluebolt
Posts: 1171
Joined: Sat Jan 14, 2017 9:01 am

Re: Most NON obvious thing for new investors

Post by bluebolt » Wed Mar 06, 2019 9:43 pm

One non-obvious thing for new investors - when I explain lazy portfolios to them, they think, "It can't possibly be that straightforward."

Leesbro63
Posts: 6548
Joined: Mon Nov 08, 2010 4:36 pm

Re: Most NON obvious thing for new investors

Post by Leesbro63 » Wed Mar 06, 2019 9:55 pm

The most non obvious thing is that less is more. Asset allocation, 3 fund portfolio, add new money to stay on balance, rebalance occasionally, that’s it.

sailaway
Posts: 1644
Joined: Fri May 12, 2017 1:11 pm

Re: Most NON obvious thing for new investors

Post by sailaway » Wed Mar 06, 2019 10:04 pm

Before I met my husband, "diversify" was the only thing I knew about investing and I got diversity in my portfolio by buying new investments regularly. I had two target date funds, as the year I turn 65 is not an even 5, and list of different mutual funds. I don't know if I even looked at the expenses on them, but when I redid my 401a with my now husband's help, the target date funds were some of my higher expenses and one healthcare fund that more than made up for its expenses in growth over the years that I held it.

User avatar
Dialectical Investor
Posts: 527
Joined: Mon Dec 03, 2018 11:41 pm

Re: Most NON obvious thing for new investors

Post by Dialectical Investor » Wed Mar 06, 2019 10:08 pm

Two related things new investors might not realize:

1) If you want to have a decent shot at being a successful investor, more likely than not, you're going to have to put some effort into it.

2) The most efficient way to exert that effort probably is not at all what you imagine.

JBTX
Posts: 6311
Joined: Wed Jul 26, 2017 12:46 pm

Re: Most NON obvious thing for new investors

Post by JBTX » Wed Mar 06, 2019 10:22 pm

What is not obvious to most investors is how much fees reduce your future worth decades down the road.

https://www.nerdwallet.com/blog/investi ... gs-impact/


https://www.pbs.org/wgbh/frontline/arti ... ng-us-all/
Assume you are invested in a mutual fund, he says, with a gross return of 7 percent, but that the mutual fund charges you an annual fee of 2 percent.

Over a 50-year investing lifetime, that little 2 percent fee will erode 63 percent of what you would have had.

heyyou
Posts: 3699
Joined: Tue Feb 20, 2007 4:58 pm

Re: Most NON obvious thing for new investors

Post by heyyou » Thu Mar 07, 2019 1:25 am

Two non-obvious things on one topic: How interwoven and randomly occurring risk is, in any specific reward.

Stocks pay more than bonds, is logical, but some stocks pay more than others, where the extra risk is less obvious. Some large businesses are as risky as small ones, but not all of the large ones have similar risks.

Index investing is so promoted for new investors, that some might think that diversifying will avoid losses, or the low points of those jiggly lines on the graphs are not heartbreaking nor sleep depriving since the long trend is upwards.

Morgan Housel: "Most people are not good at managing money, so to be good at it, you will have to act differently with it than most people." My thoughts: You will own less housing, older cars, and take cheaper vacations than your co-workers until you retire a decade earlier, and still with more assets than theirs.

Luckywon
Posts: 944
Joined: Tue Mar 28, 2017 10:33 am

Re: Most NON obvious thing for new investors

Post by Luckywon » Thu Mar 07, 2019 1:48 am

I think it would be that success for the individual investor had almost nothing to do with knowing about the financials of companies or timing the market and almost everything to do with understanding personal risk tolerance and minimizing investing expenses.

dbr
Posts: 32818
Joined: Sun Mar 04, 2007 9:50 am

Re: Most NON obvious thing for new investors

Post by dbr » Thu Mar 07, 2019 8:53 am

Luckywon wrote:
Thu Mar 07, 2019 1:48 am
I think it would be that success for the individual investor had almost nothing to do with knowing about the financials of companies or timing the market and almost everything to do with understanding personal risk tolerance and minimizing investing expenses.
I might agree with this. The biggest thing I notice about lots of people in educated professions is the idea that investing is somehow about applying their intelligence to pick "winners."

But another candidate, which on thinking would be my winner for the most non-obvious, is that you can't hire experts to help you invest because almost all the people who look like experts at investing are actually experts at putting your money in their pocket. I just cringe when I hear someone mention that they are meeting with their "financial advisor." I have to bite my tongue to not ask what that meeting could be about.

User avatar
Doom&Gloom
Posts: 3420
Joined: Thu May 08, 2014 3:36 pm

Re: Most NON obvious thing for new investors

Post by Doom&Gloom » Thu Mar 07, 2019 10:47 am

DIY is not impossible for most people. It is much easier than one would imagine. And it will almost certainly be more profitable than having a "guy."

earlywynnfan
Posts: 96
Joined: Thu Nov 08, 2018 2:46 pm

Re: Most NON obvious thing for new investors

Post by earlywynnfan » Thu Mar 07, 2019 10:48 am

JBTX wrote:
Wed Mar 06, 2019 10:22 pm
What is not obvious to most investors is how much fees reduce your future worth decades down the road.

https://www.nerdwallet.com/blog/investi ... gs-impact/


https://www.pbs.org/wgbh/frontline/arti ... ng-us-all/
Assume you are invested in a mutual fund, he says, with a gross return of 7 percent, but that the mutual fund charges you an annual fee of 2 percent.

Over a 50-year investing lifetime, that little 2 percent fee will erode 63 percent of what you would have had.
+1

User avatar
JPH
Posts: 1022
Joined: Mon Jun 27, 2011 8:56 pm

Re: Most NON obvious thing for new investors

Post by JPH » Thu Mar 07, 2019 10:57 am

Most non-obvious thing is "Just Stand There."
While the moments do summersaults into eternity | Cling to their coattails and beg them to stay - Townes Van Zandt

User avatar
JupiterJones
Posts: 2847
Joined: Tue Aug 24, 2010 3:25 pm
Location: Nashville, TN

Re: Most NON obvious thing for new investors

Post by JupiterJones » Thu Mar 07, 2019 11:08 am

This:

Image
Stay on target...

John Laurens
Posts: 437
Joined: Mon Nov 14, 2016 7:31 pm

Re: Most NON obvious thing for new investors

Post by John Laurens » Thu Mar 07, 2019 11:18 am

The thing I see over and over here on Bogleheads for new/ young investors...they are more concerned with the value of their accounts now rather than where they want to be 30-40 years from now.

Regards,
John

quantAndHold
Posts: 4651
Joined: Thu Sep 17, 2015 10:39 pm

Re: Most NON obvious thing for new investors

Post by quantAndHold » Thu Mar 07, 2019 11:19 am

90% of return is controlled by asset allocation. So it makes sense to focus the most effort there, rather than on picking individual investments.
Yes, I’m really that pedantic.

livesoft
Posts: 71912
Joined: Thu Mar 01, 2007 8:00 pm

Re: Most NON obvious thing for new investors

Post by livesoft » Thu Mar 07, 2019 11:20 am

One of the many obvious things that new investors don't see is:

One has to lose money into order to make money.

Since many people cannot accept losses, they never make much money.
Wiki This signature message sponsored by sscritic: Learn to fish.

smitcat
Posts: 5811
Joined: Mon Nov 07, 2016 10:51 am

Re: Most NON obvious thing for new investors

Post by smitcat » Thu Mar 07, 2019 11:24 am

livesoft wrote:
Thu Mar 07, 2019 11:20 am
One of the many obvious things that new investors don't see is:

One has to lose money into order to make money.

Since many people cannot accept losses, they never make much money.
Exactly - for new investors that have not been in the market to any significant degree over 10-12 years they have not experienced a market correction.
A generally growing investment environment over 10 years with low unemployment will likely leave long term realities "non obvious" to new investors.

dacalo
Posts: 123
Joined: Mon Mar 28, 2016 11:09 pm

Re: Most NON obvious thing for new investors

Post by dacalo » Thu Mar 07, 2019 12:34 pm

How investing successfully is boring and not as sexy as some think. How simplicity is preferred over complexity. Minimal actions and trading.

I am also guilty of this. Sometimes, I feel like I want to tinker with something. There are articles out there that recommends certain stocks or funds. However, I don't take any immediate action and think about it. The desire to do something subsides. I am still trying to discipline myself to be a BH and it's a journey.

User avatar
Clever_Username
Posts: 1635
Joined: Sun Jul 15, 2012 12:24 am
Location: Southern California

Re: Most NON obvious thing for new investors

Post by Clever_Username » Thu Mar 07, 2019 12:51 pm

livesoft wrote:
Thu Mar 07, 2019 11:20 am
One has to lose money into order to make money.

Since many people cannot accept losses, they never make much money.
I've been paying attention to investing for a while and I have no idea what you mean. Can you clarify for me?
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

jyoung
Posts: 101
Joined: Mon Jan 21, 2019 1:26 pm
Location: Houston, TX

Re: Most NON obvious thing for new investors

Post by jyoung » Thu Mar 07, 2019 12:54 pm

It's not about should I buy XYZ company and what does tomorrow hold. Buy the market through broad, diversified, low-cost funds and then enjoy life and don't think about "the markets."

edit: Don't read the boglehead forums because they will just make you focus far too much on investing, and you will continuously second guess your portfolio! :twisted:

JBTX
Posts: 6311
Joined: Wed Jul 26, 2017 12:46 pm

Re: Most NON obvious thing for new investors

Post by JBTX » Thu Mar 07, 2019 1:00 pm

JupiterJones wrote:
Thu Mar 07, 2019 11:08 am
This:

Image
Given it isn't obvious it might be helpful to explain what this is. I think it is saying that you can add some amount of stocks to a bond portfolio and both decrease risk and increase returns via diversification. After that, both returns and risk increase. However there is no mention in the graph of stocks, bonds or allocations.

asif408
Posts: 1996
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Most NON obvious thing for new investors

Post by asif408 » Thu Mar 07, 2019 1:09 pm

One that wasn't obvious to me when I first started out, and what I see often with newer investors, is the fact that very often, the worst performing asset class of the last 5-10 years ends up at or near the top in the next 5-10 years. And, conversely, the best performer of the last decade often ends up being the worst performer the next. I don't know why this seemed counter intuitive to me starting out, but it did, and I see it in many different forms here. I guess it's a variation of "the price you pay matters".

random_walker_77
Posts: 980
Joined: Tue May 21, 2013 8:49 pm

Re: Most NON obvious thing for new investors

Post by random_walker_77 » Thu Mar 07, 2019 1:32 pm

dbr wrote:
Thu Mar 07, 2019 8:53 am
Luckywon wrote:
Thu Mar 07, 2019 1:48 am
I think it would be that success for the individual investor had almost nothing to do with knowing about the financials of companies or timing the market and almost everything to do with understanding personal risk tolerance and minimizing investing expenses.
I might agree with this. The biggest thing I notice about lots of people in educated professions is the idea that investing is somehow about applying their intelligence to pick "winners."

But another candidate, which on thinking would be my winner for the most non-obvious, is that you can't hire experts to help you invest because almost all the people who look like experts at investing are actually experts at putting your money in their pocket. I just cringe when I hear someone mention that they are meeting with their "financial advisor." I have to bite my tongue to not ask what that meeting could be about.
I agree w/ both of those points. The goal isn't to beat the market; it's not about picking winners, or getting an expert (advisor, or top fund manager) to pick winners for you.

It's really non-obvious (dare I say "un-american"?) to come into investing with the goal to simply settle for market average returns, minus costs.

User avatar
Dialectical Investor
Posts: 527
Joined: Mon Dec 03, 2018 11:41 pm

Re: Most NON obvious thing for new investors

Post by Dialectical Investor » Thu Mar 07, 2019 2:19 pm

random_walker_77 wrote:
Thu Mar 07, 2019 1:32 pm

It's really non-obvious (dare I say "un-american"?) to come into investing with the goal to simply settle for market average returns, minus costs.
People don't realize they don't need to outperform the market, they just need to outperform a sufficient number of other individuals, and if most people underperform the market, the market return might be good enough to do that, depending on earning capacity, deferred consumption, inherited wealth, health, luck, etc. In many cases, obtaining the market return might not even be necessary.

Wanderingwheelz
Posts: 348
Joined: Mon Mar 04, 2019 9:52 am

Re: Most NON obvious thing for new investors

Post by Wanderingwheelz » Thu Mar 07, 2019 2:38 pm

Warren Buffet was dead on when he said something to the effect of “The markets are a means of wealth transfer to the patient from the impatient.”

The most important thing to be a successful investor over the long-term is to deal with the incredible boredom of getting rich slowly. It just happens if you’re patient. Figure out the right asset allocation for your risk tolerance, and be prepared to be bored rich.

User avatar
Fieldsy1024
Posts: 710
Joined: Sun Feb 24, 2013 8:23 am

Re: Most NON obvious thing for new investors

Post by Fieldsy1024 » Thu Mar 07, 2019 2:53 pm

I used to check my accounts daily for the first year. Now I check them about every 2 months. My AA dropped about 15% in January. I didnt even let it bother me to be honest. Now its higher than it has been.

SC Anteater
Posts: 326
Joined: Thu Jan 10, 2019 6:50 pm

Re: Most NON obvious thing for new investors

Post by SC Anteater » Thu Mar 07, 2019 3:12 pm

dbr wrote:
Thu Mar 07, 2019 8:53 am
Luckywon wrote:
Thu Mar 07, 2019 1:48 am
I think it would be that success for the individual investor had almost nothing to do with knowing about the financials of companies or timing the market and almost everything to do with understanding personal risk tolerance and minimizing investing expenses.
I might agree with this. The biggest thing I notice about lots of people in educated professions is the idea that investing is somehow about applying their intelligence to pick "winners."

But another candidate, which on thinking would be my winner for the most non-obvious, is that you can't hire experts to help you invest because almost all the people who look like experts at investing are actually experts at putting your money in their pocket. I just cringe when I hear someone mention that they are meeting with their "financial advisor." I have to bite my tongue to not ask what that meeting could be about.
A coworker just mentioned her adviser charges then 3% p.a. -- I nearly fell out of my chair. They have the 'superduper' services so that this advisor looks at their portfolio 'all the time' according to coworker.

pdavi21
Posts: 1296
Joined: Sat Jan 30, 2016 4:04 pm

Re: Most NON obvious thing for new investors

Post by pdavi21 » Thu Mar 07, 2019 3:16 pm

The definitions for balanced, long-term, inter-term, short-term, high yield, investment grade, small, value, growth, total market, sectors, etc. do not exist and wouldn't be followed even if they did.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

User avatar
bertilak
Posts: 7486
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most NON obvious thing for new investors

Post by bertilak » Thu Mar 07, 2019 3:28 pm

dbr wrote:
Thu Mar 07, 2019 8:53 am
Luckywon wrote:
Thu Mar 07, 2019 1:48 am
I think it would be that success for the individual investor had almost nothing to do with knowing about the financials of companies or timing the market and almost everything to do with understanding personal risk tolerance and minimizing investing expenses.
I might agree with this. The biggest thing I notice about lots of people in educated professions is the idea that investing is somehow about applying their intelligence to pick "winners."
As a reasonably intelligent, educated and experienced technology-type person the above two perfectly describe the me of a few years back. My JOB was to apply intelligence, training, and skill to problem solving -- how to achieve the desired ends with the resources available. That carried forward quite well to my non-job life.
But another candidate, which on thinking would be my winner for the most non-obvious, is that you can't hire experts to help you invest because almost all the people who look like experts at investing are actually experts at putting your money in their pocket. I just cringe when I hear someone mention that they are meeting with their "financial advisor." I have to bite my tongue to not ask what that meeting could be about.
For many years, people paid me to achieve their goals so why wouldn't it work the other way around?

I was intelligent enough to abandon those fantasies but it took a while! It is difficult to abandon a fantasy as can be seen in much of today's society!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

livesoft
Posts: 71912
Joined: Thu Mar 01, 2007 8:00 pm

Re: Most NON obvious thing for new investors

Post by livesoft » Thu Mar 07, 2019 4:06 pm

Clever_Username wrote:
Thu Mar 07, 2019 12:51 pm
livesoft wrote:
Thu Mar 07, 2019 11:20 am
One has to lose money into order to make money.

Since many people cannot accept losses, they never make much money.
I've been paying attention to investing for a while and I have no idea what you mean. Can you clarify for me?
Here is an example thread:
viewtopic.php?f=1&t=274532&newpost=4422584
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
Clever_Username
Posts: 1635
Joined: Sun Jul 15, 2012 12:24 am
Location: Southern California

Re: Most NON obvious thing for new investors

Post by Clever_Username » Fri Mar 08, 2019 12:02 am

livesoft wrote:
Thu Mar 07, 2019 4:06 pm
Clever_Username wrote:
Thu Mar 07, 2019 12:51 pm
livesoft wrote:
Thu Mar 07, 2019 11:20 am
One has to lose money into order to make money.

Since many people cannot accept losses, they never make much money.
I've been paying attention to investing for a while and I have no idea what you mean. Can you clarify for me?
Here is an example thread:
viewtopic.php?f=1&t=274532&newpost=4422584
Thank you. I need to think about this some more as to what it means and if there's a mistake along those lines I'm making, or at least to be aware of it if I lean towards it at some point.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

02nz
Posts: 4666
Joined: Wed Feb 21, 2018 3:17 pm

Re: Most NON obvious thing for new investors

Post by 02nz » Fri Mar 08, 2019 12:51 am

SC Anteater wrote:
Thu Mar 07, 2019 3:12 pm
A coworker just mentioned her adviser charges then 3% p.a. -- I nearly fell out of my chair. They have the 'superduper' services so that this advisor looks at their portfolio 'all the time' according to coworker.
This actually something that may not be obvious for new investors: 3% is a huge fee. Even 1% is a lot. A business may not think too much of paying 2-3% to a credit card company, for example. Cost of doing business. But handing over that kind of percentage to an investment "advisor" is very, very different.

Dottie57
Posts: 8645
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Most NON obvious thing for new investors

Post by Dottie57 » Fri Mar 08, 2019 1:17 am

02nz wrote:
Fri Mar 08, 2019 12:51 am
SC Anteater wrote:
Thu Mar 07, 2019 3:12 pm
A coworker just mentioned her adviser charges then 3% p.a. -- I nearly fell out of my chair. They have the 'superduper' services so that this advisor looks at their portfolio 'all the time' according to coworker.
This actually something that may not be obvious for new investors: 3% is a huge fee. Even 1% is a lot. A business may not think too much of paying 2-3% to a credit card company, for example. Cost of doing business. But handing over that kind of percentage to an investment "advisor" is very, very different.
And that fee is paid on the SAME MONEY. Year. After. Year".

User avatar
dogagility
Posts: 846
Joined: Fri Feb 24, 2017 6:41 am

Re: Most NON obvious thing for new investors

Post by dogagility » Fri Mar 08, 2019 5:39 am

Another non-obvious thing I realized is the large role psychology has in investing.
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

FederalFIRE
Posts: 216
Joined: Thu Jan 17, 2019 11:40 am

Re: Most NON obvious thing for new investors

Post by FederalFIRE » Fri Mar 08, 2019 6:00 am

sailaway wrote:
Wed Mar 06, 2019 10:04 pm
[...] "diversify" was the only thing I knew about investing and I got diversity in my portfolio by buying new investments regularly.
+1

I was taught repeatedly the mantra of "diversify" and thought I was doing that for the first 8-10 years by picking a broad portfolio of a bunch of mutual funds. Turns out even though I only had one "small growth" fund, and one "mid-cap value" fund, etc. etc., I had overlap all over the place. I also had a nightmare once every three months when I tried to balance the portfolio.

My first switch was to move to target date funds, which opened my eyes to the simplicity of index investing since the underlying funds were nearly all index funds. After ~3 years of that, I made the shift to managing my own three-fund portfolio (or really two-fund since I'm 100% equities right now) so I could tailor my glide path more aggressively. It took a long time to realize that...

FederalFIRE
Posts: 216
Joined: Thu Jan 17, 2019 11:40 am

Re: Most NON obvious thing for new investors

Post by FederalFIRE » Fri Mar 08, 2019 6:03 am

dogagility wrote:
Fri Mar 08, 2019 5:39 am
Another non-obvious thing I realized is the large role psychology has in investing.
+1 for this as well. Reading about behavioral psychology, especially Kahneman and Tversky's work, really made me realize how many stupid decisions I made out of emotion rather than logic. Their clear cut experiments made it frighteningly obvious and totally changed my approach.

Rus In Urbe
Posts: 635
Joined: Sat Dec 09, 2017 2:12 pm

Re: Most NON obvious thing for new investors

Post by Rus In Urbe » Fri Mar 08, 2019 6:46 am

A most non-obvious thing:

For new investors, how much you save and put into investments (whether they are going up or coming down) has a much greater impact than the returns you get.

Wealth is created by the habit of investing, bit by bit by bit by bit by bit by bit, for years and years, which builds the foundation, the principal that solid investment choices (as listed upthread) will amplify over time.

You've got to have money to make money. And that means save/invest; save/invest; save/invest. Over and over again.

Boring. But golly does it work!
I'd like to live as a poor man with lots of money. ~Pablo Picasso

User avatar
DanMahowny
Posts: 994
Joined: Sun Aug 06, 2017 8:25 pm

Re: Most NON obvious thing for new investors

Post by DanMahowny » Fri Mar 08, 2019 10:29 am

livesoft wrote:
Thu Mar 07, 2019 11:20 am
One of the many obvious things that new investors don't see is:

One has to lose money into order to make money.

Since many people cannot accept losses, they never make much money.
I like this one. Certainly was true for me (some of my early investments lost badly).
Funding secured

onourway
Posts: 2490
Joined: Thu Dec 08, 2016 3:39 pm

Re: Most NON obvious thing for new investors

Post by onourway » Fri Mar 08, 2019 10:37 am

'Past performance is no guarantee of future results'.

I would wager the vast majority of investment decisions are made by looking at the charts of previous 1/5/10/lifetime returns for each fund that are so helpfully displayed by nearly every broker. From most people's perspective, why would you not choose the best performing funds?

Truly understanding what the above statement means is entirely non-obvious - even for many seasoned investors.

dbr
Posts: 32818
Joined: Sun Mar 04, 2007 9:50 am

Re: Most NON obvious thing for new investors

Post by dbr » Fri Mar 08, 2019 10:43 am

onourway wrote:
Fri Mar 08, 2019 10:37 am
'Past performance is no guarantee of future results'.

I would wager the vast majority of investment decisions are made by looking at the charts of previous 1/5/10/lifetime returns for each fund that are so helpfully displayed by nearly every broker. From most people's perspective, why would you not choose the best performing funds?

Truly understanding what the above statement means is entirely non-obvious - even for many seasoned investors.
Maybe more generally the concept that there is no such thing as a "best performing" fund. That idea is hard to grasp in a world where everything seems to be about performance. This is related to understanding that investment salesmen are not professional experts that can be hired to obtain performance.

fwellimort
Posts: 390
Joined: Tue Feb 12, 2019 9:41 am

Re: Most NON obvious thing for new investors

Post by fwellimort » Fri Mar 08, 2019 11:23 am

I'm going to put this I posted on reddit.
https://www.reddit.com/r/personalfinan ... und_worth/

Past performance is not indicative of future performance. And that SPIVA shows how difficult it is to beat the index after including fees. And these types of research has also been done in highly inefficient markets. In bear markets. It shows that even if you were to lose money, most actively managed funds would lose more.
https://us.spindices.com/documents/spiv ... r-2018.pdf
Page 4. In a 5 year basis, 100% of publicly accessible actively managed funds failed to beat the small cap value index.

And chasing after performance in general whether it be "US Total Market" or "Tech Sector" really isn't worth the time. Just buy the entire market and be satisfied with whatever result one gets. At least about 80% of countries lose to the world index. US has historically been in that 20%. To presume US would keep being in that 20% would be absurdity.
And that stock market is not safe. One should lock in that profits with investment grade bonds. Purpose of investing is to have a satisfactory retirement, not to maximize potential returns. The stock market does not "always go up" like the other thread. It "might eventually" go up. It might not.
That's all I can say. Cheers.

User avatar
FrugalInvestor
Posts: 5487
Joined: Fri Nov 07, 2008 12:20 am

Re: Most NON obvious thing for new investors

Post by FrugalInvestor » Fri Mar 08, 2019 11:32 am

The most non-obvious thing is that the most obvious thing - the financial media - is not only useless but probably dangerous to your financial health.
Have a plan, stay the course, and simplify. And while you're at it, ignore the noise!

acegolfer
Posts: 1965
Joined: Tue Aug 25, 2009 9:40 am

Re: Most NON obvious thing for new investors

Post by acegolfer » Fri Mar 08, 2019 12:00 pm

Bond is not risk-free.

SantaClaraSurfer
Posts: 99
Joined: Tue Feb 19, 2019 11:09 am

Re: Most NON obvious thing for new investors

Post by SantaClaraSurfer » Fri Mar 08, 2019 1:44 pm

A 401(k) contribution, all things being equal, creates a discount in the amount of your marginal tax rate.

If your marginal tax rate is 35% and you add $1 to your pre-tax 401(k) contribution, your taxes go down by 35 cents.

Effectively, you have purchased $1 in investments at a 35% discount.

Once we really "got" this, the logic for maxing our 401(k) contribution became unstoppable.

We went from asking "how will be pay our bills if we do this?" to "how could we NOT take advantage of this great deal?"

Admittedly, it's common advice to contribute to a 401(k).

However, in my experience, the pre-tax impact is a non-obvious component of that advice that isn't immediately apparent, or even all that intuitive when you are staring at a 401(k) contribution screen and trying to relate it to your paystub.

I do not think it is as widely-known as it should be how amazing a deal pre-tax 401(k) contributions (especially with a match) are for higher marginal tax rate households.

(Not to mention that once you've maxed out your contribution, committing to also invest the tax savings you generate creates an additional force multiplier on the initial contribution.)

2015
Posts: 2906
Joined: Mon Feb 10, 2014 2:32 pm

Re: Most NON obvious thing for new investors

Post by 2015 » Fri Mar 08, 2019 2:09 pm

FrugalInvestor wrote:
Fri Mar 08, 2019 11:32 am
The most non-obvious thing is that the most obvious thing - the financial media - is not only useless but probably dangerous to your financial health.
+1
I include in "the financial media" anyone who writes about investing, personal finances, and microeconomics. In seeking to monetize their writing, I view them as having interests diametrically opposed to my own.

User avatar
mokaThought
Posts: 72
Joined: Tue Jan 01, 2019 7:57 pm
Location: Texas
Contact:

Re: Most NON obvious thing for new investors

Post by mokaThought » Fri Mar 08, 2019 2:25 pm

"If I sell while the investment is down, don't I lose money?"

No, you've already lost the money. That's the present value of your investment.

---

If your portfolio is 50% stocks and 50% bonds, and the stock market goes down 50%, how much of your portfolio have you lost?

"50%?"

No, try again.
October: This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February. —Mark Twain

dbr
Posts: 32818
Joined: Sun Mar 04, 2007 9:50 am

Re: Most NON obvious thing for new investors

Post by dbr » Fri Mar 08, 2019 3:07 pm

mokaThought wrote:
Fri Mar 08, 2019 2:25 pm
"If I sell while the investment is down, don't I lose money?"

No, you've already lost the money. That's the present value of your investment.
I would actually suggest that since stocks aren't money that all the money was "lost" when the stocks were bought.

User avatar
FrugalInvestor
Posts: 5487
Joined: Fri Nov 07, 2008 12:20 am

Re: Most NON obvious thing for new investors

Post by FrugalInvestor » Fri Mar 08, 2019 3:20 pm

2015 wrote:
Fri Mar 08, 2019 2:09 pm
FrugalInvestor wrote:
Fri Mar 08, 2019 11:32 am
The most non-obvious thing is that the most obvious thing - the financial media - is not only useless but probably dangerous to your financial health.
+1
I include in "the financial media" anyone who writes about investing, personal finances, and microeconomics. In seeking to monetize their writing, I view them as having interests diametrically opposed to my own.
I agree wholeheartedly. Many are not media at all but salespeople who are advertising their 'products' whether they be financial products or advice. I think that most new investors assume that these people know things that the typical person cannot, which of course serves their purposes well. I know that I assumed this at one time. Fortunately I didn't act much on that assumption because I am a natural skeptic.
Have a plan, stay the course, and simplify. And while you're at it, ignore the noise!

Post Reply