Convincing teenager to invest in Roth

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Cam894
Posts: 32
Joined: Mon Jun 08, 2020 10:08 pm

Re: Convincing teenager to invest in Roth

Post by Cam894 »

arcticpineapplecorp. wrote: Sat Sep 05, 2020 8:20 pm
Cam894 wrote: Sat Sep 05, 2020 5:25 pm
arcticpineapplecorp. wrote: Thu Sep 03, 2020 6:11 pm
palaheel wrote: Thu Sep 03, 2020 5:46 pm Isn't 17 a good age to make investing mistakes? Over the next 50 years, and education now might be very valuable and relatively inexpensive.
you don't need to make mistakes that others have already made.

in fact, if you do that, you haven't learned anything.

there's no problem making a mistake that hasn't been made before (and learn from, so as to not repeat), but to repeat mistakes others already have (so you don't have to) makes no sense.

If you set your kids up for success, there's no need for them to make mistakes, is there?
Perhaps the child doesn’t buy into indexing right away.
which begs the questions:
1. what has the child "bought" into?

2. how did the child come to buy into that strategy and not indexing?

3. Does the child have actual evidence that indexing is inferior?

4. what such evidence is there, other than anecdotal of course?

5. if the child has no evidence except anecdotal, should the child be so certain of his/her beliefs or open to evidence showing indexing is the better choice?
Agreed. However, when the boys father tells him "past performance is no guarantee of future results" what stops the boy from throwing those words right back at him?

He may read all the evidence and come to the conclusion that while indexing worked for his father and many others over the past 60 years. We live in a changing world and investing is not immune to that change.

The past performance of indexing is no guarantee of future results. I imagine a lot of the people buying individual stocks feel a similar way. [Conspiracy theory comment removed by Moderator Misenplace.]

Sometimes people need to come to these conclusions on their own. Rather than being told what is right and wrong.
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arcticpineapplecorp.
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Joined: Tue Mar 06, 2012 9:22 pm

Re: Convincing teenager to invest in Roth

Post by arcticpineapplecorp. »

Cam894 wrote: Sun Sep 06, 2020 10:39 am
arcticpineapplecorp. wrote: Sat Sep 05, 2020 8:20 pm
Cam894 wrote: Sat Sep 05, 2020 5:25 pm
arcticpineapplecorp. wrote: Thu Sep 03, 2020 6:11 pm
palaheel wrote: Thu Sep 03, 2020 5:46 pm Isn't 17 a good age to make investing mistakes? Over the next 50 years, and education now might be very valuable and relatively inexpensive.
you don't need to make mistakes that others have already made.

in fact, if you do that, you haven't learned anything.

there's no problem making a mistake that hasn't been made before (and learn from, so as to not repeat), but to repeat mistakes others already have (so you don't have to) makes no sense.

If you set your kids up for success, there's no need for them to make mistakes, is there?
Perhaps the child doesn’t buy into indexing right away.
which begs the questions:
1. what has the child "bought" into?

2. how did the child come to buy into that strategy and not indexing?

3. Does the child have actual evidence that indexing is inferior?

4. what such evidence is there, other than anecdotal of course?

5. if the child has no evidence except anecdotal, should the child be so certain of his/her beliefs or open to evidence showing indexing is the better choice?
Agreed. However, when the boys father tells him "past performance is no guarantee of future results" what stops the boy from throwing those words right back at him?

He may read all the evidence and come to the conclusion that while indexing worked for his father and many others over the past 60 years. We live in a changing world and investing is not immune to that change.

The past performance of indexing is no guarantee of future results. I imagine a lot of the people buying individual stocks feel a similar way. [Conspiracy theory comment removed by Moderator Misenplace.]

Sometimes people need to come to these conclusions on their own. Rather than being told what is right and wrong.
The phrase past performance is no guarantee of future results refers to the results, i.e., the rate of return. I.E. just because the stock market earned 10.1% CAGR since 1926 doesn't mean it will going forward.

And of course this as you said also applies to individual stocks as well. A stock's good past performance tells you nothing about its future performance.

so when all you have left after equalizing between the two (this logic applies to both as you say), you'd want to go with the guaranteed return of the stock market (regardless of the return relative to the past) than the NON guaranteed return of individual stocks, right?

that's logical. You have an ability to accept a guaranteed return of the market, or you can risk underperforming the market (in search of the unlikely event of outperforming the market). Do you want a guarantee or not? How often in life do you get a guarantee? You are guaranteed to get the return of the market (minus costs). You are NOT guaranteed anything with individual stocks. Your choice.

Regarding you comment about indexes "being manipulated by our government and domestic/foreign banks" I don't even understand what that means unless you're talking about monetary policy and such. In that case, the indexes have done what they've done since 1926 which included the involvement of monetary policy which started in 1913. So again, there's nothing new under the sun here.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
palaheel
Posts: 437
Joined: Wed Mar 22, 2017 7:35 am

Re: Convincing teenager to invest in Roth

Post by palaheel »

I think some people are talking logic and numbers (and their logic and numbers are correct). Other people are talking teenage behavior, attitudes and beliefs, which can resist logic and numbers to a significant degree. As some teachers say, "I can explain it to you, but I can't understand it for you."
Markets crash. Markets recover. Inflation takes your money FOREVER.
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Cam894
Posts: 32
Joined: Mon Jun 08, 2020 10:08 pm

Re: Convincing teenager to invest in Roth

Post by Cam894 »

arcticpineapplecorp. wrote: Sun Sep 06, 2020 10:54 am
Cam894 wrote: Sun Sep 06, 2020 10:39 am
arcticpineapplecorp. wrote: Sat Sep 05, 2020 8:20 pm
Cam894 wrote: Sat Sep 05, 2020 5:25 pm
arcticpineapplecorp. wrote: Thu Sep 03, 2020 6:11 pm
you don't need to make mistakes that others have already made.

in fact, if you do that, you haven't learned anything.

there's no problem making a mistake that hasn't been made before (and learn from, so as to not repeat), but to repeat mistakes others already have (so you don't have to) makes no sense.

If you set your kids up for success, there's no need for them to make mistakes, is there?
Perhaps the child doesn’t buy into indexing right away.
which begs the questions:
1. what has the child "bought" into?

2. how did the child come to buy into that strategy and not indexing?

3. Does the child have actual evidence that indexing is inferior?

4. what such evidence is there, other than anecdotal of course?

5. if the child has no evidence except anecdotal, should the child be so certain of his/her beliefs or open to evidence showing indexing is the better choice?
Agreed. However, when the boys father tells him "past performance is no guarantee of future results" what stops the boy from throwing those words right back at him?

He may read all the evidence and come to the conclusion that while indexing worked for his father and many others over the past 60 years. We live in a changing world and investing is not immune to that change.

The past performance of indexing is no guarantee of future results. I imagine a lot of the people buying individual stocks feel a similar way. [Conspiracy theory comment removed by Moderator Misenplace.]

Sometimes people need to come to these conclusions on their own. Rather than being told what is right and wrong.
The phrase past performance is no guarantee of future results refers to the results, i.e., the rate of return. I.E. just because the stock market earned 10.1% CAGR since 1926 doesn't mean it will going forward.

And of course this as you said also applies to individual stocks as well. A stock's good past performance tells you nothing about its future performance.

so when all you have left after equalizing between the two (this logic applies to both as you say), you'd want to go with the guaranteed return of the stock market (regardless of the return relative to the past) than the NON guaranteed return of individual stocks, right?

that's logical. You have an ability to accept a guaranteed return of the market, or you can risk underperforming the market (in search of the unlikely event of outperforming the market). Do you want a guarantee or not? How often in life do you get a guarantee? You are guaranteed to get the return of the market (minus costs). You are NOT guaranteed anything with individual stocks. Your choice.

Regarding you comment about indexes "being manipulated by our government and domestic/foreign banks" I don't even understand what that means unless you're talking about monetary policy and such. In that case, the indexes have done what they've done since 1926 which included the involvement of monetary policy which started in 1913. So again, there's nothing new under the sun here.

Goldman and most recently SoftBank have made wonderful gains at the markets expense. Large in part due to the rise of retail investing. Expect more index manipulation.

The above does not answer my question. How are we to be sure indexes will continue to be a fruitful investment? Perhaps they lag considerably over the next 50 years? What if only a handful of stocks see a rise in value while the rest of the market stagnates? You will still get market return but you can kiss that beach house dream goodbye.

The only evidence we have regarding the viability of indexing is the past performance of the method. 60-70 years is not that long :D
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arcticpineapplecorp.
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Joined: Tue Mar 06, 2012 9:22 pm

Re: Convincing teenager to invest in Roth

Post by arcticpineapplecorp. »

Cam894 wrote: Sun Sep 06, 2020 12:05 pm Goldman and most recently SoftBank have made wonderful gains at the markets expense. Large in part due to the rise of retail investing. Expect more index manipulation.
The way they make money is on fees derived from selling/buying and/or working as an intermediary:
https://asia.nikkei.com/Business/SoftBa ... -home-sale

so what? institutional banks have always been intermediaries and underwriters for IPOs, etc.

Where is evidence to substantiate the claim "at the market's expense"?

I'm not sure where the "index manipulation" is coming from that you claim. Investors/pension funds who bought softbank believe there's value there. maybe there is. maybe there isn't.

stocks become part of an index, they fall out of an index.

you're making claims without any specificity and/or evidence to substantiate.

If you want to convince others of index manipulation, you have to provide the evidence. So far, you haven't provided anything.
Cam894 wrote: Sun Sep 06, 2020 12:05 pm The above does not answer my question. How are we to be sure indexes will continue to be a fruitful investment? Perhaps they lag considerably over the next 50 years? What if only a handful of stocks see a rise in value while the rest of the market stagnates? You will still get market return but you can kiss that beach house dream goodbye.
Lag what?

Lag their historical return?

I always said that's a possibility. Past returns may be different from future returns.

But what is the alternative? Take a chance on an individual stock? You have no guarantee of return that way. In fact you have a greater chance losing money with an individual stock than owning the market:
“The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform,” says Bessembinder, who found that the largest returns come from very few stocks overall — just 86 stocks have accounted for $16 trillion in wealth creation, half of the stock market total, over the past 90 years. All of the wealth creation can be attributed to the thousand top-performing stocks, while the remaining 96 percent of stocks collectively matched one-month T-bills.

source: https://wpcarey.asu.edu/department-fina ... sury-bills
Cam894 wrote: Sun Sep 06, 2020 12:05 pm The only evidence we have regarding the viability of indexing is the past performance of the method. 60-70 years is not that long :D
So what is the alternative? Individual stocks? You see how that works for the vast majority of investors. 96 percent of stocks in aggregate matched t bills.

By owning the market, the 4% of all stocks will give you the return of the market, which should (no guarantees) be better than the risk free (tbill) rate because investors should be rewarded for having taken risk above the risk free rate. That's how it works long term. What else are you suggesting to do???
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Cam894
Posts: 32
Joined: Mon Jun 08, 2020 10:08 pm

Re: Convincing teenager to invest in Roth

Post by Cam894 »

arcticpineapplecorp. wrote: Sun Sep 06, 2020 1:25 pm
Cam894 wrote: Sun Sep 06, 2020 12:05 pm Goldman and most recently SoftBank have made wonderful gains at the markets expense. Large in part due to the rise of retail investing. Expect more index manipulation.
The way they make money is on fees derived from selling/buying and/or working as an intermediary:
https://asia.nikkei.com/Business/SoftBa ... -home-sale

so what? institutional banks have always been intermediaries and underwriters for IPOs, etc.

Where is evidence to substantiate the claim "at the market's expense"?

I'm not sure where the "index manipulation" is coming from that you claim. Investors/pension funds who bought softbank believe there's value there. maybe there is. maybe there isn't.

stocks become part of an index, they fall out of an index.

you're making claims without any specificity and/or evidence to substantiate.

If you want to convince others of index manipulation, you have to provide the evidence. So far, you haven't provided anything.
Cam894 wrote: Sun Sep 06, 2020 12:05 pm The above does not answer my question. How are we to be sure indexes will continue to be a fruitful investment? Perhaps they lag considerably over the next 50 years? What if only a handful of stocks see a rise in value while the rest of the market stagnates? You will still get market return but you can kiss that beach house dream goodbye.
Lag what?

Lag their historical return?

I always said that's a possibility. Past returns may be different from future returns.

But what is the alternative? Take a chance on an individual stock? You have no guarantee of return that way. In fact you have a greater chance losing money with an individual stock than owning the market:
“The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform,” says Bessembinder, who found that the largest returns come from very few stocks overall — just 86 stocks have accounted for $16 trillion in wealth creation, half of the stock market total, over the past 90 years. All of the wealth creation can be attributed to the thousand top-performing stocks, while the remaining 96 percent of stocks collectively matched one-month T-bills.

source: https://wpcarey.asu.edu/department-fina ... sury-bills
Cam894 wrote: Sun Sep 06, 2020 12:05 pm The only evidence we have regarding the viability of indexing is the past performance of the method. 60-70 years is not that long :D
So what is the alternative? Individual stocks? You see how that works for the vast majority of investors. 96 percent of stocks in aggregate matched t bills.

By owning the market, the 4% of all stocks will give you the return of the market, which should (no guarantees) be better than the risk free (tbill) rate because investors should be rewarded for having taken risk above the risk free rate. That's how it works long term. What else are you suggesting to do???

Again, the whole argument implies the boglehead strategy is correct and always will be. What if a perspective young investor sees basket picking quality stocks or active management as the way forward? They would need to come to the indexing conclusion on their own. You can show up with your Bogle book and spew the facts. But they can always fall back on the above argument. Some people will need to learn on their own.

A teenager picking a handful of stocks that he recognizes is easier to understand for a beginner then indexes and comparable rate of return over 50 years.
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arcticpineapplecorp.
Posts: 7152
Joined: Tue Mar 06, 2012 9:22 pm

Re: Convincing teenager to invest in Roth

Post by arcticpineapplecorp. »

Cam894 wrote: Sun Sep 06, 2020 1:38 pm
arcticpineapplecorp. wrote: Sun Sep 06, 2020 1:25 pm
Cam894 wrote: Sun Sep 06, 2020 12:05 pm Goldman and most recently SoftBank have made wonderful gains at the markets expense. Large in part due to the rise of retail investing. Expect more index manipulation.
The way they make money is on fees derived from selling/buying and/or working as an intermediary:
https://asia.nikkei.com/Business/SoftBa ... -home-sale

so what? institutional banks have always been intermediaries and underwriters for IPOs, etc.

Where is evidence to substantiate the claim "at the market's expense"?

I'm not sure where the "index manipulation" is coming from that you claim. Investors/pension funds who bought softbank believe there's value there. maybe there is. maybe there isn't.

stocks become part of an index, they fall out of an index.

you're making claims without any specificity and/or evidence to substantiate.

If you want to convince others of index manipulation, you have to provide the evidence. So far, you haven't provided anything.
Cam894 wrote: Sun Sep 06, 2020 12:05 pm The above does not answer my question. How are we to be sure indexes will continue to be a fruitful investment? Perhaps they lag considerably over the next 50 years? What if only a handful of stocks see a rise in value while the rest of the market stagnates? You will still get market return but you can kiss that beach house dream goodbye.
Lag what?

Lag their historical return?

I always said that's a possibility. Past returns may be different from future returns.

But what is the alternative? Take a chance on an individual stock? You have no guarantee of return that way. In fact you have a greater chance losing money with an individual stock than owning the market:
“The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform,” says Bessembinder, who found that the largest returns come from very few stocks overall — just 86 stocks have accounted for $16 trillion in wealth creation, half of the stock market total, over the past 90 years. All of the wealth creation can be attributed to the thousand top-performing stocks, while the remaining 96 percent of stocks collectively matched one-month T-bills.

source: https://wpcarey.asu.edu/department-fina ... sury-bills
Cam894 wrote: Sun Sep 06, 2020 12:05 pm The only evidence we have regarding the viability of indexing is the past performance of the method. 60-70 years is not that long :D
So what is the alternative? Individual stocks? You see how that works for the vast majority of investors. 96 percent of stocks in aggregate matched t bills.

By owning the market, the 4% of all stocks will give you the return of the market, which should (no guarantees) be better than the risk free (tbill) rate because investors should be rewarded for having taken risk above the risk free rate. That's how it works long term. What else are you suggesting to do???

Again, the whole argument implies the boglehead strategy is correct and always will be. What if a perspective young investor sees basket picking quality stocks or active management as the way forward? They would need to come to the indexing conclusion on their own. You can show up with your Bogle book and spew the facts. But they can always fall back on the above argument. Some people will need to learn on their own.

A teenager picking a handful of stocks that he recognizes is easier to understand for a beginner then indexes and comparable rate of return over 50 years.
comparable rate of return? where are you getting that? because you pick a basket of stocks and assume it will be the same rate of return as the index?

even if that were true (though it may not occur) was the risk adjusted return the same? No. You would have taken greater risk for the same return if you held less stocks. The goal is to get the highest RISK ADJUSTED return. That is, the highest return per unit of risk. You can't say a basket of stocks has the same risk profile automatically. It depends on many factors like how big the basket is, how diversified it is and so on.

First to be diversified in a similar way to the market, you'd need to own at least one stock in each sector/industry that represents the market, right? How many would that be? 10 for starters:

Basic Materials
Consumer Goods
Consumer Services
Financials
Health Care
Industrials
Oil & Gas
Technology
Telecommunications
Utilities

Is 10 enough? What's the right amount? How do you know what to buy and what to exclude?

but then you'd need to hold them according to their market weight, otherwise you're carrying a different level of risk. So whatever utility stock you pick that can only represent 3% of your stock holdings. telecommunications can only hold 1.7% of your stock holdings and so on.

Are you going to sell and/or buy when your stocks in each sector get more or less than is represented in the market?

Then how risky is it to just hold 1 stock in each sector? What if you hold the wrong one (the one that doesn't do well). You've got to own more stocks in each sector to lessen your risk (or equal your risk adjusted return) to the market, right?

how many stocks are necessary to be held in this diversified basked then?

isn't it way easier to just buy and hold the market?

that was rhetorical.

the answer is yes.

The argument that the teenager would rather hold a bunch of stocks he knows is a false argument. Why?

By holding the market, he gets to hold EVERY stock he's ever heard of.

Your argument reminds me of the conjunction fallacy. If you truly believe someone would own their favorite stocks, then it makes no sense to NOT own the market (which INCLUDES their favorite stocks AND others).
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
User avatar
Cam894
Posts: 32
Joined: Mon Jun 08, 2020 10:08 pm

Re: Convincing teenager to invest in Roth

Post by Cam894 »

arcticpineapplecorp. wrote: Sun Sep 06, 2020 6:39 pm
Cam894 wrote: Sun Sep 06, 2020 1:38 pm
arcticpineapplecorp. wrote: Sun Sep 06, 2020 1:25 pm
Cam894 wrote: Sun Sep 06, 2020 12:05 pm Goldman and most recently SoftBank have made wonderful gains at the markets expense. Large in part due to the rise of retail investing. Expect more index manipulation.
The way they make money is on fees derived from selling/buying and/or working as an intermediary:
https://asia.nikkei.com/Business/SoftBa ... -home-sale

so what? institutional banks have always been intermediaries and underwriters for IPOs, etc.

Where is evidence to substantiate the claim "at the market's expense"?

I'm not sure where the "index manipulation" is coming from that you claim. Investors/pension funds who bought softbank believe there's value there. maybe there is. maybe there isn't.

stocks become part of an index, they fall out of an index.

you're making claims without any specificity and/or evidence to substantiate.

If you want to convince others of index manipulation, you have to provide the evidence. So far, you haven't provided anything.
Cam894 wrote: Sun Sep 06, 2020 12:05 pm The above does not answer my question. How are we to be sure indexes will continue to be a fruitful investment? Perhaps they lag considerably over the next 50 years? What if only a handful of stocks see a rise in value while the rest of the market stagnates? You will still get market return but you can kiss that beach house dream goodbye.
Lag what?

Lag their historical return?

I always said that's a possibility. Past returns may be different from future returns.

But what is the alternative? Take a chance on an individual stock? You have no guarantee of return that way. In fact you have a greater chance losing money with an individual stock than owning the market:
“The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform,” says Bessembinder, who found that the largest returns come from very few stocks overall — just 86 stocks have accounted for $16 trillion in wealth creation, half of the stock market total, over the past 90 years. All of the wealth creation can be attributed to the thousand top-performing stocks, while the remaining 96 percent of stocks collectively matched one-month T-bills.

source: https://wpcarey.asu.edu/department-fina ... sury-bills
Cam894 wrote: Sun Sep 06, 2020 12:05 pm The only evidence we have regarding the viability of indexing is the past performance of the method. 60-70 years is not that long :D
So what is the alternative? Individual stocks? You see how that works for the vast majority of investors. 96 percent of stocks in aggregate matched t bills.

By owning the market, the 4% of all stocks will give you the return of the market, which should (no guarantees) be better than the risk free (tbill) rate because investors should be rewarded for having taken risk above the risk free rate. That's how it works long term. What else are you suggesting to do???

Again, the whole argument implies the boglehead strategy is correct and always will be. What if a perspective young investor sees basket picking quality stocks or active management as the way forward? They would need to come to the indexing conclusion on their own. You can show up with your Bogle book and spew the facts. But they can always fall back on the above argument. Some people will need to learn on their own.

A teenager picking a handful of stocks that he recognizes is easier to understand for a beginner then indexes and comparable rate of return over 50 years.
comparable rate of return? where are you getting that? because you pick a basket of stocks and assume it will be the same rate of return as the index?

even if that were true (though it may not occur) was the risk adjusted return the same? No. You would have taken greater risk for the same return if you held less stocks. The goal is to get the highest RISK ADJUSTED return. That is, the highest return per unit of risk. You can't say a basket of stocks has the same risk profile automatically. It depends on many factors like how big the basket is, how diversified it is and so on.

First to be diversified in a similar way to the market, you'd need to own at least one stock in each sector/industry that represents the market, right? How many would that be? 10 for starters:

Basic Materials
Consumer Goods
Consumer Services
Financials
Health Care
Industrials
Oil & Gas
Technology
Telecommunications
Utilities

Is 10 enough? What's the right amount? How do you know what to buy and what to exclude?

but then you'd need to hold them according to their market weight, otherwise you're carrying a different level of risk. So whatever utility stock you pick that can only represent 3% of your stock holdings. telecommunications can only hold 1.7% of your stock holdings and so on.

Are you going to sell and/or buy when your stocks in each sector get more or less than is represented in the market?

Then how risky is it to just hold 1 stock in each sector? What if you hold the wrong one (the one that doesn't do well). You've got to own more stocks in each sector to lessen your risk (or equal your risk adjusted return) to the market, right?

how many stocks are necessary to be held in this diversified basked then?

isn't it way easier to just buy and hold the market?

that was rhetorical.

the answer is yes.

The argument that the teenager would rather hold a bunch of stocks he knows is a false argument. Why?

By holding the market, he gets to hold EVERY stock he's ever heard of.

Your argument reminds me of the conjunction fallacy. If you truly believe someone would own their favorite stocks, then it makes no sense to NOT own the market (which INCLUDES their favorite stocks AND others).
Seems my point has been largely ignored.

Perhaps OP will take your advice. Wonder what his son will say when Tesla and Amazon are breaking records and his index hasn’t moved in 24 months. “But son you own those stocks” might not suffice :D

You understand the value of indexes. Others do not. It sounds easy to us. But it can be perceived as rather sophisticated to the inexperienced.
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arcticpineapplecorp.
Posts: 7152
Joined: Tue Mar 06, 2012 9:22 pm

Re: Convincing teenager to invest in Roth

Post by arcticpineapplecorp. »

Cam894 wrote: Sun Sep 06, 2020 7:08 pm
arcticpineapplecorp. wrote: Sun Sep 06, 2020 6:39 pm
Cam894 wrote: Sun Sep 06, 2020 1:38 pm
arcticpineapplecorp. wrote: Sun Sep 06, 2020 1:25 pm
Cam894 wrote: Sun Sep 06, 2020 12:05 pm Goldman and most recently SoftBank have made wonderful gains at the markets expense. Large in part due to the rise of retail investing. Expect more index manipulation.
The way they make money is on fees derived from selling/buying and/or working as an intermediary:
https://asia.nikkei.com/Business/SoftBa ... -home-sale

so what? institutional banks have always been intermediaries and underwriters for IPOs, etc.

Where is evidence to substantiate the claim "at the market's expense"?

I'm not sure where the "index manipulation" is coming from that you claim. Investors/pension funds who bought softbank believe there's value there. maybe there is. maybe there isn't.

stocks become part of an index, they fall out of an index.

you're making claims without any specificity and/or evidence to substantiate.

If you want to convince others of index manipulation, you have to provide the evidence. So far, you haven't provided anything.
Cam894 wrote: Sun Sep 06, 2020 12:05 pm The above does not answer my question. How are we to be sure indexes will continue to be a fruitful investment? Perhaps they lag considerably over the next 50 years? What if only a handful of stocks see a rise in value while the rest of the market stagnates? You will still get market return but you can kiss that beach house dream goodbye.
Lag what?

Lag their historical return?

I always said that's a possibility. Past returns may be different from future returns.

But what is the alternative? Take a chance on an individual stock? You have no guarantee of return that way. In fact you have a greater chance losing money with an individual stock than owning the market:
“The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform,” says Bessembinder, who found that the largest returns come from very few stocks overall — just 86 stocks have accounted for $16 trillion in wealth creation, half of the stock market total, over the past 90 years. All of the wealth creation can be attributed to the thousand top-performing stocks, while the remaining 96 percent of stocks collectively matched one-month T-bills.

source: https://wpcarey.asu.edu/department-fina ... sury-bills
Cam894 wrote: Sun Sep 06, 2020 12:05 pm The only evidence we have regarding the viability of indexing is the past performance of the method. 60-70 years is not that long :D
So what is the alternative? Individual stocks? You see how that works for the vast majority of investors. 96 percent of stocks in aggregate matched t bills.

By owning the market, the 4% of all stocks will give you the return of the market, which should (no guarantees) be better than the risk free (tbill) rate because investors should be rewarded for having taken risk above the risk free rate. That's how it works long term. What else are you suggesting to do???

Again, the whole argument implies the boglehead strategy is correct and always will be. What if a perspective young investor sees basket picking quality stocks or active management as the way forward? They would need to come to the indexing conclusion on their own. You can show up with your Bogle book and spew the facts. But they can always fall back on the above argument. Some people will need to learn on their own.

A teenager picking a handful of stocks that he recognizes is easier to understand for a beginner then indexes and comparable rate of return over 50 years.
comparable rate of return? where are you getting that? because you pick a basket of stocks and assume it will be the same rate of return as the index?

even if that were true (though it may not occur) was the risk adjusted return the same? No. You would have taken greater risk for the same return if you held less stocks. The goal is to get the highest RISK ADJUSTED return. That is, the highest return per unit of risk. You can't say a basket of stocks has the same risk profile automatically. It depends on many factors like how big the basket is, how diversified it is and so on.

First to be diversified in a similar way to the market, you'd need to own at least one stock in each sector/industry that represents the market, right? How many would that be? 10 for starters:

Basic Materials
Consumer Goods
Consumer Services
Financials
Health Care
Industrials
Oil & Gas
Technology
Telecommunications
Utilities

Is 10 enough? What's the right amount? How do you know what to buy and what to exclude?

but then you'd need to hold them according to their market weight, otherwise you're carrying a different level of risk. So whatever utility stock you pick that can only represent 3% of your stock holdings. telecommunications can only hold 1.7% of your stock holdings and so on.

Are you going to sell and/or buy when your stocks in each sector get more or less than is represented in the market?

Then how risky is it to just hold 1 stock in each sector? What if you hold the wrong one (the one that doesn't do well). You've got to own more stocks in each sector to lessen your risk (or equal your risk adjusted return) to the market, right?

how many stocks are necessary to be held in this diversified basked then?

isn't it way easier to just buy and hold the market?

that was rhetorical.

the answer is yes.

The argument that the teenager would rather hold a bunch of stocks he knows is a false argument. Why?

By holding the market, he gets to hold EVERY stock he's ever heard of.

Your argument reminds me of the conjunction fallacy. If you truly believe someone would own their favorite stocks, then it makes no sense to NOT own the market (which INCLUDES their favorite stocks AND others).
Seems my point has been largely ignored.

Perhaps OP will take your advice. Wonder what his son will say when Tesla and Amazon are breaking records and his index hasn’t moved in 24 months. “But son you own those stocks” might not suffice :D

You understand the value of indexes. Others do not. It sounds easy to us. But it can be perceived as rather sophisticated to the inexperienced.
1. owning the market by indexing doesn't just sound easy. It is easy. Owning anything but the market is more complicated because you have to determine why you own certain things (and in the percentages you do) but not others. Much simpler (and easier) to say I don't know anything the market doesn't, so I'll just own the market. You don't have to explain why you did what you did that way. But you do have to explain why you did or didn't own something if you own anything but the market. There's a saying, "If you can't beat em, join em".

What's simple is understanding 80% of fund managers do not beat the market in any given year. Do you honestly believe you can beat the market if they can't? What do you know that they don't? If you aren't sure, then you'd just own the market because you can't guarantee yourself you can do better. Simple. Not hard at all to understand.

2. 24 months? Wow, is that your idea of investing? I don't really care what happens to my investments over 24 months. Why? I'm investing for decades. In the end I only care how my investments fared over that time. Most companies don't last that long:
Individual common stocks tend to have rather short lives. The median time that a stock is listed on the CRSP database between 1926 and 2016 is seven-and-a-half years.

source: https://poseidon01.ssrn.com/delivery.ph ... 01&EXT=pdf
3. So, FOMO should be motivating people to buy stocks? But you can't go back and get the returns of the past. You needed to invest before the stocks went up. How would you have known to do that? It wasn't possible to know that. It wasn't obvious. If it was then the price would have risen back then, not now. So it's easy to look back and see what you should have done, not what you should do now. If you buy those stocks that have gone up, the likelihood is future returns are not to be as generous as past returns were. This is called chasing returns. It's one of the reasons stock jobbers underperform the market.

4. I was inexperienced when I started investing. But I read, listened and learned. Then I bought the S&P500 index fund. Later changed to Total stock market index fund, but there's nothing wrong with the S&P500 and the performance is similar as the market overall. You could do far worse, and many who go for an active strategy will.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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arcticpineapplecorp.
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Re: Convincing teenager to invest in Roth

Post by arcticpineapplecorp. »

Cam894 wrote: Sun Sep 06, 2020 12:05 pm Goldman and most recently SoftBank have made wonderful gains at the markets expense. Large in part due to the rise of retail investing. Expect more index manipulation.
Is this what you were referencing:

viewtopic.php?p=5477017#p5477017

why not provide a link so we can understand what your accusations of index manipulation are about?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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