"Top 5 Ways to Manage Your Money"

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Taylor Larimore
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"Top 5 Ways to Manage Your Money"

Post by Taylor Larimore » Sat Sep 09, 2017 11:02 am

Bogleheads:

The Physician on Fire website has an article about different ways to manage our money. This is the first way (underline mine):
1. DIY (Do It Yourself):

Invest in low cost stock and bond funds. Diversify. Invest early and often. Know the tax implications. Create an Investor Policy Statement with a thoughtful asset allocation for your portfolio. Read a recommended book or three. Avoid costly mistakes.

Acknowledge that you don’t know what you don’t know, like the future for example. Educate yourself. Understand that time in the market beats timing the market. When you have a question, you ask it in the Bogleheads Forum and get free advice from intelligent and experienced investors, several of whom have published successful investment books.
Top 5 Ways to Manage Your Money

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Top 5 Ways to Manage Your Money"

Post by DireStraits » Sat Sep 09, 2017 5:24 pm

DIY and the two paragraphs that follow, make sense to me.

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Re: "Top 5 Ways to Manage Your Money"

Post by abuss368 » Sun Sep 10, 2017 8:34 am

A good article and great mention of the Bogleheads!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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TD2626
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Re: "Top 5 Ways to Manage Your Money"

Post by TD2626 » Sun Sep 10, 2017 9:22 am

An interesting article. It is interesting that it says that DIY management of one's funds can be either the best or the worst possibility (depending on one's knowledge and temperment). Going with the local "Edward Jones" person is clearly not the way to go, but the article points out that anything is better than someone intending to do speculative market timing. The best solution though is for people to educate themselves enough to understand sound financial management practices since lazy portfolios make things fairly simple for those who desire low complexity. If they're unwilling or unable, low cost advice is avaliable. Seriously, though - given that one's investment earnings, over the course of a lifetime, may potentially earn you more than your job, wouldn't everyone want to put into personal finance the same effort they devote to their careers?

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FiveK
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Re: "Top 5 Ways to Manage Your Money"

Post by FiveK » Sun Sep 10, 2017 9:38 pm

TD2626 wrote:
Sun Sep 10, 2017 9:22 am
Seriously, though - given that one's investment earnings, over the course of a lifetime, may potentially earn you more than your job, wouldn't everyone want to put into personal finance the same effort they devote to their careers?
A reasonable position.

Currently the educational system in which one participates starting ~age 5 is geared toward career pathways, with little (sometimes no) mention of personal finance. It thus isn't surprising that many folks are relatively clueless about that subject.

The stereotypically abysmal 403b plans in most K-12 school districts is one symptom: if the teachers don't understand it, how are they supposed to teach the students?

Those who break the stereotype deserve our thanks and congratulations.

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Re: "Top 5 Ways to Manage Your Money"

Post by TD2626 » Mon Sep 11, 2017 12:17 am

FiveK wrote:
Sun Sep 10, 2017 9:38 pm
TD2626 wrote:
Sun Sep 10, 2017 9:22 am
Seriously, though - given that one's investment earnings, over the course of a lifetime, may potentially earn you more than your job, wouldn't everyone want to put into personal finance the same effort they devote to their careers?
A reasonable position.

Currently the educational system in which one participates starting ~age 5 is geared toward career pathways, with little (sometimes no) mention of personal finance. It thus isn't surprising that many folks are relatively clueless about that subject.

The stereotypically abysmal 403b plans in most K-12 school districts is one symptom: if the teachers don't understand it, how are they supposed to teach the students?

Those who break the stereotype deserve our thanks and congratulations.
It is surprising that almost no one talks about financial literacy, and almost no one cares about their investments (few want to really learn how investing works). Those who do try to encourage financial literacy do deserve much thanks.

It's pretty critical, though. As I noted in my post, one could potentially earn more from investing than from one's career. (Note - in my opinion, most people may instead earn 20 - 30% of lifetime earnings through investing; but if you are very frugal, have a high savings rate, have a high risk tolerance, and invest in an equity-dominated portfolio over many decades, it's possible that after decades, dividends and capital gains could dwarf wages. The stock market would have to do fairly well for this to be the case, though.)

It is not hard to learn enough to be in the "category 1" position as specified in the article. The compounded savings are enormous when you compare it to a 1.5% AUM fee.

In many ways, the fact that someone with only a small amount of experience can simply buy a target-date or target-risk fund and get returns that anyone would likely envy democratizes investing. I've been realizing as I learn more about investing that there's little that knowledge and experience can do to improve upon a target-date or target-risk fund.

What does deep knowledge of portfolio theory get you? Maybe you can do a three-fund portfolio over a target date and save a handful of basis points in fees. Managing that is simple and something that most could likely do. Beyond that, can one improve. Maybe you can get some risk-adjusted outperformance from tilting to small-value, or REITS, or adding TIPS, or (insert strategy here). Doing this, though, requires many hours of learning and at best could only possibly provide, say, basis points worth of risk-adjusted outperformance. So this is really a case of diminishing returns of investment knowledge.

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Re: "Top 5 Ways to Manage Your Money"

Post by bertilak » Mon Sep 11, 2017 10:39 am

Taylor Larimore wrote:
Sat Sep 09, 2017 11:02 am
Bogleheads:

The Physician on Fire website has an article about different ways to manage our money. ...
Top 5 Ways to Manage Your Money

Best wishes.
Taylor
Thanks, Taylor. That is excellent.

I also followed these two links (given in the above) for more equally excellent writings ... We all know that doctors are reasonably intelligent. We should be thankful that a few of them
  1. apply that intelligence to finance and investing, and
  2. share their insights with us.
P.S. After a slightly more than cursory search I could not put an actual name (or BH ID) to PoF.
Listen very carefully. I shall say this only once. (There! I've said it.)

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Re: "Top 5 Ways to Manage Your Money"

Post by PhysicianOnFIRE » Tue Sep 12, 2017 9:45 pm

bertilak wrote:
Mon Sep 11, 2017 10:39 am
Taylor Larimore wrote:
Sat Sep 09, 2017 11:02 am
Bogleheads:

The Physician on Fire website has an article about different ways to manage our money. ...
Top 5 Ways to Manage Your Money

Best wishes.
Taylor
Thanks, Taylor. That is excellent.

I also followed these two links (given in the above) for more equally excellent writings ... We all know that doctors are reasonably intelligent. We should be thankful that a few of them
  1. apply that intelligence to finance and investing, and
  2. share their insights with us.
P.S. After a slightly more than cursory search I could not put an actual name (or BH ID) to PoF.
I'm glad you enjoyed those, and thank you for sharing. Also, thank you to the venerable Mr. Larimore. I thanked him via private message and he replied as the eyewall of Irma was nearly bearing down on him!

I haven't associated my real name with the Physician on FIRE moniker, but I've been lurking and occasionally posting here for years.

:beer
-PoF

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Re: "Top 5 Ways to Manage Your Money"

Post by RadAudit » Wed Sep 13, 2017 6:40 am

TD2626 wrote:
Mon Sep 11, 2017 12:17 am
In many ways, the fact that someone with only a small amount of experience can simply buy a target-date or target-risk fund and get returns that anyone would likely envy democratizes investing.
Hope you are correct.

I put the wife and kids in these funds knowing that they didn't have the time or inclination to become interested in investments.

I'm thinking that I might switch from a three (four) fund portfolio to a target date fund in a few more years. Of course, the kids might be a little disappointed because of possibly foregone appreciation as the portfolio goes toward 30 / 70 to minimize volatility; but, they'd be a lot more disappointed if I make any one of a host of other possible mistakes.
"Everything will be all right in the end. If everything is not all right, then it is not the end." - The Best Exotic Marigold Hotel

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