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.