How many of you hire "financial advisors"?

[Leo I]

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As for investments, my only investments currently is citibank's 4.75% savings.

FYI that's not really an "investment". The real return is 4.75 - 4.17 (current inflation) = 0.58%. This is more of an inflation hedge. It just stops your money from shrinking.

If you also have a citibank checking account you'd probably make more money by switching to a bank that doesn't charge monthly fees.

 

[CameronFrye]

I notice a few people here seem to believe that all you need to know about investing is to gain instant diversification by buying index funds. That's not a strategy for all economic seasons. You need to know what to do if there the financial mileau changes. Stocks are not the only investment. For example, if you held your money in index funds throughout the 1970's you would have ended the decade down 30%. If you are buying and holding the S&P 500 or the Q's, you're basically gambling that the next decade will resemble the previous two, economically. That's fine as long as you know what to do if it becomes apparant that's not the case. What would you do if the barrel dollar price of oil doubled next month? Few people believe that Bernanke can continue his hiking campaign because of the effect on the real estate market. With the country as heavily leaveraged as it is now it looks like the Fed is essentially powerless to curtail growth without inducing massive recession. Are index funds really the best investment if the CPI hits or approaches double digits? If you don't have answers to those questions you probably need to do a lot of further research or see an adviser. Good financial advice is rarely a waste of money. In fact the more you know about finances the more you can learn from an advisor.


When it comes to investing in a changing and often unpredictable world, having at least one "plan B" is of cardinal importance.

Well, when I say index funds, I am also referring to bond, REIT, international, and total stock market index funds, not just S&P 500 index funds which probably aren't a great investment (unless you are adding small cap index and value index funds).

Also, most of the people on this board are in their 20's or low 30's. If the market tanks like it did during the 70's, then they should stay the course (and possibly increase their exposure to equities depending on their risk tolerance). Those investors who fled the market during the 70's bear market got burnt and those who stayed fully invested made a huge fortune. Jumping in and out of the market is a horrible idea and usually leads to buying high and selling low. Actually, people who are just beginning to invest should hope for a long drawn out bear market (and those people on the verge of retirement should hope for a bull market).

While stocks aren't the only investment (and I do strongly recommend that every porfolio should have bond and real estate exposure), stocks are basically the only investment that has historically outpaced inflation (real estate has also). While there are no guarantees about future returns, stocks are probably your best bet. Parking your money in your "safe" savings account may make you feel all warm and fuzzy, but 30 years from now you'll have a lot less purchasing power b/c of inflation.

I do agree that everyone should try to educate themselves about this stuff.

 

[The White Coat Investor]

I notice a few people here seem to believe that all you need to know about investing is to gain instant diversification by buying index funds. That's not a strategy for all economic seasons. You need to know what to do if there the financial mileau changes. Stocks are not the only investment. For example, if you held your money in index funds throughout the 1970's you would have ended the decade down 30%. If you are buying and holding the S&P 500 or the Q's, you're basically gambling that the next decade will resemble the previous two, economically. That's fine as long as you know what to do if it becomes apparant that's not the case. What would you do if the barrel dollar price of oil doubled next month? Few people believe that Bernanke can continue his hiking campaign because of the effect on the real estate market. With the country as heavily leaveraged as it is now it looks like the Fed is essentially powerless to curtail growth without inducing massive recession. Are index funds really the best investment if the CPI hits or approaches double digits? If you don't have answers to those questions you probably need to do a lot of further research or see an adviser. Good financial advice is rarely a waste of money. In fact the more you know about finances the more you can learn from an advisor.


When it comes to investing in a changing and often unpredictable world, having at least one "plan B" is of cardinal importance.

Your post seems to suggest that by analyzing the current financial situation that you can somehow predict which assets will outperform in the future. The available evidence suggests your approach to be faulty. Market-timing is extremely difficult to do.

Your post also reveals a lack of understanding of index funds. As pointed out above, an index fund allows one to capture the return of a particular asset class with a minimum of expenses. Many people confuse the idea of index funds with the original index funds, generally modeled after the S&P 500, which of course is composed of large stocks. When large stocks do poorly, so does an index fund that tracks their index. And any fool who decides to buy QQQs as part of their asset allocation deserves what they get. As I understand it, QQQs are completely invested in a single sector of the economy (tech.) Might I suggest you read up a bit more on index funds before dismissing them: Ferri's All About Index Funds and Bogle's On Mutual Funds are good places to start.

Investing in active mutual funds is not a bad way to go, but you need to understand that 80% of investors (and almost all doctors) will be better off in the respective index fund for that asset class.

Naturally, if the CPI hits double digits it would be best to be invested in TIPS (bought before anyone realizes the CPI is headed for double digits of course) and when it does hit the double digits lock it in with long term bonds for the next 30 years, but in general stocks (and naturally, stock index funds) have been OK at keeping up with severe inflation, especially those in natural resources, REITs and other commodities.

I agree that good advice is rarely a waste of money. The problem is telling what is good advice when you hear it. I disagree that knowing more is necessarily better. Sometimes we spend so much time and effort trying to time the market with our "knowledge" that we actually end up doing worse than someone that just bought and held.

 

[Jocomama]

Good post.
Keep it simple. Doctors reading their medical economics, or some book on investing, are just that: like an MD that thinks they can perform surgery after their MD and at a PGY3 level in General Surgery.

Index funds be it S&P 500, or any specialty area as noted are fine for long term fund investing, such as retirement. I would not agree that the S&P 500 is a poor investment. It depends upon your age, your income, assets, etc/.

The funny part about these threads are when authors try and suggest one thing or group of things as good or bad. Like medicine, there are a slew of variables that affect our decisions.

I am 43. I have real estate, private equity investments and secured high-yield investments. Less than 10% of my assets are in stock/funds. However, the S&P 500 index is where 25% of my 401k is located.
15 years ago, I might have had more.

So - if I had to advise here is my 2 cents:
1. Split your retirment (ROTH, 401, whatever) into 3 or 4 tiers. The younger you are, the more agressive the fund (and I say fund, because most on these forums are not high-worth individuals with a lot of personal experience with investing). The older we are, then more secure mixed income funds, with a stable 10yr ROI. PIMCO is a great place to start learning about Bond funds. They have funds that mix bond value with interest rates, so as one goes up the other goes down and vice versa.
2. Don't buy CDs at this time unless they are short term. As the rates increase, you could be in a 5% CD for 5 yrs and see 1 yr CDs at 8% in a few years. We are on the upswing of an increasing yield environment.
3. IF you buy mutual funds, don't look at them. Have an auto deposit of $100 from every paycheck, and leave them alone.
4. Diversify? That could mean buying a mix of aggressive stock funds through stable bond funds. It could mean US and foreign funds. It also means, funds, bonds and CD. And then it also means Annuities, funds, stocks, bonds, real estate, etc.
Unless you have a strong income, with time to play, don't get into things you don't know.

Golden rule? Invest in what you know - medicine. Unless you have years in business, just keep it simple.

Oh, in regards to CPI. THis is just one of multiple economic indicators. Double digit CPI? Who cares? Are you (Desperado and CameronFry) looking at PPI? What about the CPI excluding energy? What about the influence of the NPMI? Guys - this is a student doctor forum, not some esoteric economic site.
K-I-S-S

I agree with CameronFry; it is good to learn about this over the years. But do not fool yourself. Like a Chief Resident in General surgery who has not been on the other side of the table. The more complications we have, the more humble we become. Be careful with any major decision or change in simple investing. If you have a family member or friend that you go back 5-10 yrs with, and they are very successful, then it's OK to put your money where they put their money. There are no get-rich-quick schemes. Oh, and remember we are targets. I was on the other side. You would get sick if you had to listen to the marketing towards doctors that banks conjure up. I was, so I returned to medicine.

Well, when I say index funds, I am also referring to bond, REIT, international, and total stock market index funds, not just S&P 500 index funds which probably aren't a great investment (unless you are adding small cap index and value index funds).

Also, most of the people on this board are in their 20's or low 30's. If the market tanks like it did during the 70's, then they should stay the course (and possibly increase their exposure to equities depending on their risk tolerance). Those investors who fled the market during the 70's bear market got burnt and those who stayed fully invested made a huge fortune. Jumping in and out of the market is a horrible idea and usually leads to buying high and selling low. Actually, people who are just beginning to invest should hope for a long drawn out bear market (and those people on the verge of retirement should hope for a bull market).

While stocks aren't the only investment (and I do strongly recommend that every porfolio should have bond and real estate exposure), stocks are basically the only investment that has historically outpaced inflation (real estate has also). While there are no guarantees about future returns, stocks are probably your best bet. Parking your money in your "safe" savings account may make you feel all warm and fuzzy, but 30 years from now you'll have a lot less purchasing power b/c of inflation.

I do agree that everyone should try to educate themselves about this stuff.

 

[CameronFrye]

Good post.
Keep it simple. Doctors reading their medical economics, or some book on investing, are just that: like an MD that thinks they can perform surgery after their MD and at a PGY3 level in General Surgery.

Index funds be it S&P 500, or any specialty area as noted are fine for long term fund investing, such as retirement. I would not agree that the S&P 500 is a poor investment. It depends upon your age, your income, assets, etc/.

The funny part about these threads are when authors try and suggest one thing or group of things as good or bad. Like medicine, there are a slew of variables that affect our decisions.

I am 43. I have real estate, private equity investments and secured high-yield investments. Less than 10% of my assets are in stock/funds. However, the S&P 500 index is where 25% of my 401k is located.
15 years ago, I might have had more.

So - if I had to advise here is my 2 cents:
1. Split your retirment (ROTH, 401, whatever) into 3 or 4 tiers. The younger you are, the more agressive the fund (and I say fund, because most on these forums are not high-worth individuals with a lot of personal experience with investing). The older we are, then more secure mixed income funds, with a stable 10yr ROI. PIMCO is a great place to start learning about Bond funds. They have funds that mix bond value with interest rates, so as one goes up the other goes down and vice versa.
2. Don't buy CDs at this time unless they are short term. As the rates increase, you could be in a 5% CD for 5 yrs and see 1 yr CDs at 8% in a few years. We are on the upswing of an increasing yield environment.
3. IF you buy mutual funds, don't look at them. Have an auto deposit of $100 from every paycheck, and leave them alone.
4. Diversify? That could mean buying a mix of aggressive stock funds through stable bond funds. It could mean US and foreign funds. It also means, funds, bonds and CD. And then it also means Annuities, funds, stocks, bonds, real estate, etc.
Unless you have a strong income, with time to play, don't get into things you don't know.

Golden rule? Invest in what you know - medicine. Unless you have years in business, just keep it simple.

Oh, in regards to CPI. THis is just one of multiple economic indicators. Double digit CPI? Who cares? Are you (Desperado and CameronFry) looking at PPI? What about the CPI excluding energy? What about the influence of the NPMI? Guys - this is a student doctor forum, not some esoteric economic site.
K-I-S-S

I agree with CameronFry; it is good to learn about this over the years. But do not fool yourself. Like a Chief Resident in General surgery who has not been on the other side of the table. The more complications we have, the more humble we become. Be careful with any major decision or change in simple investing. If you have a family member or friend that you go back 5-10 yrs with, and they are very successful, then it's OK to put your money where they put their money. There are no get-rich-quick schemes. Oh, and remember we are targets. I was on the other side. You would get sick if you had to listen to the marketing towards doctors that banks conjure up. I was, so I returned to medicine.

My issue with S&P 500 index funds is that they aren't as diversified as other options. They are mostly large cap stocks (although they are not just the largest 500 companies in the US, as most people believe) and you miss out on thousands of smaller companies. That's why I would prefer a total stock market index fund, or a slice and dice approach that combines an S&P 500 index fund with a small cap index. It just provides more diversity (and potentially higher returns if you believe that the historical superiority of small caps will continue).

 

[Orange Julius]

I notice a few people here seem to believe that all you need to know about investing is to gain instant diversification by buying index funds. That's not a strategy for all economic seasons. You need to know what to do if there the financial mileau changes. Stocks are not the only investment. For example, if you held your money in index funds throughout the 1970's you would have ended the decade down 30%. If you are buying and holding the S&P 500 or the Q's, you're basically gambling that the next decade will resemble the previous two, economically. That's fine as long as you know what to do if it becomes apparant that's not the case. What would you do if the barrel dollar price of oil doubled next month? Few people believe that Bernanke can continue his hiking campaign because of the effect on the real estate market. With the country as heavily leaveraged as it is now it looks like the Fed is essentially powerless to curtail growth without inducing massive recession. Are index funds really the best investment if the CPI hits or approaches double digits? If you don't have answers to those questions you probably need to do a lot of further research or see an adviser. Good financial advice is rarely a waste of money. In fact the more you know about finances the more you can learn from an advisor.


When it comes to investing in a changing and often unpredictable world, having at least one "plan B" is of cardinal importance.

Interesting post. A lot of people seem to plan their investments based on what would have gotten them through the last financial crisis. The current index fund craze is a case in point. It would have been a great option for weathering the storm during the tech bubble. But if like in the example you give, we were to head into another 1970's (a frightening thought) this 'safety driven' index fund approach would lead you into a world of pain.

When it comes to investing it's important to have enough character to stick with your plan and not sell at the slightest whim of the market. But it's also important to know when to alter or change the plan when it clearly isn't in tune with the times.


👍

 

[Orange Julius]

Naturally....... but in general stocks (and naturally, stock index funds) have been OK at keeping up with severe inflation, especially those in natural resources, REITs and other commodities..

Yes, natural resources, energy and real estate would be an excellent way to go in an inflationary climate. Index funds actually would not. The real asset portfolio you mention here is, I'm guessing, exactly what atilla was referring to as a Plan B. I'd agree.

While you preface this with "Naturally..." there's nothing obvious about it unless you've done your homework. I'm shocked at the number of gung ho index funders I meet who couln't formulate an alternative investment strategy like that.

The advice I'd give anyone who likes the diversity of mutual and index funds is to do as Desperado has done and formulate alternative investment strategies. It pays to be prepared.