Stupid Investment Advice

[WOM]

Stupid Investment Advice

If you've never seen this, it's good. it distills financial security down to what fits on an index card. My own card would read slightly differently, but the bones are essentially the same.



From here: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/16/this-4x6-index-card-has-all-the-financial-advice-youll-ever-need

[Ginger Yellow]

Stupid Investment Advice

Post deregulation we seem to have gone into cycles of massive volatility which aren't the long-term, gradual growth that you'd want for a pension investment.

You don't need steady, gradual growth for a pension investment, if you're not close to retirement. All you need* is for the long-run trend to beat out inflation and/or the deposit rate. Note that even if you'd invested a lump sum entirely in equities at either of the last two peak, you'd still be up around30% (plus dividends!).Which is not great over 15 years, but better than what you'd have got in a bank account too.

*Absent fraud, or an underfunded defined benefit scheme or the like.

[Bored Of Education]

Stupid Investment Advice

WOM wrote:

Anyway, this morning, we got a "Welcome to your new home" card with a note saying that his hitherto unmentioned £250 arrangement fee was now due. As far as I remember, financial directors get paid off the mortgage company solely.

I'm pretty sure there aren't actually any rules on what fees a mortgage advisor can charge, as long as they are disclosed in the required way. They're certainly able to charge customers directly rather than the lender.

And therein lies a very important lesson, of course: any time you're getting a financial service - from mortgage brokering to insurance brokering to investment guidance/financial planning - ask yourself how this person is getting paid. If the money isn't coming directly out of your pocket, the person is in a conflict of interest situation and should disclose fully.

Oh, I know all that. I accept that he is going to push me in the direction of the company that will give him a good commission. I just don't expect to get charged for the service as well.

[caja-dglh]

Stupid Investment Advice

There is some splendid ex-ante and ex-post work going on here.

[WOM]

Stupid Investment Advice

Did you sign a contract to that effect in advance? If not, don't pay it.

[Bored Of Education]

Stupid Investment Advice

I didn't sign a bloody thing. I just phoned him up.

[WOM]

Stupid Investment Advice

caja-dglh wrote: There is some splendid ex-ante and ex-post work going on here.

Not by me, I hope. I haven't quoted returns, nor will I. Who knows what you'll earn over a lifetime? I only know you stand a far better chance of retiring comfortably if you invest inexpensively in equities than if you invest in anything more secure/predictable.

[WOM]

Stupid Investment Advice

Bored of Education wrote: I didn't sign a bloody thing. I just phoned him up.

Well, fuck him then. Unless you verbally agreed to something and he has a recording of the conversation (which you agreed to in advance).

[caja-dglh]

Stupid Investment Advice

"Never buy or sell a single security" is a ridiculous waste of three lines on that index card.

And completely bogus.

[WOM]

Stupid Investment Advice

Perfectly valid. He's trying to thwart stock picking, which is a mug's game.

[Ginger Yellow]

Stupid Investment Advice

You must have signed something to get a new mortgage/remortgage, surely? For instance, the paperwork you referenced in the original post.

[caja-dglh]

Stupid Investment Advice

Claiming the person on the other side of the table knows more than you is trying to make finance seem way more complicated than it is.

Stock picking is only a mugs game if you pick stocks like lottery numbers. If you are interested in it then it can be a perfectly valid pursuit as part of a diversified portfolio. Sure it shouldn't be your main plan.

[caja-dglh]

Stupid Investment Advice

As for the mortgage fee - phone them and ask where the fee came from. They should have the duty of care to back it up.

[WOM]

Stupid Investment Advice

Okay. But if you're getting your financial plan on an index card, you're not a terribly a) sophisticated or b) interested investor. For 98% of the population, they should never, ever buy single securities.

Are they qualified to research a company's balance sheet, prospects, board members, etc and make an educated decision to invest? Please. Most financial advisors can't get fund-picking right, and they spend years doing it with proprietary computer models. Most of which, after fees, will lag the index they intend to beat.

Bogle ran a model where he looked back 25 years and tried to market-time to beat his Vanguard index. He calculated that the odds of doing it with just one trade a month would be 1 in 4096.

You can't beat the index, consistently, after fees by buying and selling individual stocks or actively managed funds. They've written books on it. It's impossible. Yet punters keep trying and the entire industry promotes it.

[Ginger Yellow]

Stupid Investment Advice

You got a KFI, right? The fee should be detailed in section 8. If it's not, then you've got a valid complaint. Section 13 should include the commission

[WOM]

Stupid Investment Advice

Don't take my word. Read "The Smartest Investment Book You'll Ever Read" by Daniel Solin. He makes the case, in excruciating detail, for a four-index 'couch potato' portfolio that will absolutely, positively beat any single stock or actively managed portfolio. Bogle does the same in "Enough". Chilton does the same in "The Wealthy Barber Returns".

[Ginger Yellow]

Stupid Investment Advice

Well, it clearly won't beat any actively managed fund or stock. It's more that you (as a retail punter anyway) can't select a stock or a managed fund ex ante that will beat it.

[WOM]

Stupid Investment Advice

Yes, that's clearer. I've forgotten the exact figures from my iShares days, but it's something like 80% of actively managed funds trail their index in any give year, and 95% do over a five year span. So, yes, you might be one of the lucky five percent.

I can't image a scenario where the case for active investing gets better over, say, a 35 year span. But I can't prove it doesn't.

[ursus arctos]

Stupid Investment Advice

I'm intrigued by this scam that Bored appears to be falling into.

People in the UK just phone blokes up and refinance mortgages with no documentation?

[caja-dglh]

Stupid Investment Advice

You mean you haven't received a pre-approved small business loan?

[anton pulisov]

Stupid Investment Advice

and still return roughy 4 to 6 percent, because that's what the standard profitability of a US company on the S&P 500 is. And that's why you're investing in them, and not trying to chase the next Google.

I think I've been misunderstood, because I'm not recommending anybody to chase stocks. That is indeed like trying to win at the horses.

I'm just not sure if the days of guaranteed annual return of 6% over a whole lifetime still exist when it looks like the west has embarked on a Japan style debt deflation spiral, combined with the passing of peak growth the petroleum based economic model.

The Nikkei:

[WOM]

Stupid Investment Advice

Yup. Way out of my wheelhouse. Maybe a GY sort of thing.

[ursus arctos]

Stupid Investment Advice

The days of "guaranteed annual return of 6% over a whole lifetime" have never existed in human history.

[anton pulisov]

Stupid Investment Advice

I don't think so either. But it was what I was also taught at an investment course I took in 2001 when an investment banker from ING told us that the stock market always goes up 6% per year. He demonstrated this by using 50 years of AEX (Amsterdam) data. To me it seemed like a less than rigourous analysis. I mean, you could get oil almost for free for between 1950 and 1973, and for slightly more than free between the late 70s and early 2000s. The oil isn't going to last forever, so profits based on cheap oil hardly will either.

[WOM]

Stupid Investment Advice

True. But. like the phantom cohort of instant retirees, oil won't run out overnight. Unless we're talking about constricted output, oil will slowly rise in price over a period of time, and the overall economy will adapt. Higher energy prices will be worked gradually into the cost of goods and services. As Jeff Rubin points out in Why Your World Is About To Become A Whole Lot Smaller, offshored industries will return to closer environs to save on shipping costs. New energy sources will give birth to new companies and ways of doing business. Business will add higher costs into its pricing models.