Comments on: Leave Investing To The Professionals

By: Rob

Rob — Mon, 17 May 2010 21:45:30 +0000

The maths of investing for yourself simply doesn't work as I try and explain here
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By: Charlie Munger on banking

Charlie Munger on banking — Sat, 15 May 2010 10:48:43 +0000

[...] Leave investing to the pros [I disagree!] – Mr CC on Investor Junkie [...]

By: Monevator

Monevator — Sat, 15 May 2010 01:47:02 +0000

I think and have argued on my site that most people are best employing asset allocation and rebalancing according to set rules/boundaries. Otherwise they start trying market timing and so on which compounds their problems.

For the average Joe, it's probably about finding a particular portfolio asset you mix that you find appealing intellectually and that you can have faith in. (By the time you find out (if) it was the wrong mix, it'll probably be too late anyway…)

By: Monevator

Monevator — Sat, 15 May 2010 01:43:57 +0000

Cheers for your thoughts. I've heard persuasive argument from flesh and blood fund managers that it's even better than just the difference from the index, in aggregate (they have other costs that they also subtract from their mild outperformance, they claim). Who knows?

Another benefit of indexing of course, compared to a fund, is you avoid outlying poor results. At least you'll get average results. For most people average is good enough.

Hmm, 2008 was for me a lesson to buy government bonds next time everything else is expensive. They were about all that held up (apart from cash and (holds nose) gold )

By: DIY Investor

DIY Investor — Fri, 14 May 2010 21:52:10 +0000

The problem is this: the evidence shows that if you do your homework and pick the 10 best pros you can who will charge you between 1 and 2% to manage your money, trade the portfolio and incur trading costs, and in taxable accounts create capital gains etc.- that 9 out of 10 after 20 years will be significantly behind the market and behind an indexed ETF approach that costs 25 basis points or less. If you think you can pick the 1 in 10 that will outperform then by all means go for it!
My view is that most people should not risk their retirement funds by trying to pick the 1 white ball from the 9 black balls.

By: Investor Junkie

Investor Junkie — Fri, 14 May 2010 11:39:21 +0000

I assume you have an asset allocation strategy? If not I can recommend some great books on the subject.

By: Friday Finance Followers – Shameless Promotion Edition

Friday Finance Followers – Shameless Promotion Edition — Fri, 14 May 2010 11:24:10 +0000

[...] says to leave investing to the professionals. No problems with that statement here. There are too many variables I don’t understand in [...]

By: Kyle C.

Kyle C. — Fri, 14 May 2010 11:11:29 +0000

That is actually what i am doing right now. I have an investing account now where I am investing in a NTF index fund of the S&P 500. It is a pretty broad index to invest in but I don't have to pay to buy in and the management fees are super reasonable since it doesn't take much management to deal with.

By: Investor Junkie

Investor Junkie — Thu, 13 May 2010 23:16:14 +0000

How about a small (5% or less) betting on speculative investments? This can include things like using margin and options.

I believe this gives you the ability to pick interesting investments that could pay off handsomely, yet you are not betting the farm.

By: Mr Credit Card

Mr Credit Card — Thu, 13 May 2010 02:49:08 +0000

I want to clarify something here.. For most folks who want to DIY, indexing is the way to go. The main theme of this post is my view that most of us are terrible at investing and should leave it to the pros. But if you believe pros cannot outperform the market, then by all means go ETF.

But having said that asset allocation requires lots of thoughts as well. If you have stuck with a traditional 60/40 allocation (equity vs debt) in 2008, you would have been crushed as well (passive or active).

I think my ending sentence says it all – focus on making money, and do not be too hung up over just outperforming the index and get too upset if you underperform slightly (however your money is being managed).

By: Investor Junkie

Investor Junkie — Wed, 12 May 2010 23:40:31 +0000

As you more than likely know management fees typically equal the difference that actively managed funds trail an index. With that said if I had my choice between only an index and an active manager I would pick the index for most equities (there are some exceptions). Most of my portfolio is indexed base (80%). The portion that is actively managed approx 15% is managed by me. I personally would go no more than 20-25% actively managed.

Out of the 15% – 10% I have small calculated risky bets in specific stocks. Some like APPL have paid out very handsomely (190% return)

Is stock picking for everyone? Definitely no. Most people should stick to index based funds. 2008 stock market showed asset allocation, while correlation has increased between different assets, is still the best way to manage risk. If I were to recommend one thing to new investors it's learn proper asset allocation.

Actively managed funds should be used in things like emerging market bond fund, GNMA, or say muni bonds. Something that has a small market, market liquidity is low, hard to research about and would need a large sum to diversify.

By: Monevator

Monevator — Wed, 12 May 2010 19:23:31 +0000

I would (and do) trade stocks and do my own asset allocation ahead of paying someone else to do it.

But I'd always recommend passive investment to those who aren't prepared to make investing into the near full-time hobby I've done!

Partly I wouldn't pay because I think fees hurt returns, and partly because why would I pay someone to have all the fun!

By: Evan

Evan — Wed, 12 May 2010 17:53:54 +0000

I really do go back and forth on the index vs active mutual funds, but leavig your investing to a professional has other benefits including a buffer to sell before you freak out.

By: Investor Junkie

Investor Junkie — Wed, 12 May 2010 15:16:50 +0000

Hi Kyle,

Why not index instead of actively managed funds?

By: DIY Investor

DIY Investor — Wed, 12 May 2010 11:54:22 +0000

Disagree with 90%. The evidence clearly shows that if you give the 10 best managers in whatever area (small cap, s&P 500, value etc.) that 7 will underperform over the short term (10 years and under) and 9 will underperform in the long run. Furthermore, you can’t pick the ones that will outperform! Their performance doesn’t persist. They can’t overcome the costs involved with their management including trading costs, bid-ask spreads etc. The best approach is for most investors to buy low cost index funds.
The asset allocation is not that difficult and in fact the individual can likely do a better job than the pros. In today’s market for example an individual can easily raise an additional 5% cash if they are uncomfortable. Unfortunately most try to contact their advisor who doesn’t return the call and if they do they try to persuade them to “stay the course” etc.
Agree that individuals should forget buying and selling stocks and should stick with etfs or funds. If they think they are great stock pickers then do it with no more than 20% of assets.

By: Kyle C.

Kyle C. — Wed, 12 May 2010 03:33:11 +0000

I couldn’t agree more. There is a very specific reason I don’t trade stocks. I don’t have the foggiest idea as to why I would choose one over the other. Aside from picking companies whose products I use regularly I wouldn’t have a clue what makes one stock better than the other. I will leave that to the pros.