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Old 09-13-2009, 12:31 PM   #1
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DIY

I guess that Larry and Bill would include this gang in the 1% that DIY works for.

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Larry Swedroe recently wrote a MoneyWatch column entitled Should Investors Do It Themselves? In it, Larry referenced a piece written by William Bernstein in the Efficient Frontier entitled The Probability of Success, which presents four arguments against investors managing their own portfolios. Though interesting and persuasive, I must respectfully disagree with three of the four.

Before I start, let me offer a little candor. William Bernstein and Larry Swedroe are not only two of the smartest guys I know, but are also among the few white hats in the investing world. Both are prolific financial writers, and I ought to know since I buy and read everything they put out. In fact, Dr. Bernsteinís upcoming book, The Investorís Manifesto, is one I ordered two months ago and predict will be sensational. So for the record, I am 99% in agreement with Bernstein and Swedroe. However, itís the pesky little 1% that fuels this column. Or maybe itís that tendency I have that seems to me to be devilís advocacy, and seems to my wife to be argumentativeness.
Should Average Investors Do It Themselves? An Alternative Viewpoint - CBS MoneyWatch.com
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Old 09-13-2009, 03:21 PM   #2
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I have to admit that I vacillate between two extremes. My thoughts are either,
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NOBODY cares as much about my money as I do.
or, when in a harried and fearful mood, or remembering how certain banks mishandled my mother's trust funds,
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They're thieves, I tell you! They're just a bunch of g**d***** scoundrels and thieves!
Honestly I don't see how anybody can confidently retire on a decent portfolio income these days if they or a loved one cannot DIY.
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Old 09-13-2009, 04:48 PM   #3
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Honestly I don't see how anybody can confidently retire on a decent portfolio income these days if they or a loved one cannot DIY.
What she said.
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Old 09-13-2009, 05:07 PM   #4
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What I know is that I cannot afford to have a "professional" take care of my finances. I tried and the various fees and commissions gobbled up most of my gains... The cost of having a professional take care of one's finances can easily add up to 2-3% of one's portfolio annually, and with a maximum withdrawal rate of 3-4%, there wouldn't be much left to live on...
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Old 09-13-2009, 05:17 PM   #5
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I've probably lost some gains by doing it myself but now I think going forward I'm very comfortable with my investment approach. Would not want to turn it over to someone like even Larry Swedroe who I think charges something like 1.6% and provides DFA access. I do like much of the advise Larry gives out and have read his books. For someone else the 1.6% fee (or whatever) might be well worth it -- this is a highly individual consideration. One size doesn't fit all.
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Old 09-13-2009, 05:21 PM   #6
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IMHO, index funds and low fee balanced funds like VG Wellesley have made it possible for common folks to manage their own portfolio.
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Old 09-13-2009, 06:02 PM   #7
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IMHO, index funds and low fee balanced funds like VG Wellesley have made it possible for common folks to manage their own portfolio.
What he said. Periodic fee-based advising to refine asset allocation and then implementation through index and Wellesley, etc. funds seems like best way to go.
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Old 09-13-2009, 08:04 PM   #8
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I was not - although I wish when I was young:

1. Don't read books! Watch the Market or any of that study investing stuff. Find a mentor big enough and mean enough to whack you around the head and shoulders with a wet squirrel until you understand the logic (not the dang numbers!) of indexing.

'God Looks After Drunkards, Fools and The United States of America.' It's time in the market not market timing, stupid. An optimist might note that Vanguard in 2008 has rolled out a Total World Stock Index.

2. As you get older - maybe the same mentor can convince you(with a fresh squirrel) to gradually add your age in bonds for a balanced portfolio.

Or what the heck just retire and er ah pssst Wellesley.

Ah - it's easier on the squirrels if you can convince yourself on the logic of indexing - should only take a paragraph or two - not a whole book.

heh heh heh - of course being a college grad/rocket scientist/legend in my own mind - I read the dang books/watched the market/slice and diced/etc - thus retiring in Kansas City instead of a villa in the Bahamas near Sir John Templeton's estate. Sometimes hindsight gets me a little cranky.

BTW - I read(when no ones looking) both of those guys and they do wear white hats.
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Old 09-14-2009, 09:33 AM   #9
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DIY rules!

I started with baby steps in 1994 (EE bonds) and then bought my 1st mutual fund (AWSHX) in 1997. I read the books, I got myself "smart" about the terminology. I consulted a CFP in 2002.
I've gone completely DIY since then. You folks have collectively helped me refine my approach.
In retrospect, I made all the classic mistakes a beginner would. But throughout, I had ownership of my investing. If I screwed up, it was because I screwed up, not someone else. And my "fee" was zero.

In contrast, dh2b started out completely blind about investing. No books, just me to help him set up his accounts, and mentor him
(I'm still holding the squirrel ). I advised him to go into all index funds except for 2 bucking bronco funds that he picked. He decided the amount to stake on every single fund. We spent a hours modelling his portfolio until he felt it was right for his comfort zone of risk. My "fee" is still ongoing.

In just one short year, he survived the trial by fire (2nd half of 2008) and has really learned from it. He is asking some really great questions and making his own decisions.
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Old 09-14-2009, 11:42 AM   #10
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The thing that really motivated me to learn how to DIY was:

1) knowing that no one else will be as careful with my money, and
2) perceiving an inherent conflict of interest between my financial goals and that of any advisor.

Then there was:
3) over the years I had met a few financial types who just didn't seem that bright but rather they seemed to "talk a good game". Set my BS meter off a few times. I decided it would be too hard to find one of the few "good" ones. And seriously, if someone was really that good, why would they work for me and not be out there managing money for the really big fish.

So, I decided it was worth taking a year to really study the issue, and boy am I sure glad I did. I have read/heard a lot more horror stories in the meantime.

I agree with the point that "staying the course" is super hard to do, and if that is the main service a financial advisor provides, then it is a very valuable one. People tend to panic and make some really crazy knee-jerk financial decisions when crises loom. Keeping people from making those moves is a valuable service.

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Old 09-14-2009, 07:11 PM   #11
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I think that a fair number of DIY investors start early enough to make plenty of (hopefully non fatal) mistakes along the way along with plenty of reading and research to gain perspective. Although there is nothing difficult about the basics of investing the problem usually comes in when bubble mania sets in. The bubble is fine (most everybody likes to ride 'em up) its the subsequent panic that kills a fair number of DIY generally by selling at the bottom. This is where the reading and research and personal experience comes in to hopefully furnish some perspective.

I only used a Financial advisor (two actually) at my FI/ER time in 2002 just to have other opinions. All my number crunching looked OK to me but I wanted another independent opinion to make sure I was not drinking the cool aid. So far so good.

I think that LBYM types generally fall into the DIY camp as well since the wealth is generated slowly enough to allow for learning and life experiences to provide a solid path.

Those that manage to acquire a large amount late in life may have a harder time with the DIY approach - what with all that money burning a hole in their pockets. Financial Advisors stand more than ready to relieve them of that burden...
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Old 09-14-2009, 10:38 PM   #12
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By the time you learn enough to keep an eye on your advisor, you can DIY. The realization that most/all advisors don't have a clue as to what the market is going to do next comes soon after. That makes things even easier.
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Old 09-15-2009, 07:34 AM   #13
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As a CPA by training...I began in 1984 with a personal Balance Sheet, Income Statement and an Excel spreadsheet breaking down my investments by account and investment category...all monthly! I prepared monthly for probably 20 years when I shifted to quarterly. For the last 20 years I have also maintained a perfomance review (Excel) showing quarterly results vs a a Plan...first with a 10 year horizon...and then I re-did with a second 10 years...now I just add years to it.

Over this period I have studied and learned (I hope)...as my investment funds increased. In the early stages it was all about accumulation...now it is all about return. Soon it will begin to be about decummulation...thanks for the "new" word.

One issue/fear I have is "spending" my retirement accumulation. It is much more fun "measuring" it as it grows!

I used a broker for much of the accumulation stage as I developed some of my knowledge base and determined that for my purposes no load mutual funds was the way I wanted to go. I use VG and have been well served...also read John Bogles book early and am a believer. Use dollar cost averaging extensively and was "sad" to learn DCA may not be the answer in decumulation.

So far I have found some interesting and challenging thoughts and links on this site. I look forward to reading and participating where I may.

Thanks...Tom
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Old 09-15-2009, 11:35 AM   #14
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For me, DIY is the only way to go, but, if I shuffle out of the picture, my wife would have to find a trustworthy and knowledgeable fee only advisor. She has no interest whatsoever in long term investing per se, just in a few stocks that she sees mentioned on TV.

I believe one of the things that sets people aside on this board is that we are inherently cheap (I don't mean this in an offensive way - most try to LBYM). Even assuming I could find a fee only advisor for 1% or less, why should I want to pay that, year after year, when he (or she) has no better idea of what the market will be like next year than I do? As has been oft said here, if you have a 4% SWR, the 1% fee cuts that to 3%.

Here's the catch - I do agree with Larry, Alan, etc., that probably 95% of the US population does not do enough research or spend enough time or has the discipline to maintain a well diversified, well balanced portfolio. I find it to be fun, my wife and kids do not. I interviewed several fee only advisors a few years ago thinking that maybe it was time to hook up with one for my wife's sake (just in case). Not one of them understood the role a federal retiree's pension should play in overall planning, nor did any agree with the others on strategy. None proposed load funds, which was good, but nearly all proposed funds that had relatively high internal charges. We are in Vanguard and T Rowe Price - none of them would consider those fund families.

So I'm still looking, considering and hoping to find one that meets my standards. In the meantime, I save at least 1% a year and still beat the returns of the overall market. Not by a lot, but some sector mutual fund bets have come off very well and counterbalance those funds that aren't growing as quickly.
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Old 09-15-2009, 03:12 PM   #15
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I've been a DIY investor for 25 years . I've read most of the books but I still learn something new all the time . Whenever the market drops significantly that's when I convince myself I need an advisor . Of course at that point I've lost so much I do not want to pay an advisor so I don't and back to DIY . .
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Old 09-15-2009, 07:02 PM   #16
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For me, DIY is the only way to go, but, if I shuffle out of the picture, my wife would have to find a trustworthy and knowledgeable fee only advisor. She has no interest whatsoever in long term investing per se, just in a few stocks that she sees mentioned on TV.

...

Here's the catch - I do agree with Larry, Alan, etc., that probably 95% of the US population does not do enough research or spend enough time or has the discipline to maintain a well diversified, well balanced portfolio. I find it to be fun, my wife and kids do not. I interviewed several fee only advisors a few years ago thinking that maybe it was time to hook up with one for my wife's sake (just in case).
maybe an SPIA is the answer for your wife when you shuffle out of the picture. (and if you live a long time she will get a great wd rate)
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Old 09-15-2009, 08:11 PM   #17
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SPIA is a possibility, but I'll wait until interest rates are higher. Thanks for the suggestion.
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Old 09-15-2009, 09:03 PM   #18
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SPIA is a possibility, but I'll wait until interest rates are higher. Thanks for the suggestion.

DW talked to me again about this a few days ago (I'd been away on business). We have life insurance on me in case I die early and she loses a lot of income from my pension and SS. Even though I am simplifying our investments into a handful of funds in VG and Fido she is still not comfortable managing them, so our emergency position should I die early is for her to receive a $500K insurance payment and buy an annuity to cover the essentials. DD seems to be financially capable so DW says she will immediately get her involved as well.
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