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Ignorance is Bliss?
Old 05-06-2008, 01:49 PM   #1
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Ignorance is Bliss?

Extracted from Straight-Talk-Express: Personal Finance News from Yahoo! Finance:
Quote:
[S]ince the AARP study compared understanding investments to understanding an auto mechanic, consider how this situation can play out with an investor feeling more comfortable by knowing just a bit less.

Your car is one of your biggest expenditures, one that - like your financial nest egg - you want to make last, in good condition, for as long as possible. While you can do your own repairs and know what's necessary to keep the car in good working order, most people don't change their own oil, and are better off focusing on keeping the car serviced properly than wondering about the nuts and bolts under the hood themselves.

Consumers can't afford to be ignorant about how a car works lest they wind up overpaying for repairs or simply running the vehicle into the ground by never getting it serviced. Yet they also don't need to be a trained auto mechanic.

Likewise for investors, who must know the big things - such as whether they are saving enough, how well they can sleep at night when their assets are exposed to risk, and their time horizon - but who could leave the finer points of asset allocation to a hired hand.
Of course, the problem with the above analogy is that while the vast majority of auto mechanics have considerably more knowledge and experience about vehicle maintenance than does the average car owner/driver, that's not the case in the investment industry. Pretensions of 'professional' status notwithstanding, just about anyone can hang out a shingle and call him or herself an "investment advisor" or "financial counselor".
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Old 05-06-2008, 03:00 PM   #2
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I read this as the "hired hand" being your fund or ETF manager, not a FA. And I think with that view, the article makes a lot of sense. For many, why learn everything about picking individual stocks, bonds and other investments when careful selection of a appropriate balanced fund will get the job done? Run your own portfolio (and you hate that kind of stuff!) or hire the Vanguard Target Rtirement Fund manager to do it for you inexpensively?

(BTW - not completely relavent, but there are lots and lots and lots of crappy or dishonest folks out there advertising to work on your car!)
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Old 05-06-2008, 03:06 PM   #3
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I think you are correct. But remember that a fund manager requires no qualifications at all (granted that many are CFAs, but there is no requirement. And the practical utility of that designation is debateable).
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Old 05-06-2008, 03:11 PM   #4
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I think you are correct. But remember that a fund manager requires no qualifications at all (granted that many are CFAs, but there is no requirement. And the practical utility of that designation is debateable).
I guess that now I'm missing your point...... I'd much rather have the task of finding a reputable fund manager than a reputable auto mechanic. What point are you trying to make?
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Old 05-06-2008, 03:56 PM   #5
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That the idea of investors are better off leaving everything to the 'professionals' - with all their high fees and built-in conflicts of interest - is at best an oversimplification.
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Old 05-06-2008, 04:06 PM   #6
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Originally Posted by Milton View Post
That the idea of investors are better off leaving everything to the 'professionals' - with all their high fees and built-in conflicts of interest - is at best an oversimplification.
Well maybe...... I guess I'm oversimplifying then because I'm using fund and ETF managers for the bulk of my portfolio.

But I think you and I have two very different concepts of financial Professionals. You seem to be thinking of FA's. I'm thinking of fund managers. My largest holding is VTSMX/VTI/SPY. I know I could go buy a portfolio of individual stocks and do about the same thing but I'm lazy and am leaving it to the "pro's." I'm also looking at some actively managed situations such as Vanguard balanced funds, target retirement funds or even one of their new payout funds.

Is your alternative to not using "pro's" that everyone should keep their financial assets in individual stocks, bonds and similar instruments?

The analogy between an auto mechanic and a so-called financial pro in the article is lame at best.
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Old 05-06-2008, 08:56 PM   #7
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That the idea of investors are better off leaving everything to the 'professionals' - with all their high fees and built-in conflicts of interest - is at best an oversimplification.
Imagine if our investment portfolios were managed by those highly-trained professionals at Jiffy Lube...
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Old 05-06-2008, 09:11 PM   #8
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Imagine if our investment portfolios were managed by those highly-trained professionals at Jiffy Lube...
You mean the guys who purposely strip the threads on the oil plu...er wait sorry. Im terrible. I apologize to the masses...
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