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Old 12-26-2011, 08:51 AM   #21
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Aren't we confusing investing with speculating? The OP spoke of people who knew nothing of asset allocation and were merely chasing returns. To me that is speculating. To me investing is using asset allocation to "spread the wealth" in large caps, mid caps, small caps, international, emerging markets, real estate, fixed income, cash, etc.

In today's environment when saving is barely one step removed from stuffing your money in the mattress, investing is the prudent long term alternative. For someone with no pension or retiree health care benefits that they don't purchase by themselves, it is the only alternative.

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I'm not saying that you shouldn't be throwing the dice investing in the stock market, just that the value of saving has been lost since the mutual fund industry began to sell it's products aggressively. CDs and savings accounts are like the Rodney Dangerfield of the financial world....they just don't get any respect. I've been putting some of my retirement funds into something equality out of style for the last 25 years, TIAA-CREF Traditional.
I can remember in the 1990s being told to put everything into the stock market because TIAA Traditional was plodding along at 4%. Well I'm glad it kept plodding as it's provided a good foundation for my retirement income.

We emphasize the need for growth too much which is in part justified by the financial industry 80% replacement income in retirement dogma.
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Old 12-26-2011, 09:45 AM   #22
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I think we are saying the same thing. My comment was based on my long term personal strategy of following an asset allocation using indexed EFTs in my IRAs plus my available 401k investments while continuing to DCA new investments. You did the same thing with your TIAA-CREF investments. Despite some anxieties during the "Lost Decade," we both probably ended the decade with significantly more retirement assets than in January of 2000. Both plans are investing not speculating.

Our respective disciplined and long term strategies were what we felt comfortable with. They were probably more successful than the people you mentioned in your original post that were following last year's hot investments and were ultimately discouraged with their results.

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Old 12-26-2011, 11:11 AM   #23
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You cannot invest if you haven't saved the funds to do so, so I think this is a bit of an artificial distinction.

The real problem is a lack of financial education for the American public in general. It frustrates me to see people making foolish decisions due to lack of knowledge over and over again. Say what you like about a lot of the financial pundits (yes, even *shudder* Suze), at least they are getting people interested and learning. When I am not travelling so much (or when I am finally retired) I plan to find a volunteer opportunity to educate people on financial basics.
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Old 12-26-2011, 11:20 AM   #24
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When I think of this more I realize that it isnt just the individuals who drank the mutual fund industry cool aide. All those state government and institutional pension funds are guilty too. Of course the states had issues with raiding and underfunding of the funds. What I'm arguing for is a greater emphasis of prudence and less on growth. Many on here have got that balance right, but we are the "1%" of the saving/investing world. Even with education it generally comes from vested interests who will sell yo on the need for growth and along with that a high fee fund.
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Old 12-26-2011, 11:37 AM   #25
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Even with education it generally comes from vested interests who will sell yo on the need for growth and along with that a high fee fund.
I find that sufficient education negates an awful lot of sales pitches.
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Old 12-26-2011, 12:21 PM   #26
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Hmmm. I don't think saving and investing are mutually exclusive.
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Old 12-26-2011, 01:13 PM   #27
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When I think of this more I realize that it isnt just the individuals who drank the mutual fund industry cool aide. All those state government and institutional pension funds are guilty too. Of course the states had issues with raiding and underfunding of the funds. What I'm arguing for is a greater emphasis of prudence and less on growth. Many on here have got that balance right, but we are the "1%" of the saving/investing world. Even with education it generally comes from vested interests who will sell yo on the need for growth and along with that a high fee fund.
In summary:
1. You say too many people are over their heads investing in equity funds, they would be better off saving more and investing in 'mutual fund Kool-Aid' less. And you like cash as an asset, that's fine.
2. And you say "many on here have got that balance right."

What would you like us to do? Maybe we're not your audience?
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Old 12-26-2011, 02:22 PM   #28
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Hmmm. I don't think saving and investing are mutually exclusive.
+1

The folks I run across that talk about how risky investing is don't seem to be saving much. I suspect that in the current generation, the argument against investing a part of ones income is used to rationalize the silent "so I might as well just spend it all now" implicit in the behavior I see.
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Old 12-26-2011, 02:54 PM   #29
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The folks I run across that talk about how risky investing is don't seem to be saving much.
this is my point! Most people go to one extreme or the other, spending or playing the stock market. Very few see saving as something worthwhile and it certainly isn't promoted by many in the personal finance world. Saving should be promote far more.
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Old 12-26-2011, 03:01 PM   #30
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Is that like Thelma & Louise saying "We haven't crashed (yet) because we're still in mid-air over the canyon"?
Or like the Wall Street financier who jumped out of his window: "So far so good!"

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When I am not travelling so much (or when I am finally retired) I plan to find a volunteer opportunity to educate people on financial basics.
The only challenge will be finding an audience willing to sit still long enough to be educated. I wish I had the answer to that one too.

By the way, among all the grumbling about sponsored investment products, let's remember that one of the largest is the federal government's Thrift Savings Plan-- with the lowest expense ratios, too.
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Old 12-26-2011, 03:07 PM   #31
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The only challenge will be finding an audience willing to sit still long enough to be educated. I wish I had the answer to that one too.
DW volunteers at an organization helping young single mothers make it by getting them schooled up on job skills, helping them create resumes, teaching them how to behave on a job interview, etc. They will be my first target to teach things like how to read a lease, how to balance a checking account, how to read a loan or credit card agreement and not get skinned, how to shop for a low cost/free checking account.
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Old 12-26-2011, 03:33 PM   #32
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DW volunteers at an organization helping young single mothers make it by getting them schooled up on job skills, helping them create resumes, teaching them how to behave on a job interview, etc. They will be my first target to teach things like how to read a lease, how to balance a checking account, how to read a loan or credit card agreement and not get skinned, how to shop for a low cost/free checking account.
That's an excellent group to work with-- already motivated and ready to listen.

I've noticed that my daughter is all too willing to join in the "have a spending plan & invest the rest" part of the talk, but her eyeballs start to glaze over at the differences between "mutual fund vs ETF" or "global vs international". She just wants to put it away in some sort of suitable asset allocation, let it compound, and go live her life. I doubt we'll be dissecting McMillan's options textbook anytime soon.

At this age, with that temperament, she'll probably do better than my testosterone-poisoned stock-picking days.
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Old 12-26-2011, 03:58 PM   #33
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this is my point! Most people go to one extreme or the other, spending or playing the stock market. Very few see saving as something worthwhile and it certainly isn't promoted by many in the personal finance world. Saving should be promote far more.
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Old 12-26-2011, 04:03 PM   #34
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That's an excellent group to work with-- already motivated and ready to listen.

I've noticed that my daughter is all too willing to join in the "have a spending plan & invest the rest" part of the talk, but her eyeballs start to glaze over at the differences between "mutual fund vs ETF" or "global vs international". She just wants to put it away in some sort of suitable asset allocation, let it compound, and go live her life. I doubt we'll be dissecting McMillan's options textbook anytime soon.

At this age, with that temperament, she'll probably do better than my testosterone-poisoned stock-picking days.
What is wrong with "saving the rest" do we need mutual funds or EFTs, global or international or domestic? Your daughter sounds pretty smart to me, get a plan and save into a stable value account.
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Old 12-26-2011, 04:04 PM   #35
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Merry Festivus........and now to the airing of grievances.

I was at a party last night and a friend complained that they'd lost 25% on some emerging markets EFT. I asked how it figured in their AA and the answer was basically "what's AA" and "a friend said EMs were the place to be because of the returns". Most people get sucked into chasing returns and it's a loosing game. So I want to praise all those who just SAVE and don't fall for the Wall Street hype and run after returns. We have lost the idea of just putting money aside, we now want big returns as well. Before we go looking for returns we should LBYM and just save! The mutual funds have all convinced us that they are the best place to put out money, but in many circumstances they should be actively avoided because of fees and poor performance.

OK I'm done back to the egg nog
The only thing that works or might work is owning equities long term. Putting money in a bank for other than an emergency money is a losers game.
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Old 12-26-2011, 04:12 PM   #36
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Right now pure saving is a losing game. The risk-free rate of return is near zero. Inflation is higher than that.

So you must either take some risk or watch your purchasing power erode.

If the spenders buy tangible things that they will need in the future, then they may actually come out better than the pure savers in this environment (I doubt that there are many spenders actually like this, though).



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this is my point! Most people go to one extreme or the other, spending or playing the stock market. Very few see saving as something worthwhile and it certainly isn't promoted by many in the personal finance world. Saving should be promote far more.
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Old 12-26-2011, 04:25 PM   #37
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So pure savers should consider the Alpha Strategy of John Pugsley? Invest in tangible and useful items in anticipation of goods being a better store of value than financial assets. That may be swinging the pendulum a bit far.

John Pugsley - Wikipedia, the free encyclopedia
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Old 12-26-2011, 04:45 PM   #38
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Right now pure saving is a losing game. The risk-free rate of return is near zero. Inflation is higher than that.

So you must either take some risk or watch your purchasing power erode.

If the spenders buy tangible things that they will need in the future, then they may actually come out better than the pure savers in this environment (I doubt that there are many spenders actually like this, though).
I wouldn't advocate just putting money in the bank. I just think people have got their priorities all mixed up. They have been seduced my the financial companies into putting money into the stock market and saving has been taken off the table as a strategy. People should be looking at long term CDs, and paying down debt before they go to mutual funds......The pendulum has swung too far away from the notion of savings as a way to financial freedom and to almost exclusively to individual direct exposure to the bond and stock markets
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Old 12-26-2011, 06:23 PM   #39
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I've noticed that my daughter is all too willing to join in the "have a spending plan & invest the rest" part of the talk, but her eyeballs start to glaze over at the differences between "mutual fund vs ETF" or "global vs international".
Nords,
My daughter, home for Christmas, showed me here 401K options, a list of about 10 funds with two different investment groups and one MM-type fund. I asked her how she decided on the five she picked: highest return. That was it. I asked her what the expenses were in the funds...blank look. After looking at each fund, with simple links shown directly on her 401K company website, we found the expenses for each fund. Most of the funds she was in had an expense ratio north of 3.5% AND, ...wait for it... a 5.5% load, either A, B, or C. Since she is the person that communicates directly with the "financial advisor" for her company, I suggested that she do some one-on-one with this guy about what she and the others were really paying and why. They might get a break of fees, but she sure better find out. It turns out the FA is a son of someone the CEO knows.
Her biggest concern before I looked at it was that the NAV had mostly gone down since she jumped in. I told her at her age, 24, lower NAV was her friend, but expenses were her biggest enemy and to look into it.
I will say that I was pleased that she had made the decision to invest after pulling together her emergency cash fund. Free matching money from employer is immediate growth. Like your daughter, investment research is not high on her priorities list.


To the point of this thread, though, my dad was a child of the depression. I never was able to convince him to invest in the market. All his money was in laddered CD's, real estate and his own business. Oh, he also bought some junk bonds for the yield. Go figure. He just couldn't get past the stock market riches to rags stories that he heard about growing up. But he did invest in himself as a small businessman, and that, along with a lot of LBYM cash saving, gave him the success he wanted and hitting his goal of retiring in his mid-fifties. So saving can get you where you want to be financially, but you have to earn a lot more money during the journey...Tight
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Old 12-26-2011, 06:26 PM   #40
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this is my point! Most people go to one extreme or the other, spending or playing the stock market. Very few see saving as something worthwhile and it certainly isn't promoted by many in the personal finance world. Saving should be promote far more.
As Brewer said that you can't invest without saving. There has been a huge change in American attitudes about saving our saving rate has been roughly 3.5% for the last couple of years. This is a respectable rate although the timing couldn't be worse. In fact Americans are saving twice as much dollars in 2011 as we were 2006. Now some of this is because too many American got themselves deeply in debt and have finally figured out that you can't borrow your way to prosperity. For many others fear, including of retirement is a big driver.

I agree that financial industry has often screwed consumers with fees and such, but the reality is investors have done better than savers even over the last 10 year and way better over 15+ year periods. This is a list of the 25 biggest mutual funds in the US. As you'll notice quite a few of these funds are money markets, there is also a lot of American family stock funds. Now American funds have 5.75% upfront commission and their expense ratio are typical just under 1% (including the 12-b). The interesting thing is that even with these relatively high fees, all of the stock funds in this list have had 10 year performance in the 3-4% (except for the emerging market fund that your friend may have invested in which has 14%! CAGR over the last 10 years) and 15 year performance in the 7-9% range. In contrast savers who stuck their money in MM fund earned 2% a year over the last 10 years and 3% over 15 years.

I'd also argue that it smart and wise for the financial industry to advocate saving+investing over just saving. If I tell a young person that should put $1,000 away today and in 30 years they'll have $3,000, I really have no argument when they counter. "Ya but what will I be able to buy with $3,000 in 30 years a couple of nights on the town somewhere. If I say they should invest $1,000 because in 30 years it is likely to be worth well over $10,000 that is a much more compelling argument for not spending the money today.

You have often used gambling terms when you talk about the market "playing, speculating" etc. Now while I'll be the first admit that a decent size chunk of my money is used to "play" the market, the bulk of my money and vast majority in this forum, and even in IRAs/401Ks in this country is truly being invested.

One of the misconceptions that your friend and I suspect you have is viewing the stocks/etfs as just being little electronic baseball cards, who's price goes up and down seemingly random. These erratic price moves are controlled by a group of Wall St elites. Actually investing in stocks or ETFs gives you a share of the future profits of a company or collection of companies. The emerging etf owned shares of household names like Samsung, and Hyundai as well large number of Chinese banks, telecoms, manufacturers, Brazilian aircraft manufactures and oil companies and 800+ more. Unlike baseball cards, ETFs/stocks have an intrinsic value.

Now while it is maddeningly difficult to set an accurate price for the future earnings of a bunch of companies on any given day and even over a year the market is likely to get it wrong, however over the long term the market is actually awfully efficient. I don't think anyone would argue that profit potential for Chinese, Indian, Korean, Brazil companies is not much brighter now that it is was a decade ago which is why $10K invested in Vanguard Emerging Markets in 2001, is now worth $37K vs $13.4K for the S&P500.

Finally, let me point the difference between how savings vs investing is used in this country. At the risk of grossly oversimplifying American finance, by and large saving (e.g in a CD) is used to fund loans on purchases and consumptions of existing things:, house, car, college education, business inventory. Investing is used to fund new products, new business etc. I like to help fund the latter.
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