24 year old trying to get to millionaire by 35, punch holes in me plan

[lswswein]

Riiiighhhhhhtttttt, any chump can put money in some index fund, with an allocation like I mentioned, but it takes skill to truly beat the market. Putting money in an index fund is conceding that you can't beat the market, hence giving up, PERIOD.

Why are trying to beat the market? If you want to beat the market, first define what market. You cannot go around shouting about Managed Small Cap funds which beat the S&P 500. If there is a small bit of wisdom that I suggest you take way from this site, I think it is this fact.

Have an asset allocation that meets your expectations for volatility and returns and forget about everything else including beating others. Have an enjoyable life. We really don't care about beating anything - been there done that!

-h
p.s: last on this topic - http://www.chicagotribune.com/news/columnists/chi-970601sunscreen,0,4664776.column

Whatever you do, don't congratulate yourself too much, or berate yourself either. Your choices are half chance. So are everybody else's.

 

[AirJordan]

That one went right over your head, eh?

Index funds = 0% of my portfolio. Managed funds = 0% of my portfolio.

Point taken, I agree brewer, picking funds is giving up to an extent I agree. But I am not astute enough to pick 'em. Even though I did tell my dad to buy a fair share of Mohawk at the beginning of this year But I mainly consider that luck, unlike my ability to pick funds.

 

[AirJordan]

After they underperform for a period of time (whoops!)? I think those questions need to be answered before you can make any statement that you can put together a group of actively managed funds that will outperform their indexes over time.

All well and good, but what does it mean? That they performed well over the past 5 years or so? Does that mean they will outperform over the next 5 years? That might be a bigger question than you realize.

There are academic studies that show the consistent winners in stock investments are portfolios made up of stocks that *underperformed* in the previous time period. Hmmmm.

Well, if the data indicates that indexing is consistently better in the long run, I would not call it 'giving up', I would call it a 'realization'. When I was a kid, I stopped trying to invent perpetual energy machines once I learned the laws of physics. Is that 'giving up' or a 'realization'?

-ERD50

I don't even know why I bother with you people. Picking stocks, picking funds, there is a bit a gamble there, one that i am willing to take. I feel confident that Fairholme, Primecap Core, and Dodge and Cox International will outperform over the next 10 years, and I'll take a substantial bet up to 10k, that these funds outperform their respective indices over that time frame. From your logic, you're saying that people like brewer are screwed, because just because a stock has performed well in the past, no one knows how it will be in the future. If you are so concerned about this you might as well stock all your money in CD's. Have fun holding on to VFINX, while active managers are hoarding their money, and preparing for the downfall. Have fun staying 100% invested!

 

[P.S.]

.

 

[ScaredtoQuit]

AJ, I think many of us here respect your viewpoint. If you are comfortable with your own approach, go with it. You have the advantage of youth so if things don't work out, you always have the option to change and go another direction. Many of us here don't have that luxury and really need something safer. If you are right and things do work out, so much the better for your.

Good Luck.

 

[REWahoo]

I don't even know why I bother with you people.

AJ, perhaps the reverse of that statement is equally true.

You are treading on thin ice and your troll-like behavior won't be overlooked for long. If you want to engage in constructive debate you are welcome here. If your only goal is this...

...but stirring up drama on message boards, ... is just too much fun

..you will see your forum posting privileges revoked in short order.

 

[ScaredtoQuit]

..you will see your forum posting privileges revoked in short order.

I think you should let him say his piece. Controversy is thought provoking and besides, he IS entertaining.

 

[SecondCor521]

Hey REW, could we set up a playpen for AJ and h****? If we could get them to play together that would solve a couple of issues at once.

2Cor521

[taking the hook out of my mouth, throwing it on the ground, and walking away from this thread with a hole in my lip and a mild amount of self-loathing for responding twice to a troll.]

 

[ScaredtoQuit]

It's not all bad!! I am definitely going to look at Dodge & Cox again. This fund is ALREADY part of my portfolio but I will take a second look to see what's so special about it.

 

[AirJordan]

It's not all bad!! I am definitely going to look at Dodge & Cox again. This fund is ALREADY part of my portfolio but I will take a second look to see what's so special about it.

The thing is scared, if someone, I forgot which poster, hadn't said Dodge and Cox is a "decent" fund family, this thread never would have gotten out of hand. As soon as that was said, I knew I had stepped into the jungle of the haystackers, and that I wasn't coming out without a myriad of people pontificating about how stock picking/ active management, will always fail, and you are powerless to beat the market. Oh well, to each his own :

 

[CCdaCE]

30% VTSMX - Total Stock Market
10% VISVX - Small Cap Value
10% VGSIX - REIT
20% VGTSX - Total International
10% VIVAX - Large Value
20% VBMFX - Total Bond

Tadaaaaa, now you're doing better than 90% of all financial planning crooks.

What is your estimate of the odds of beating this over the next 10 years, on a risk adjusted basis? Is it better than 1:10?

I'd say about 36:1 that you'd lose. What do I care, it's your money. :

-CC

 

[dgalbraith100]

If you really want to make money, Index funds, Mutual funds, managed and not managed funds... is NOT that way to go.

Individual stocks will win hands down. The amount of work is higher, but if your as good as you say you are, the returns will be much higher as well.

In the last 7 years I took a net worth of -32K and turned it into 500K. I used individual stocks, Index funds, and managed funds. My annual return was upwards of over 20%, and that includes being dragged down by those wonderful managed funds. (which got hit hard in 2000) My best investment took 10K and turned it into 100K in about 2 years (ECHO) Was that my smartest investment? no, it was my luckiest though.

These days, I don't have the time or energy to chase the returns, so I moved everything into indexs. Not just S&P 500's though, Small cap, Reits, blah blah. ETF's that have low costs. I don't want to spend my time chasing returns, I have enough money now not to waste my life running around looking for the next big thing.

I believe I could even find it, and turn another 10K into 100K, but I was spending my life doing it. Instead of living, I was chasing money. Not worth my time anymore.

I think thats the big piece of this puzzle you are missing AJ, its been said before, but I'll say it again, there are some people here could make much bigger returns than you or I could if they actually spent the time to do so. They instead choose to put their money into index funds or other "haystacker" methods. Why? because they choose to spend their life doing other things than chasing money.

You seem very money focused (I'm making 100K, saving 60K, blah blah). This isn't always a bad thing, (especially when your young) but it can be dangerous if you don't out grow it. Think on what you would do if you had 6M right now? Would you stop being money focused, or would you need more? and more? What would you do if you have 60M? Would you stay focused on how to turn that 60M into 120M? or would you spend your effort on living your life?

The ability to say enough is enough, I don't really care if I make more, I just want to enjoy life is the next stage you need to reach. Many people never reach it. I have a friend of a friend that is worth 300M+ and he has had 3 heart attacks, multiple surgeries, and he still is focused on making that next dollar. His life is consumed by making money. Don't fall into that trap, it'll kill you for nothing.

Laters,
-d.

 

[ERD50]

Picking stocks, picking funds, there is a bit a gamble there, one that i am willing to take.

Ah, that is different! You didn't say it was a gamble, you made it sound as if you had a high degree of certainty that you could pick funds that beat indexes. I simply asked what basis you have for that belief.

From your logic, you're saying that .... just because a stock has performed well in the past, no one knows how it will be in the future.

That is *exactly* what I'm saying. That does not mean that those who chose to do so are 'screwed', but I don't expect them to do consistently better than the index if their choice is based solely on past performance. I suspect brewer makes his choices more along the lines of an educated guess of cycles of overvaluation. I do believe that one may be able to take advantage of the herd mentality and psychology of the average investor (they typically buy high, sell low). Buying past winners may be a losing strategy.

And remember, a monkey with a dozen darts and the WSJ has about a 50/50 chance of outperforming the market.

If you are so concerned about this you might as well stock all your money in CD's.

You are not listening. I never said I did not have reasonable expectations that the market will outperform CDs in the long run. I said I don't expect one can have any assurances that picking past winning mutual funds will outperform the indexes. Big diff.

Go back and find the top 5 funds of 1985, 1990, 1995, 2000. See how they performed over the following five years.

One other thing - I'm relatively new here, and I sure would not think of the posters here as people with their heads stuck in the sand. They are open to new ideas. If there was a way to show that method X had a high confidence factor of outperforming the market by any significant percentage and not increasing volatility by too much - many of us would be all over that idea. You think we are adverse to making money? Think again.

-ERD50

 

[wabmester]

AirJordan, now for the big question. Why do you think your portfolio in the first post is better than what you came up with here? Accounting for all the allocation skews by the active mgmt, if you can construct a similarly weighted portfolio with Index funds the performace might be similar but the Expenses will be guarenteed to be lower by atleast 2X. All that people here are trying to tell you is don't commit yourself to high Expenses.

SO prove it to us that all that active mgmt is doing something other than the Managers yatchs!

QFT.

Air, if you want to learn something, learn this. Fama and French tell us that returns can be explained by a few factors. So, stop comparing your funds to the S&P 500. Do a factor analysis, and then tell us if you found any manager-specific alpha. You might actually find alpha. You might not. But using the metrics you're currently using is useless.

 

[CCdaCE]

QFT.

Air, if you want to learn something, learn this. Fama and French tell us that returns can be explained by a few factors. So, stop comparing your funds to the S&P 500. Do a factor analysis, and then tell us if you found any manager-specific alpha. You might actually find alpha. You might not. But using the metrics you're currently using is useless.

You're only going to get 'em excited, again. Use terms that AJ can understand.

This is like watching someone slapfight with Chuck Norris.

-CC

 

[Running_Man]

Well by far the most important item in your plan to get a million by age 35 is the ability to save $65,000 per year. If you are able to do that over the next 12 years I do not see where you will have much of a problem - whatever your allocation method.

Personally I think the books to read are the Benjamin Graham books. The Intelligent Investor is very good yet short and his classic Security Analysis is all that is needed for investment. If you are to put such a large percentage of your labors into financial assets you owe it to yourself to become knowledgable into where your money should best be kept.

As for investing the key to Warren Buffet becoming as successful as became was leaving the market when it was overvalued and investing it all at the bottom in 1974 and riding a 30 year trend when it reversed. The ability to analyze a situation and not be influenced into changing your mind other than through reasoned thought is your key.

An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."

Good fortune to you it appears to me you are already off to a good start.

 

[brewer12345]

I feel confident that Fairholme, Primecap Core, and Dodge and Cox International will outperform over the next 10 years, and I'll take a substantial bet up to 10k, that these funds outperform their respective indices over that time frame. From your logic, you're saying that people like brewer are screwed, because just because a stock has performed well in the past, no one knows how it will be in the future.

There is a big difference between what I do and what you do. You are looking at past performance and tring to pick managers that will be able to continue outperformance even though you have no clue what they do or how they do it. I do analytical work to pick undervalued securities with good return potential and I have the background, training and expertise to do so.

 

[retire@40]

Buying stocks of any kind is "giving up." If you are a REAL MAN [tm] then you create your own equity by starting your own company.

I agree with that statement. If someone is so smart and doesn't want to "give up" by relying on other people's companies, or funds managed by other people, or indexes put together by other people, then starting your own business to prove your manhood is in order.

This way you can invest in your own company stock which undoubtedly will perform much better than any other stock AND you won't be relying on someone else to make you rich.

 

[ERD50]

a myriad of people pontificating about how stock picking/ active management, will always fail

If you are sincere about feedback, and not just trolling, stop putting words in people's mouths.

No myriad of people said it will always fail. As I said above, a monkey with darts can win at stock picking about half the time, even if they got their law degree from a 5th rate school

What some of us *are* saying, is that it would help to present some basis for the idea that past performance of funds can be used as a predictor for future performance. And that, on a risk adjusted basis, there is some level of confidence that can be assigned to it. If the confidence factor is 0.5, it is not of much practical use.

-ERD50

 

[bright eyed]

ok - i just read this looong thread and just kept wondering -

why said "wunderkind" needed someone to verify if he could make $1 mill by 35 given his input/year and age? He could put it in an online savings at 4 or 5% and get close if not there - so i vote TROLL!

my daughter is learning to count w/ her fingers in preschool if you want to sit in...they will do percentages soon.

and by the way, i work (he volunteers) with a multi- multi-millionaire who worked in one of the top finance firms and he is now retired and he said the real way to "wealth" is to invest in a specific industry - to specialize - and his friends are all the top .05 percenters (billionaires)- but they can take that risk and "gamble" - you win big or lose big - people here aren't trying to gamble with retirement planning...

so go read up on an industry/sector and put your "bet" down... good luck! i'm sure you'd have picked the right one in 98/99...

 

[bow-tie]

Re: "giving up" by passive investing.

I find that the more I research investing and the vagaries of the market, I find the fear and greed and other behavioral aspects are pretty damn hard to predict.

The more I learn, the more I find I didn't/don't know.

So chalk me up as an ignorant sissy who "gave up"... :

 

[laurence]

There is a big difference between what I do and what you do. You are looking at past performance and tring to pick managers that will be able to continue outperformance even though you have no clue what they do or how they do it. I do analytical work to pick undervalued securities with good return potential and I have the background, training and expertise to do so.

And that's why many investors on this board are happy to buy some managed (gasp) value funds and why we are happy to listen to brewer's advice....

 

[AirJordan]

Ok 2 things, the title of this thread is misleading. If I just save 65k a year, and put it in a money market I'll easily be a millionaire by 35. So that's not my problem.

Second, can somebody suggest something I should do to invest BESIDES indexing, which I have problems with. I.e. can i see what kind of portfolio you are using, and what I should do besides sell everything active managed and put it all in VTSMX.

 

[haha]

When you boys gonna tire of bitch-slappin' this guy?

Ha

 

[CCdaCE]

When you boys gonna tire of bitch-slappin' this guy?

Ha

Does it ever end?

<snip> ...and what I should do besides sell everything active managed and put it all in VTSMX.

Callan Periodic Table

Try different weightings of these eight assets. Start with 12.5% of each.

-CC