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Old 11-16-2017, 10:14 PM   #121
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I did have big fun with the more than $20,000 I saved. Or maybe I should say my college senior had big fun.

And I owned a lot of US small-cap value (they did great in 2016), but my equities still outperformed the S&P500 YTD by a couple of percent. Perhaps just as important, I didn't pay any capital gains taxes nor taxes on qualified dividends despite making more than $1,000 per day on my investments.

OTOH, the OP has a financial advisor and asked how they could determine if the FA was doing well. The answer is they need to calculate performance and compare to a benchmark themselves as I noted earlier in the thread. The S&P 500 is only a good benchmark for a portfolio of 100% US large-cap stocks. So it is not a good benchmark for my portfolio.
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Old 11-16-2017, 11:13 PM   #122
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Yeah, I use the S&P 500, I don't have much international and zero small caps.

My biggest tax problem is that I'm single, but I'm gonna fix that real soon -
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Old 11-17-2017, 12:35 AM   #123
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No, I'll just stay with what you came up with;

"So it looks to me like you're somewhat underperforming the market this year, taking higher risk (70 vs 500 stocks), and probably have a higher tax bill with those capital gains."

I know the "group opinion" here on FA's and no matter how good they are they are always going to be worse than Vanguard. Nothing will ever change this. I'll say again that the vitriol has decreased but the underlying feeling is still there. Not to be trusted. Better off doing it yourself. Save money, low fees. I see my FA in the mirror every morning.

Not a problem, doesn't bother me. Different strokes.

Have fun and Blow More Dough!

Seems you have the vitriol here....

A managed MF can beat an index fund about 10 to 15% of the time in any single year... and sometimes I have read up to 25%.... but make that 5 years and that number drops dramatically.... go to 10 and it is very small....

So, what do FA do? Put you in managed MFs.... if the underlying investment is worse, buy a number of them can not improve the outcome...

If your FA is buying individual stocks, then your risk is higher... that can be calculated, but it is not worth it to me and I doubt they give you that info anyhow....

But I am like you... if you are happy that is all that matters to you... I am happy without a FA....
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Old 11-17-2017, 02:24 AM   #124
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Isn't it possible to construct a portfolio of individual stocks that is less risky than the overall market? I don't think it's always the case that 70 stocks are more risky than 500.

I think the missing piece in the arguments against FA's is how much one values service. There are some of us that are OK with not beating the market because we are paying for service. The service is not just picking investments. It's integrating several aspects of financial/life planning. There are many on this forum who don't feel they need third party help with that, which is fine. However that doesn't make those of us who do value that service wrong. If we have the money and feel we're getting good value, more power to us! Not everyone wants to DIY and that's OK.
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Old 11-17-2017, 08:03 AM   #125
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Isn't it possible to construct a portfolio of individual stocks that is less risky than the overall market? I don't think it's always the case that 70 stocks are more risky than 500. ...
Very possible, just select 70 stocks with low betas.... but the weighted average return of the 70 stocks will be lower as well. TNSTAAFL.
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Old 11-17-2017, 09:58 AM   #126
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Isn't it possible to construct a portfolio of individual stocks that is less risky than the overall market? I don't think it's always the case that 70 stocks are more risky than 500. ...
Well, IMO sort of. When statistically-oriented people talk about diversification, I have read that roughly equal dollar positions in 30-60 stocks is enough to diversify away individual stock risk and leave only market risk. Each stock is then 2-3% of the portfolio. The fine prints says, of course, that you have to make sure your stock list is diversified over industries and company sizes. All growth, all energy, all small cap, etc. you are not diversifying away sector risk.

So IMO that same basic approach would apply to the strategy that @pb4uski recommends. Make sure that you have a good variety of industries and a good variety of company sizes. "Rebalance" from time to time so that the positions stay roughly equal in dollars.

Using low beta as a screen is probably the only option, but I do not adhere to the religion that says that mechanically calculating some flavor of volatility (beta, SD, Sharpe ratio, Sortino ratio, etc.) tells the whole story on risk. For example, I doubt that GE's 2016 beta would have been a good predictor of their whacking their dividend last week. Maybe Enron's prior year beta would have predicted that train wreck; I don't know. Did Sears' beta ten years ago predict its apparently impending bankruptcy in 2018? Again I don't know. At the very least you will have to monitor the betas in your low-risk stock portfolio, ditching issues with climbing betas and replacing them with issues having lower or declining betas. I also don't know how fast betas change with time. Do you have to monitor monthly? Annually?

I dunno. Sounds like a lot of work to me compared to just buying a diversified fund like a Russell 3000 fund and going for the ride using the Copilot's Checklist (Sit down, shut up, and hang on.). YMMV, of course.
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Old 11-17-2017, 10:16 AM   #127
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Isn't it possible to construct a portfolio of individual stocks that is less risky than the overall market? I don't think it's always the case that 70 stocks are more risky than 500.

I think the missing piece in the arguments against FA's is how much one values service. There are some of us that are OK with not beating the market because we are paying for service. The service is not just picking investments. It's integrating several aspects of financial/life planning. There are many on this forum who don't feel they need third party help with that, which is fine. However that doesn't make those of us who do value that service wrong. If we have the money and feel we're getting good value, more power to us! Not everyone wants to DIY and that's OK.
You really can't. You can only know which 60 or 70 are less risky after the fact.

If it works for 1 year, that does not mean it will work for the next.

The "nobody knows nothing" approach of buying the Total US Stock market + Total International Stock market gets you market returns (positive or negative) with a very low cost. Add Total US Bond or similar to your correct asset allocation.
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Old 11-17-2017, 10:39 AM   #128
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I get Birthday cards and Christmas cards and Christmas presents.

Your guy must be lame.
I buy them myself and cut out the middle man.
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Old 11-17-2017, 10:54 AM   #129
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I had some of the same concerns with all the trading and the cap gains generated. I think you would get a lot of that in any managed fund as compared to straight index.

So I asked him about it and I bet you know what he said "Don't let the tax tail wag the investment dog. ...
[Rustward, look away! ]:

Well, wasn't that a 'convenient' response from your FA!

Seriously, the 'tax tail wagging' is a good motto to consider, but I'm certain it was never intended to mean "ignore the tax efficiency of your investments".

The 'tax tail wagging' metaphor could be applied to a scenario like: Hmmm, I'm not feeling good at all about this investment I'm holding, I think it's gonna tank. But I have large cap gains this year, I would like to hold off until Jan 1 of next year to sell. Or maybe you might be waiting to clear the one year threshold to capture as LTCG versus STCG.

In those cases, you are letting taxes drive your decision, but maybe you should just sell regardless. The potential loss may be far more greater than the tax delta (and if it drops far enough, your tax problem was 'solved anyhow! ouch!).

So yes, I think you are letting your FA talk you out of a sound investing principle of watching your tax efficiency overall. I think that's a problem, and sure looks to be self-serving for the FA (pay no attention to those capital gains behind the curtain! ). Now, if you are convinced he will continue to outperform even after the tax considerations, then you have something to base your decision on. But those were big numbers - you have not shared the denominator, or put it in %, but they look big to me.

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Old 11-17-2017, 11:00 AM   #130
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[Rustward, look away! ]:


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Well, wouldn't it be nice if we could all do our own things and not have to declare some of us "right" and the others "wrong"?
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Old 11-17-2017, 11:02 AM   #131
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I buy them myself and cut out the middle man.
Yes. Gifts you don't need, purchased with YOUR money (fees paid) aren't very fun.
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Old 11-17-2017, 11:02 AM   #132
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Well, wouldn't it be nice if we could all do our own things and not have to declare some of us "right" and the others "wrong"?
I don't understand you. I'm pointing out that tax costs are a part of your overall return. That's pretty basic to investing.

What's wrong with that?

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Old 11-17-2017, 12:18 PM   #133
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I don't understand you. I'm pointing out that tax costs are a part of your overall return. That's pretty basic to investing.

What's wrong with that?

-ERD50
I was referring to the broader topic of indexing vs managing. It seems that the indexers are always right and everybody else is wrong. The people who favor managed accounts don't seem to give a rat's a$$ what anybody else does -- index your heart out if you want to. Just don't criticize what I am doing.
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Old 11-17-2017, 12:37 PM   #134
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... Seriously, the 'tax tail wagging' is a good motto to consider, but I'm certain it was never intended to mean "ignore the tax efficiency of your investments". ...
I really don't have a dog in this fight because almost all of our investments are in IRAs and Roths, but the discussion does puzzle me.

After all, money is fungible. FA fees, loads, fund management fees, taxes, and 12b1 fees are all costs, all paid for with fungible dollars. Hence all must be considered when evaluating an investment or a strategy.

IMO this is an example of what Richard Thaler calls "mental accounting." The classic example is a gambler who has been winning, puts his original stake in his pocket, and begins gambling much more aggressively with his winnings aka "the house's money."

An example more akin to this tax debate might be someone who spots a really good bargain on CraigsList but does not consider the cost of driving a 100 mile round trip to buy the item. Not logical. Which, of course, is Thaler's business. I just finished reading his excellent but somewhat dense book "Misbehaving." For a little easier introduction to Thaler, I recommend his book "Nudge."

Oh, I was going to post earlier with an offer: Anyone who sends me $1000/month for a year I will send you a $30 box of chocolates at Christmas. Inside will be a freshly autographed photo of PT Barnum. Just let me know.
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Old 11-17-2017, 12:37 PM   #135
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I was referring to the broader topic of indexing vs managing. It seems that the indexers are always right and everybody else is wrong. The people who favor managed accounts don't seem to give a rat's a$$ what anybody else does -- index your heart out if you want to. Just don't criticize what I am doing.
I think indexers are always right when the market is going up.
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Old 11-17-2017, 12:49 PM   #136
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Anyone who sends me $1000/month for a year I will send you a $30 box of chocolates at Christmas. Inside will be a freshly autographed photo of PT Barnum. Just let me know.
Godiva?
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Old 11-17-2017, 12:59 PM   #137
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Godiva?
Godiva if you like. I was thinking about something more like this: Le Livre
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Old 11-17-2017, 01:06 PM   #138
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Godiva if you like. I was thinking about something more like this: Le Livre
c'est magnifique!
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Old 11-17-2017, 01:16 PM   #139
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Oh, I was going to post earlier with an offer: Anyone who sends me $1000/month for a year I will send you a $30 box of chocolates at Christmas. Inside will be a freshly autographed photo of PT Barnum. Just let me know.
And yet another example of what prevails here.

What does PT Barnum have to do with FA's or indexers?
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Old 11-17-2017, 01:17 PM   #140
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I was referring to the broader topic of indexing vs managing. It seems that the indexers are always right and everybody else is wrong. The people who favor managed accounts don't seem to give a rat's a$$ what anybody else does -- index your heart out if you want to. Just don't criticize what I am doing.
I guess it's all about perception then. I really don't see these discussions as "criticism". In general it seems to go like this:

A: My FA provides great service, I really like my FA.

B: Oh, FA is probably charging ~ 1% fee, and many will put you in high ER investments. And it's difficult/rare for an FA to beat the market after fees/taxes. Are you sure you are really getting value after considering these effects?

A: Well, I'm doing well! My portfolio is up! FA is great!

B: Well, the market is up overall. Have you compared to a "couch potato" portfolio that you could very easily set up for yourself, and requires almost no maintenance? Are you at least matching that after fees/taxes?

A: Ummm..... I really like my FA.

and on and on. I appreciate that RobbieB is actually engaging and responding to our questions (hopefully, he will get back on the cap gains thing).


Clearly, some of the posters who come to this forum are unaware of some of these costs, or how simple DIY is. So like many other topics, it gets discussed over and over again.

OK, there are the cracks about birthday cards and gifts and such. That doesn't really add much to the conversation, but it's not really that big a deal is it? I just let those pass.

I see a big difference between questioning the validity of someone's statements that support their FA decision, and just saying they are "wrong". Maybe I'm blind to it, but I just don't see people routinely telling the FA users that they are "wrong" - but they do question their reasons for using an FA.

And I should further clarify, in general I mean FA that charges an ongoing % of AUM. A check up with an fiduciary FA on an hourly basis is a whole 'nother thing.

-ERD50
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