SWR for a $2.5 million nest egg...

[DblDoc]

sounds good in principle. Can the expense ratio be verified, or does one take that on trust? One has to operate on the assumption that the very best Chicago school minds will be trying to figure out how to game the game for their benefit.

If it is Vanguard what you see is what you get. Oh and they are working for you as you own the company...

The only guesses they are exposed to are the ones from the committee who decides which stocks go in and which go out of the index........

My understanding is this is mostly computer driven for index funds and you can follow the tracking error to keep them honest.

DD

 

[Kroeran]

Oh and they are working for you as you own the company

betcha the Vangard guys that "work for you" drive more expensive cars and live in bigger houses than most of their clients

 

[REWahoo]

betcha the Vangard guys that "work for you" drive more expensive cars and live in bigger houses than most of their clients

Which could indicate Vanguard clients are being fleeced. Or that Vanguard employees are likely to be deeply in debt.

 

[FUEGO]

sounds good in principle. Can the expense ratio be verified, or does one take that on trust? One has to operate on the assumption that the very best Chicago school minds will be trying to figure out how to game the game for their benefit.

There's a certain very limited element of trust involved as there could be deceit or fraud at a number of steps in the ownership of mutual funds.

But the mutual funds and ETF's I invest in are SEC regulated. They file statements quarterly and annually that includes disclosures of things like expenses, holdings, etc. I typically flip through the annual reports and do actually take a look at the holdings, the expenses, the expense ratios and that sort of thing.

Expense ratios are just one of many "expenses" involved with mutual fund ownership. There's brokerage commissions, bid/ask spreads, and market impact costs. But I typically focus on low turnover funds that keep these "non expense ratio" expenses to a minimum. A surrogate for looking at expense ratios is looking at tracking error - in other words, how does the fund performance compare to the index they seek to track.

 

[FUEGO]

betcha the Vangard guys that "work for you" drive more expensive cars and live in bigger houses than most of their clients

Actually I've heard quite the opposite. Most (virtually all?) of the VG guys don't enjoy the typical wall st salaries. Many feel underpaid (don't we all though). Apparently it is a nice place to work though with good benefits and a little less stress due to being essentially a non-profit. The DW works at a competing firm and a few of her co-workers have left to work at VG in a city nearby, and so I'm generalizing a little here.

I don't mean to sound crass, but have you ever heard of Vanguard before? You realize it is a fund company that is founded on the philosophy of low cost investing, right?

 

[Kroeran]

Actually I've heard quite the opposite. Most (virtually all?) of the VG guys don't enjoy the typical wall st salaries. Many feel underpaid (don't we all though). Apparently it is a nice place to work though with good benefits and a little less stress due to being essentially a non-profit. The DW works at a competing firm and a few of her co-workers have left to work at VG in a city nearby, and so I'm generalizing a little here.

I don't mean to sound crass, but have you ever heard of Vanguard before? You realize it is a fund company that is founded on the philosophy of low cost investing, right?

I am not American and have been completely out of stocks/funds for many decades, so I am genuinely as ignorant of this as you suspect. When I want excitement (ie. more than 4.5% CD yield) I do private mortage lending...I have this worry that money that gets too far out of sight will not come back.

I am playing a bit of devil's advocate with you, not to be cute, but in order to understand. If the VG guys are complaining about low compensation, I AM impressed. The benchmark to the underlying index sounds like a good transparent discipline as well.

by the way, just because you have a para-communistic structure - doesn't mean a devil will not get in there and figure out a scam. Behind Lenin soon comes Stalin in such situations.

I am surprised you give any credence to SEC oversight though, in light of recent events...I assume they will be more careful for 20 years or so.

 

[FUEGO]

I am not American and have been completely out of stocks/funds for many decades, so I am genuinely as ignorant of this as you suspect. When I want excitement (ie. more than 4.5% CD yield) I do private mortage lending...I have this worry that money that gets too far out of sight will not come back.

I am playing a bit of devil's advocate with you, not to be cute, but in order to understand. If the VG guys are complaining about low compensation, I AM impressed. The benchmark to the underlying index sounds like a good transparent discipline as well.

by the way, just because you have a para-communistic structure - doesn't mean a devil will not get in there and figure out a scam. Behind Lenin soon comes Stalin in such situations.

I am surprised you give any credence to SEC oversight though, in light of recent events...I assume they will be more careful for 20 years or so.

Yes, Vanguard is widely respected in the US investing community. They are mutually owned by the shareholders, so any "profit" goes back to the shareholders. It isn't really "para-communistic" - whatever that means?? There are a few other truly mutual investment sponsors and insurance companies in the US, along with Credit Unions which are basically mutually owned banks. In general, these mutually owned companies are fairly highly regarded and in my opinion are able to do a better job of looking out for their customers since the customers own the fund company/bank/insurance company (unlike privately owned companies that have a duty only to their public or private shareholders).

I guess I can't fault you for not being familiar with them. I don't think they offer funds to non-US markets, other than exchange traded funds that you could probably purchase through a broker. I know very little about private mortgage investing, so I'm similarly ignorant of the players in that market.

SEC regulation is still rigorous for investment companies and publicly traded companies. "Hedge funds" in America (like Bernie Madoff's) fall under a different regulatory framework than mutual funds. They are only lightly regulated by the SEC as long as they follow certain rules. Perhaps this is what you are thinking of? I don't invest in hedge funds for a number of reasons.

I like the SEC regulation of mutual funds just fine. And I think investors around the world like the regulation, security and certainty of the US capital markets (one of the limited things the US is really good at! ).

 

[tuixiu]

I suspect most of the people at Vanguard are either call center account representatives or administrative support/IT. Same with USAA, which hires here in Arizona for (usually) salaries that distinctly middle income.

 

[FUEGO]

I suspect most of the people at Vanguard are either call center account representatives or administrative support/IT. Same with USAA, which hires here in Arizona for (usually) salaries that distinctly middle income.

Right on. Even their CFP's/advisors are salaried and not in sales positions like at many competing firms.

 

[Kroeran]

It isn't really "para-communistic" - whatever that means?? There are a few other truly mutual investment sponsors and insurance companies in the US, along with Credit Unions which are basically mutually owned banks.

I am just saying, just because something is a cooperative, this is no guarantee of being immune from monkey business or incompetence.

Speaking as a former hippy, and later Ayn Rand fan, I am very sceptical regarding alternate industrial structures.

I am half joking by referring to a cooperative as a communistic entity.

I prefer the "owner is in the store" model, as a general rule, when buying a service or product.

I also deal with cooperatives vs private firms in my profession, and the smart money sees cooperatives as future acquisitions by private firms.

Sometimes the exception proves the rule. I wonder why VG is able to succeed without private ownership?

I will wiki it.

 

[audreyh1]

The only guesses they are exposed to are the ones from the committee who decides which stocks go in and which go out of the index........

Yep! That's what always bugged me. That plus the icky market weighting.

Audrey

 

[ERD50]

The only guesses they are exposed to are the ones from the committee who decides which stocks go in and which go out of the index........

I'm curious - are you talking about the index itself, or the fund manager who might only buy a sampling of the stocks that make up the fund?

If the former - I agree in cases like the DOW (which is why I ignore it as much as I can), but with the S&P500, etc - I wouldn't think a bit of selection makes much difference in the long run.

For the latter - I suppose, but most index funds come pretty darn close to the index itself, which is sort of a "virtual investment" anyhow - no trading costs or anything in that number.

-ERD50

 

[Gumby]

sounds good in principle. Can the expense ratio be verified, or does one take that on trust? One has to operate on the assumption that the very best Chicago school minds will be trying to figure out how to game the game for their benefit.

If we're being paranoid here, let me ask you this? How do you know that your broker really purchased and is holding all those shares of individual company stock you think you own? Have you ever seen the stock certificates? Me neither.

It takes a certain amount of trust for a modern economic system to function. If you don't have that, you might as well stock up on ammunition and canned goods.

 

[Nords]

If we're being paranoid here, let me ask you this? How do you know that your broker really purchased and is holding all those shares of individual company stock you think you own? Have you ever seen the stock certificates? Me neither.

I think Kroeran's paranoia is appropriate for someone whose knowledge of the American stock market consists of no personal experience and only what they read in American newspapers.

 

[tuixiu]

If we're being paranoid here, let me ask you this? How do you know that your broker really purchased and is holding all those shares of individual company stock you think you own? Have you ever seen the stock certificates? Me neither.

It takes a certain amount of trust for a modern economic system to function. If you don't have that, you might as well stock up on ammunition and canned goods.

Yup.

Think of how much faith you put in when dealing in real estate too.

 

[Kroeran]

If we're being paranoid here, let me ask you this? How do you know that your broker really purchased and is holding all those shares of individual company stock you think you own? Have you ever seen the stock certificates? Me neither.

It takes a certain amount of trust for a modern economic system to function. If you don't have that, you might as well stock up on ammunition and canned goods.

well, thats exactly what Bernie did, didn't he.

I think the sweet spot is to develop the habit of constantly asking yourself, how am I being conned.

One thing I am certain, at any time, smarter people than you or I are probing for ways to steal/skim in small or large ways, legally or illegally.

They lie awake thinking thinking thinking.

Owning stock direct cuts out a whole layer of such potential crooks. Then you are left with only worrying about the thieves that run the corporations.

Thats part of what I like about real estate or direct lending, and being able to drive over and look at your money....check land registry records.

Of course, then your primary worry is your own incompetence, but you make mistakes and learn.

This reminds me of the story...

"A father tells his son to climb to the third step of a stairway and jump. Says "I will catch you". The son says he is scared. The father says, dont' worry, I will catch you. Then the son jumps. The father steps out of the way, letting the son fall. He crys, and asks, why didn't you catch me! The father replies "to teach you an important lesson...Never trust anyone".

This may sound dark and cynical, or you may think I am unhappy. Not so.

My money, my wifes money, my mothers money, my (smart) brother in laws money is all in government guaranteed fixed income, low LTV private lending or in properties we expect to personally use indefinitely, mortgage free.

The financial crisis was merely an opportunity for us to pick up some florida vacation property cheap, with great scepticism.

Another relative left his kids education fund (from granddad) in the market in spite of me speaking to him with as strong words as I dared last summer. I think the one daughter is now looking at community college instead of university.

 

[FUEGO]

I think the sweet spot is to develop the habit of constantly asking yourself, how am I being conned.

One thing I am certain, at any time, smarter people than you or I are probing for ways to steal/skim in small or large ways, legally or illegally.

They lie awake thinking thinking thinking.

Sure. Do your due diligence. If it is too good to be true it is. Somewhere beyond due diligence is "paranoia". Do you ever fear that you have crossed the line between due diligence and paranoia?

If I can't trust Vanguard, can FDIC insured deposits be trusted? Can the US government be trusted? Paranoia vs. due diligence.

Also, tell us more about "government guaranteed fixed income, low LTV private lending". I'm always up for considering better ways to get guaranteed income with high rates of return. I just always come up short after doing due diligence.

 

[Kroeran]

I guess it would be paranoia if it was not based on direct experience.

I am warming to the Vanguard concept after learning more about it.

By government guaranteed I just mean FDIC insured CDs (I am in Canada, so we call them CDIC insured). There is a nice transparent market for these up here (Rice Financial, for example) where banks and trusts compete with each other through a broker network. The "advisors" HATE these products.

LTV is loan to value. A 50% LTV first mortgage investment means the loan is 50% of the appraised value, for example. You can even have one of these inside a Registered Retirement Savings Plan (RRSP) up here. You can even have your own mortgage, or the mortage of a kid inside what we call a RRSP, which cuts out the middle man, which I like.

When I was younger and dad was still around, he had the mortage on our house, though this can get tricky.

 

[FUEGO]

I guess it would be paranoia if it was not based on direct experience.

I am warming to the Vanguard concept after learning more about it.

By government guaranteed I just mean FDIC insured CDs (I am in Canada, so we call them CDIC insured). There is a nice transparent market for these up here (Rice Financial, for example) where banks and trusts compete with each other through a broker network. The "advisors" HATE these products.

LTV is loan to value. A 50% LTV first mortgage investment means the loan is 50% of the appraised value, for example. You can even have one of these inside a Registered Retirement Savings Plan (RRSP) up here. You can even have your own mortgage, or the mortage of a kid inside what we call a RRSP, which cuts out the middle man, which I like.

Gotcha. I thought the government guaranteed part was referring to the low LTV private loans. Now I see you are talking about fixed income CD's with FDIC (or CDIC) protection in one case, and low LTV private loans (hence less risk) in the second case.

Many here successfully employ CD's as significant parts of their investment portfolio. Heck, I may do so one day as well if/when I decide to go to less than 100% equities. They are certainly yielding more right now than treasury bonds (3+% for 3-4 yr CD's vs 2-ish% for similar treasuries). Some folks undoubtedly locked in 6%+ yields on longer term CDs and will continue to enjoy those nice coupons for a couple more years.

I have thought about secured private mortgage lending. Even at low LTV amounts, there is still some risk involved. And it is a business. I like passive investments. Right now I can get over 5% yield from a diversified corporate bond fund at Vanguard and it doesn't require me to do any real day to day mangement or oversight. I may lose a percent or two of potential return vs. private lending, but the risk and simplicity compensate for that.

And right now, if I wanted a 5% guaranteed tax free return, I could just prepay my 5% mortgage. But I'm seeking returns greater than 5% in the equities market since my time horizon is decades.

 

[tuixiu]

I am not American and have been completely out of stocks/funds for many decades, so I am genuinely as ignorant of this as you suspect.

I guess it would be paranoia if it was not based on direct experience.

These statements don't really match.

 

[Kroeran]

Quote:
Originally Posted by Kroeran
I am not American and have been completely out of stocks/funds for many decades, so I am genuinely as ignorant of this as you suspect.

Quote:
Originally Posted by Kroeran
I guess it would be paranoia if it was not based on direct experience.

These statements don't really match.

These statements don't really match.

well, smart people learn from their mistakes, wise people learn from the mistakes of others

My views draw on family stories going back to my grandfather losing his farms in Russia, then landing in the prairies in the 30s, then watching my dad struggle with various investments throughout his life, then my youthful experiences with various things from financial futures trading and a list to long to mention of entrepreneurial adventures, and then all the experiences of extended family, collegues, not to mention an MA in economics.

My basic observation is that very few people have the discipline to ride out the downturns and then not overmanage thier portfolios. Then there remains the problem of always having the anxiety of the markets heading into a 10 year slump, at any point in the process. And thats if you don't get abused by an advisor of some kind.

The only formula that I have seen work for a salaryman, is kill debt in all its forms. Never carry credit card debt, then dump everything against the mortgage. This should be knocked off as young as possible. Well, maybe its different up here, cus we don't have mortgage deductability. Then start saving and dumping it into CDs. No worries and you know where you will be at any point in time.

If CD returns won't get you there, you are not saving enough.

Question...have you actually met anyone who actually built up enough money through the market so that they could retire on it?

 

[FUEGO]

My basic observation is that very few people have the discipline to ride out the downturns and then not overmanage thier portfolios. Then there remains the problem of always having the anxiety of the markets heading into a 10 year slump, at any point in the process. And thats if you don't get abused by an advisor of some kind.

The only formula that I have seen work for a salaryman, is kill debt in all its forms. Never carry credit card debt, then dump everything against the mortgage. This should be knocked off as young as possible. Well, maybe its different up here, cus we don't have mortgage deductability. Then start saving and dumping it into CDs. No worries and you know where you will be at any point in time.

Another part of our formula is to have federal government jobs that work toward bullet proof indexed pensions. Pops did two careers of this and now mom has 4 survivor pensions, counting his two carreers and our versions of social security.

Hey, it's funny how a little communism, government taking of property, and genocide will inform family opinions. We had a little of that on DW's side.

Your comments on debt and financial management have described a large swath of the community here on the forum. Most pay down debt, some pay down mortgage (that is a continuing debate), virtually none carry interest bearing credit card debt. Many also have inflation indexed government pensions.

But you may not have a good picture of the investment strategies here. Many posters are rather savvy about market investments and have a long term approach. Most also manage their own money in large part.

Many Americans don't actually get to deduct mortgage interest, especially middle-class and lower class people due to high standard deduction.

 

[FUEGO]

Question...have you actually met anyone who actually built up enough money through the market so that they could retire on it?

?? I think there are a lot of folks here that derive a significant portion or all of their income from portfolio investments at least a portion of which are/were invested in equities.

Here's a recent thread on sources of retirement income that shows what people are actually depending on for retirement income. Some rely primarily on pensions, and some rely primarily on portfolio investments (which may include CD's and bonds or bond funds). Social security figures in to many's income streams as well.

Today's 20- and 30-somethings will probably have a different experience in early retirement since large pensions are much much rarer today even in government employment. You can either save it up in CD's and hope inflation doesn't eat you alive, or risk it in the market and hope Mr. Market doesn't eat you alive. There is no real "risk free" way to build up a big portfolio.

 

[Kroeran]

I just can't believe that after the downdraft, there are sane people who still believe in buy and hold for their serious money, especially not having paid off the mortgage.

Market timers are completely insane.

I am open to being convinced otherwise.

Is there anyone out there that can tell me with a straight face that they are up more than 5% yield compounded on the last 20 years?

I think for many the markets are a gambling addiction.

Better to lock the serious money up safe and take up poker.

 

[REWahoo]

Question...have you actually met anyone who actually built up enough money through the market so that they could retire on it?

Hi. I'm one of those.