Decent article, but awfully linkbait-y headline. You'll get that advice at many places around the internet - I recommend those curious to read the wiki at bogleheads.org
The Best Investment Advice You'll Never Get (2008)
21–30 of 129 posts
Re: The Best Investment Advice You'll Never Get (2008)
#22Earlier quoted context omitted.
You may need to pay that $10 if you are investing through some other brokerage account. However, do yourself a favor, open an account with Vanguard directly and you can make that purchase without any fees. Additionally, I'd recommend se percentage be invested in the Vanguard total bond market fund as well. Holding se percentage there will reduce overall portfolio volatility, and can actually increase returns slightly…
To get the diversification benefit from holding the bond fund, you'd need to rebalance (every few months to every few years).
If you are investing new money every month and attempting to maintain the same allocation over time, you are in a sense automatically rebalancing. Of course, this assumes your total investment over a given time period is roughly in line with the relative delta in performance.
Re: The Best Investment Advice You'll Never Get (2008)
#23Assuming you believe the underlying assumptions (and they very well may not be true), modern portfolio theory allows you to build a mathematically ideal portfolio for a given amount of risk. The math behind MPT might be hand waved as followed: goal seek a maximum portfolio return by combining assets with minimal correlation under a fixed risk scenario. In the end, you will have portfolio that will give you the maximu…
There's ton of criticism on MPT. Would like to hear you on that ! Are they valid ? Should we use PMPT ?
The primary question is this: do we truly have models that can predict future asset correlations. In other words, are our assumptions about distribution of returns valid. Behavioral economics suggests that individuals react differently than mathematically predicted.
Personally, I think the biggest problem with any ideal portfolio allocation tool are black swan events (Taleb).
Re: The Best Investment Advice You'll Never Get (2008)
#24General question about index funds: if a market is about to go into a steep correction or even a recession, wouldn't it be more advantageous to invest in specific stable stocks, rather than an index fund that tracks the entire market?
Re: The Best Investment Advice You'll Never Get (2008)
#25Earlier quoted context omitted.
>So what is the amateur person worth $25M to do today? As with all things, you should seek professional advice. There are many nuances of tax efficiency, estate efficiency, asset protection, personal needs, etc. that a professional advisor should guide you through. While this is true, the problem that most advisors that a $25MM net worth individual has access to are mostly duds and/or salesmen. Identifying true value…
You need a good estate planning attorney (ask rich friends), and a good accountant (ask rich friends), and a good financial advisor. Of these three, if you believe in MPT, the financial advisor is simply a coin-operated sales guy. At a 1% fee against $25 million, your business represents $250K/yearly. That is a solid sum of money to any business. But practically speaking, what is that financial advisor going to sell…
>Ask rich friends
Agreed. This is the only thing I could come up with that would reasonably ensure that I would be talking to someone decent.
Offtopic, but it is my belief that one of the strong factors in the perpetuation of wealth and associated wealth disparities in society is exactly this kind of information and knowledge asymmetry in the population, from access to the best advice (networks or simply the funds to gain access) to the osmosis-like uptake of information throughout one's childhood when raised in an affluent family/neighborhood/environment.
>the financial advisor is simply a coin-operated sales guy
Agreed. this is absolutely the mindset I tell all my friends to adopt, and to not be mislead by the title of "advisor", since they are anything but.
>Odds are after you get past the glossy color printed custom, just-for-you, spiral bound investment plan, you will see a custom portfolio that will be assembled with MPT.
Partially agreed.
Most of the time, I agree that what will be pitched is a cookie cutter MPT set of assets/funds that, while often of somewhat marginally unideal quality, will generally get the job done. However, I have* seen and heard of absolutely horrible plans being thrown at naive new wealth people, and while "odds are" (as you say) this won't happen to you, it's still a non-neglible probability that you get wrapped up with some truly sleazy operations.
That being said, your average American PWM firm/team/branch isn't likely to totally come after you like this. I think this is more likely to happen in Asia or Asian firms in the west.
Re: The Best Investment Advice You'll Never Get (2008)
#26General question about index funds: if a market is about to go into a steep correction or even a recession, wouldn't it be more advantageous to invest in specific stable stocks, rather than an index fund that tracks the entire market?
Yes, but that would require you to reliably predict future market price movements.
Re: The Best Investment Advice You'll Never Get (2008)
#27Earlier quoted context omitted.
There's ton of criticism on MPT. Would like to hear you on that ! Are they valid ? Should we use PMPT ?
Yeah, this whole "a responsible asset manager has to use MPT" is completely not true. A responsible asset manager has to consider risk and return, of course, but how they measure and evaluate risk and return is an art as much as a science. MPT-driven portfolios have been shown to underperform more naive formulations, mainly due to model risk and mis-estimation of parameters.
I completely agree with you. MPT/PMPT systems are contingent upon accurate modeling of risk and return and this is not a science.
Nassim Taleb is a vocal critic of MPT.
Re: The Best Investment Advice You'll Never Get (2008)
#28General question about index funds: if a market is about to go into a steep correction or even a recession, wouldn't it be more advantageous to invest in specific stable stocks, rather than an index fund that tracks the entire market?
Sure, if you are sure the market is about to go into a steep correction or even a recession. But how do you know that? Why not go even further - If you knew for sure the market was going to drop, you could make a lot of money in options. Why aren't you doing that instead?
You shouldn't be trying to time the market. Lots of people try, they tend to fail. Come up with an allocation plan, and stick to it.
Re: The Best Investment Advice You'll Never Get (2008)
#29Regarding "Don't beat the market", Warren Buffet says "The game is really easy when your opponent decides not to play". Unfortunately, giving up has a lot of appeal: It means it's not your fault you didn't beat the market. It lets people say the game is rigged and take comfort. How many times have you seen buying company stock compared to gambling? Even though, on its face this comparison is ludicrous. (Especially he…
1. Not everyone has the time to study finance.
2. According to Piketty, the market is doing pretty well over time, so simply following it is perfectly ok.
That said, I've heard the best way to beat the market is to invest in undervalued, small, unglamorous and mostly unknown companies. Obviously, that requires some serious study and resistance to hype.
Re: The Best Investment Advice You'll Never Get (2008)
#30Earlier quoted context omitted.
There's ton of criticism on MPT. Would like to hear you on that ! Are they valid ? Should we use PMPT ?
The primary question is this: do we truly have models that can predict future asset correlations. In other words, are our assumptions about distribution of returns valid. Behavioral economics suggests that individuals react differently than mathematically predicted. Personally, I think the biggest problem with any ideal portfolio allocation tool are black swan events (Taleb).
How do you see value investing vs MPT then ?
I often refers to a good paperon What has worked in investing [1]
I think Taleb criticism is right though and he demonstrates it through Mandelbrot fractal.
[1] http://www8.gsb.columbia.edu/sites/valueinvesting/files/file...