Investing General Discussion

Sanrith Descartes · Dec 28, 2023

Foler said:
Yeah…

Yup. I was in grad school just spending money back in 2020 so I guess I never really followed through.. All my money was tied up in my AUM portfolio with zero job income.

Yeah. I realize this now. At this point what should my ask be if I want to keep a professional relationship for ancillary services? Maybe the idea of paying .05-.075% to park it in low ER ETF/MFs?. Yes I know it’s not ideal but it’s better than having them park it at high ER funds and I don’t want to cut ties right now/immediately. I want to gain a little bit more knowledge before I take over my AUM portfolio as it’s much much larger than this personal portfolio I’ve been making since November.

Oh don’t worry. They ended up putting me in ARKK positions from jul 20-2022 till end of year 2022. Those positions are up 30% so maybe I can’t complain.

Well my world is crashing a little. Not the end of the world and better to learn now.. For now I’d like to just get my AUM with longer ER funds versus completely severe ties. I also will be investing all my future income in my self managed portfolio.

So it helps to have an understanding of how the relationship works. You pay the advisor a percentage of AUM to manage your accounts.

For that percentage you dont pay trade fees when he makes trades for you. This might have been a thing back when you actually paid trade fees, but mostly those are extinct.

For that percentage you still pay taxes on the trades made (assuming its a taxable account).

For that percentage you are paying for his skill at investing your money. Historical data shows none of these people can beat the S&P over 3-5 years and longer. If he puts it into an ETF/Mutual Fund his skill is meaningless as the fund is most likely being tracked to an index and run by a program.

That being said, take your returns since 2020 (or whenever) and compare them to the S&P over the same time frame. When the S&P outperforms you tell him to explain why you paid him money to underperform an index you can put money in for free. He will not have an answer because when you look above there is nothing else he offers. It is strictly a math equation. Save the investor fees and invest the money in the S&P and let it run to retirement and beyond. You will make more alpha with this method.

The caveat to the above is you have the big brains here telling you this stuff. If you didnt have this as a resource, then the water gets a little muddier since you wouldn't understand whats going on. Enlightenment is a bitch.

Sanrith Descartes · Dec 28, 2023

Foler said:
Not getting at any point. Just asking questions. I guess I was curious because from my research most people say use zero index in tax advantaged accounts so you don’t get hit by capital gains if you have to move brokers. The disadvantage being if you ever wanted to leave fidelity in your taxable account, those funds have to go.

Just asking questions, observing and trying to understand why people make the decisions they do since there seems to be a wealth of knowledge here. Not trying to make any points or anything.

Use zero cost index funds because they are zero cost. Also understand a fundamental difference, those zero cost are mutual funds. They do not trade like ETFs. For "most people" this is not an issue and should just own the zero cost mutual fund S&P/Total market. Personally, I pay the couple of basis points for the ETF version so I can sell/buy it during the day and trade options on it. This cant be done with mutual funds since they enact all trades at the close of business at the close price.

Gravel · Dec 28, 2023

Sanrith Descartes said:
So it helps to have an understanding of how the relationship works. You pay the advisor a percentage of AUM to manage your accounts.

For that percentage you dont pay trade fees when he makes trades for you. This might have been a thing back when you actually paid trade fees, but mostly those are extinct.

For that percentage you still pay taxes on the trades made (assuming its a taxable account).

For that percentage you are paying for his skill at investing your money. Historical data shows none of these people can beat the S&P over 3-5 years and longer. If he puts it into an ETF/Mutual Fund his skill is meaningless as the fund is most likely being tracked to an index and run by a program.

That being said, take your returns since 2020 (or whenever) and compare them to the S&P over the same time frame. When the S&P outperforms you tell him to explain why you paid him money to underperform an index you can put money in for free. He will not have an answer because when you look above there is nothing else he offers. It is strictly a math equation. Save the investor fees and invest the money in the S&P and let it run to retirement and beyond. You will make more alpha with this method.

The caveat to the above is you have the big brains here telling you this stuff. If you didnt have this as a resource, then the water gets a little muddier since you wouldn't understand whats going on. Enlightenment is a bitch.

This is the big thing people get caught up in, and

Foler seems to be a little too as he gets excited about this and wants to fiddle.

It's not complicated. At all. Your brain has a hard time accepting that, though. It says, "well there are all these people in finance, there's got to be some complication to it all." But there's not. For 99% of investors, you throw it in an index and you beat literally everyone on Wall Street. You think, "surely I can take the index and just use some knowledge to beat it by just a tiny bit." Except you can look it up, where there are no traders who beat the index for longer than about a 3 year stretch. Every financial advisor will try to sell you on how it's too complicated for you and you need them to help you navigate it, but the reality of you don't have to do shit and as long as the US economy keeps chugging, you make money.

There was a Fidelity "study" (although I may have read something saying it wasn't what it said) that showed that their best investors were the ones who lost their accounts or died. The people who were active couldn't help but fuck things up. The ones who set it and forget it crushed.

Foler · Dec 28, 2023

Sanrith Descartes said:
It gets even better when those emerging market funds are loaded with bonds denominated in US Dollars. They have to buy dollars with their shitty local currency to pay the notes each month. Now go look at what the dollar did over the last couple of years. EM funds are shit and people who put unsuspecting investors into them are scumbags who deserve to be sent to a gulag.

Yeah I guess I’m a bit mind blown. When I started down this little journey a month ago you may remember I reached out to my financial advisor about rebalancing my portfolio. One thing he said was

“US Stocks are currently priced highly, and international and emerging markets much more attractively.”

He attached some information regarding my current asset allocation (which is about 8.5% in EM). Then there’s a table in here with “Industry equity return assumptions favor emerging markets” and the table is all the big names like vanguard, JPM, investor, BNY all favoring EM. I don’t necessarily trust those guys so I don’t know if that table means much to me. I think those fund managers are looking out for their own best interest.

After that table they give a chart for their forecast 10 year returns for firm and EM is the highest. No idea where they got that data though to calculate that forecast so not sure how that is supposed to instill confidence..

There’s some other stuff in here but it seems that the bottom line for them is “future growth is likely to be in countries with growing economies, stable currencies, favorable demographics and reasonable valuations.”

Looking at all this they could just be taking the data blackrock, vg, jpm etc are feeding them and running with it.

I think I’d like to understand how much influence “priced attractively” should have in asset allocation decisions. What does that phrase even mean? Does it imply that they are undervalued with high future growth? What is US stocks are overpriced, how should that influence my decision to buy something else in a different asset class allocation such as intl/EM?

The bottom line is I think I’m not the right customer for them. I don’t use their other services. I’m only here because I’m related to someone who is and they are an AWESOME fit for this person because of all the other services they offer and excel at such as estate/trust planning, bill pay etc.

Gravel · Dec 28, 2023

I really like the JLCollins stock series. It's a good read for the whole thing, but it'll take some time to get through it all (he made the whole thing a book, but it's still free in web format).

Here's his response to international Stocks — Part XI: International Funds
tldr: The biggest companies in America have a massive international exposure. Apple, McDonald's, the oil companies, etc. They're all massive internationally. Yeah, you miss the Nestle and Sony everyone loves to harp on about, but so fucking what? Do you literally need to own every single large company on the planet?

And just for fun, his take on advisors Stocks — Part IX: Why I Don't Like Investment Advisors

Foler · Dec 28, 2023

Sanrith Descartes said:
So it helps to have an understanding of how the relationship works. You pay the advisor a percentage of AUM to manage your accounts.

For that percentage you dont pay trade fees when he makes trades for you. This might have been a thing back when you actually paid trade fees, but mostly those are extinct.

For that percentage you still pay taxes on the trades made (assuming its a taxable account).

For that percentage you are paying for his skill at investing your money. Historical data shows none of these people can beat the S&P over 3-5 years and longer. If he puts it into an ETF/Mutual Fund his skill is meaningless as the fund is most likely being tracked to an index and run by a program.

That being said, take your returns since 2020 (or whenever) and compare them to the S&P over the same time frame. When the S&P outperforms you tell him to explain why you paid him money to underperform an index you can put money in for free. He will not have an answer because when you look above there is nothing else he offers. It is strictly a math equation. Save the investor fees and invest the money in the S&P and let it run to retirement and beyond. You will make more alpha with this method.

The caveat to the above is you have the big brains here telling you this stuff. If you didnt have this as a resource, then the water gets a little muddier since you wouldn't understand whats going on. Enlightenment is a bitch.

A little confused when you say percentage of AUM. His fee is somewhere between .5-.75% AUM. Does that mean I don’t pay trade fees on only that % of trades made by him.. Confused here and I don’t want to bog the thread down in this nuanced more personal stuff so I’ll do some research and give him a call.

Gravel · Dec 28, 2023

Assets Under Management. All of the assets he's managing for you. If that's $200,000, he's earing 0.5% of all of the assets ($1,000). Every year.

Foler · Dec 28, 2023

Sanrith Descartes said:
Use zero cost index funds because they are zero cost. Also understand a fundamental difference, those zero cost are mutual funds. They do not trade like ETFs. For "most people" this is not an issue and should just own the zero cost mutual fund S&P/Total market. Personally, I pay the couple of basis points for the ETF version so I can sell/buy it during the day and trade options on it. This cant be done with mutual funds since they enact all trades at the close of business at the close price.

Right. I guess maybe where I’m caught up is where it makes sense to own those zero cost funds versus their non-zero equivalent, for example FNILX vs FXAIX in your taxable account. It seems to be personal preference in that some people don’t like the idea that if they were to switch brokerages by choice or necessity at some point from fidelity they would have to liquidate their FNILX position and pay capital gains tax on it. Some people seem to think they’ll be fidelity customers for life and it doesn’t bother them, some have concerns they might not be, and I guess maybe some just don’t care about the capital gains tax in this scenario (dunno why you wouldn’t).

I thought I had asked this question before but maybe I didn’t. Would you choose zero fund fees in a taxable account knowing you can only hold them in that brokerage?

Creslin · Dec 28, 2023

Foler said:
A little confused when you say percentage of AUM. His fee is somewhere between .5-.75% AUM. Does that mean I don’t pay trade fees on only that % of trades made by him.. Confused here and I don’t want to bog the thread down in this nuanced more personal stuff so I’ll do some research and give him a call.

AUM is assets under management, so they take a % of your total assets that they are managing each year. That means you need the market to return that much just to keep you flat. EX you have a have $100 under management, market returns 1% that year, advisor takes a 1% fee, you end up with $99.99 and a capital gains bill. Basically it means you need that hypothetical advisor to out perform the S&P by over 1% just to make up for the fee, if S&P returns 10% and your advisor returns 11% you actually lose out even though your advisor will be singing their own praises.

Which is really hard to do and why most people recommend no fee or very low fee accounts. I think for the reasons you mentioned alot of people do like the ETFs, because .2% isn't that impactful and you have a lot more control.

Foler · Dec 28, 2023

Gravel said:
This is the big thing people get caught up in, and Foler seems to be a little too as he gets excited about this and wants to fiddle.

It's not complicated. At all. Your brain has a hard time accepting that, though. It says, "well there are all these people in finance, there's got to be some complication to it all." But there's not. For 99% of investors, you throw it in an index and you beat literally everyone on Wall Street. You think, "surely I can take the index and just use some knowledge to beat it by just a tiny bit." Except you can look it up, where there are no traders who beat the index for longer than about a 3 year stretch. Every financial advisor will try to sell you on how it's too complicated for you and you need them to help you navigate it, but the reality of you don't have to do shit and as long as the US economy keeps chugging, you make money.

There was a Fidelity "study" (although I may have read something saying it wasn't what it said) that showed that their best investors were the ones who lost their accounts or died. The people who were active couldn't help but fuck things up. The ones who set it and forget it crushed.

Yeah. I think I’m just having a hard pill to swallow right now with my 15 year history with my financial advisor. Couple that with a little bit of my new excitement from what I’m learning here. I now invest immediately once my paycheck drops and then I have a lull for a month (paid monthly) and get squirrelly because i will admit my impulse control isn’t the best and something I need to work on.

To combat this I’m cutting down the amount of invest off the bat, throwing the rest in SPAXX and then just buying the usual FXAIX and a small bit of IXUS/QQQM/FSMAX every few days to get “my fix” if that makes sense.

I think if I don’t do this I’m just gonna show up in this thread every day asking questions you guys have the same answer to (keep it simple stupid, fxaix). Don’t want that.

TJT · Dec 28, 2023

Foler said:
Yeah. I think I’m just having a hard pill to swallow right now with my 15 year history with my financial advisor. Couple that with a little bit of my new excitement from what I’m learning here. I now invest immediately once my paycheck drops and then I have a lull for a month (paid monthly) and get squirrelly because i will admit my impulse control isn’t the best and something I need to work on.

To combat this I’m cutting down the amount of invest off the bat, throwing the rest in SPAXX and then just buying the usual FXAIX and a small bit of IXUS/QQQM/FSMAX every few days to get “my fix” if that makes sense.

I think if I don’t do this I’m just gonna show up in this thread every day asking questions you guys have the same answer to (keep it simple stupid, fxaix). Don’t want that.

Do you think that guy is your friend or some bullshit because he sends you a yearly Christmas card?

Gravel · Dec 28, 2023

Foler said:
Yeah. I think I’m just having a hard pill to swallow right now with my 15 year history with my financial advisor. Couple that with a little bit of my new excitement from what I’m learning here. I now invest immediately once my paycheck drops and then I have a lull for a month (paid monthly) and get squirrelly because i will admit my impulse control isn’t the best and something I need to work on.

To combat this I’m cutting down the amount of invest off the bat, throwing the rest in SPAXX and then just buying the usual FXAIX and a small bit of IXUS/QQQM/FSMAX every few days to get “my fix” if that makes sense.

I think if I don’t do this I’m just gonna show up in this thread every day asking questions you guys have the same answer to (keep it simple stupid, fxaix). Don’t want that.

For the early retirement community, they divide up the timeline into 3 phases. You're in the exciting new phase where all the information is new and you want to consume it all and invest your ass off.

The majority of it is known as the "boring middle." You've basically read the same variation of the article about how index investing wins 50 times over and you realize the process is incredibly simple it's just a waiting game. So you keep shoveling money in every month for years and years. It's not exciting. The majority of your "gains" really come from your contributions. It's not until you get very large sums of money invested that they start outperforming your contributions (or even better, you start making more money than your salary; conversely, you lose $40k in a single day and you go wtf).

Then you get towards the end and you're a nervous wreck because you have to come to grips with how your investment portfolio is making more money than you do now, and you can choose not to work and you now have to figure out what that means in the grand scheme of life.

I'm not saying this applies to most people (or anyone) in this thread. Maybe you all love to work and aren't looking to retire. But the mental phases are definitely still present. Hell, they're still there a bit for those who suck dick at investing but are approaching retirement. My only point was that this isn't always going to be exciting. Lots of people trip up when they get past the "new" phase and then decide they need to start trading because there's gotta be a way to shortcut this.

Foler · Dec 28, 2023

TJT said:
Do you think that guy is your friend or some bullshit because he sends you a yearly Christmas card?

No, I think he’s a friend because of things he did but didn’t have to do along our 15 year relationship that would make zero sense for someone who’s time is limited by kids and other clients who are way more important and profitable..

I don’t think a level of friendship is mutually exclusive to me not being a fit for his service. I think he offers a product that doesn’t seem to be a good fit for me since I don’t capitalize on their other services due to not fitting their usual client demographic.

Sanrith Descartes · Dec 28, 2023

Gravel said:
This is the big thing people get caught up in, and Foler seems to be a little too as he gets excited about this and wants to fiddle.

It's not complicated. At all. Your brain has a hard time accepting that, though. It says, "well there are all these people in finance, there's got to be some complication to it all." But there's not. For 99% of investors, you throw it in an index and you beat literally everyone on Wall Street. You think, "surely I can take the index and just use some knowledge to beat it by just a tiny bit." Except you can look it up, where there are no traders who beat the index for longer than about a 3 year stretch. Every financial advisor will try to sell you on how it's too complicated for you and you need them to help you navigate it, but the reality of you don't have to do shit and as long as the US economy keeps chugging, you make money.

There was a Fidelity "study" (although I may have read something saying it wasn't what it said) that showed that their best investors were the ones who lost their accounts or died. The people who were active couldn't help but fuck things up. The ones who set it and forget it crushed.

Daniel Kahneman does a nice section on this in his book "Thinking Fast and Slow". He got hired by a Wall Street Firm years ago to help them improve their trading. He told them his research showed their traders were actually worse than a coin toss over the period of the data he studied.

Sanrith Descartes · Dec 28, 2023

Foler said:
I don’t necessarily trust those guys so I don’t know if that table means much to me. I think those fund managers are looking out for their own best interest.

This is the first step to enlightenment, young Padawan.

Sanrith Descartes · Dec 28, 2023

Gravel said:
Assets Under Management. All of the assets he's managing for you. If that's $200,000, he's earing 0.5% of all of the assets ($1,000). Every year. Whether you make money or lose money.

ftfy

Sanrith Descartes · Dec 28, 2023

Foler said:
Right. I guess maybe where I’m caught up is where it makes sense to own those zero cost funds versus their non-zero equivalent, for example FNILX vs FXAIX in your taxable account. It seems to be personal preference in that some people don’t like the idea that if they were to switch brokerages by choice or necessity at some point from fidelity they would have to liquidate their FNILX position and pay capital gains tax on it. Some people seem to think they’ll be fidelity customers for life and it doesn’t bother them, some have concerns they might not be, and I guess maybe some just don’t care about the capital gains tax in this scenario (dunno why you wouldn’t).

I thought I had asked this question before but maybe I didn’t. Would you choose zero fund fees in a taxable account knowing you can only hold them in that brokerage?

Because there are few products that are publically trades that you cant buy in another Brokerage. If you invest with Fidelity, you can still own most, if not all Vanguard products. The issue is their might be some sort of transaction/trade fee to do it. Buying your brokerage's products will tend to be without additional costs. Just check the rules for your specific brokerage.

Sanrith Descartes · Dec 28, 2023

Foler said:
Yeah. I think I’m just having a hard pill to swallow right now with my 15 year history with my financial advisor. Couple that with a little bit of my new excitement from what I’m learning here. I now invest immediately once my paycheck drops and then I have a lull for a month (paid monthly) and get squirrelly because i will admit my impulse control isn’t the best and something I need to work on.

To combat this I’m cutting down the amount of invest off the bat, throwing the rest in SPAXX and then just buying the usual FXAIX and a small bit of IXUS/QQQM/FSMAX every few days to get “my fix” if that makes sense.

I think if I don’t do this I’m just gonna show up in this thread every day asking questions you guys have the same answer to (keep it simple stupid, fxaix). Don’t want that.

It will get worse when you calculate how much you paid him in management fees to underperform the S&P.

Sanrith Descartes · Dec 28, 2023

TJT said:
Do you think that guy is your friend or some bullshit because he sends you a yearly Christmas card?

You get Christmas cards for your guy? Lucky bastard.

Gravel · Dec 28, 2023

Sanrith Descartes said:
It will get worse when you calculate how much you paid him in management fees to underperform the S&P.

We started with Edward Jones back in like 2005 or so using my deployment money to open IRA's. It wasn't until about 2014 when I finally got serious about saving that we dumped them.

On the plus side, it wasn't a ton of money (something like $80k by the time we left). On the minus though, that whole compound interest thing really fucks you when you get screwed early on when you're young.

I remember being in lots of American funds and they had massive fees. I want to say something like 5% upfront and who knows how much annually. We also had that churn thing where we were being sold by our advisor on moving to different funds every few years. So add some extra lost there.

On top of that I have a finance degree so I know how full of shit they are, and it's no wonder I hate advisors.

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