Do you understand your personal finances?
 

If the answer is yes, then how do you manage it/ what is your total wealth allocation.

If the answer is no, what form is your wealth in and who handles that?

Curious to see what people say as in the finance forum alot of people's parents and friends dont know and dont care about their money positioning at all.

Re: Do you understand your personal finances?
 

yes, I am a huge personal finance nit. I use Microsoft Money and a couple of Excel worksheets. I like index ETFs.

Re: Do you understand your personal finances?
 

I don't know nearly enough that I'm happy with it.

My wealth is currently in the form of student loan debt.

Re: Do you understand your personal finances?
 

Great topic...I am also a personal finance nit. I have MS Money 2007 but don't use it much.

I use yodlee to track basically everything.

I use ING electric orange checking (4.0% on checking) but barely keep any money there and ING Savings for my emergency fund. I use my 2 main credit cards for basically all spending (American Express Starwood for travel resorts, hotels, frequent flier miles) and Chase Platinum Plus Rewards (5% cash back on all purchases) and then wire money to pay them in full each month.

I use vanguard for my Roth IRA and regular mutual fund purchases, and use Scottrade for individual equity and ETF holdings.

For asset allocation, I am about 90% equities and 10% bonds currently with 30% INTL exposure in the form of Latin America, Asia, and western europe emerging/developing markets.

Re: Do you understand your personal finances?
 

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Curious to see what people say as in the finance forum alot of people's parents and friends dont know and dont care about their money positioning at all.

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Are these people's friends dim? I don't think I know anyone who doesn't.

Re: Do you understand your personal finances?
 

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Curious to see what people say as in the finance forum alot of people's parents and friends dont know and dont care about their money positioning at all.

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Are these people's friends dim? I don't think I know anyone who doesn't.

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I meant that they have them stashed in some fidelity retirement fund recommended by some financial advisor. The thing is they place blind trust in that person and dont want to be bothered to understand or double check the allocation.

Re: Do you understand your personal finances?
 

Is understanding just knowing where everything is, or understanding the fundamentals behind where your $$ is?

Re: Do you understand your personal finances?
 

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Is understanding just knowing where everything is, or understanding the fundamentals behind where your $$ is?

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Id like to think its understanding why your money is where it is so you can tell if the person managing it is competent. You dont have to understand all the financial jargon, but you should know a few principles or why this guy is putting your money where it is.

Re: Do you understand your personal finances?
 

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Curious to see what people say as in the finance forum alot of people's parents and friends dont know and dont care about their money positioning at all.

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Are these people's friends dim? I don't think I know anyone who doesn't.

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I meant that they have them stashed in some fidelity retirement fund recommended by some financial advisor. The thing is they place blind trust in that person and dont want to be bothered to understand or double check the allocation.

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how many people you know have skills, smarts, and time to double check the expert they hired to do professional work for them?
Do you do this for lawyers? Acc'ts? Dentists?

As always, the key is to hire the right person, use recommendations, referrals, etc.

Re: Do you understand your personal finances?
 

right, but as it turns out most of these professionals are a big waste of money, yet few people know that.

Re: Do you understand your personal finances?
 

I'm quite an idiot when it comes to this. It's rather upsetting. It's caused by a mix of mega-procrastination (mmm...I think it's about time I filed my 2005 taxes), being too irresponsible to do things that help me, and having a bit of a gambling streak (losing too much on stock market).

Currently my money is in cash, poker accounts, and emerging markets index ETF (I think it's a better bet than american indices long-term...gambling again). At least I started deducting from my paycheck into retirement accounts again recently.

Re: Do you understand your personal finances?
 

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right, but as it turns out most of these professionals are a big waste of money, yet few people know that.

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O RLY? Are you going to prove 'most?' I doubt it.

I think if they put a random person in a target VGuard or Fido fund, it'd be better than what 90% of people could do on their own. Or a balanced fund. Something a broker could do with 10hrs of training, for example.

Re: Do you understand your personal finances?
 

I can't say that I really understand my personal finances. I have a friend from college that manages my assets which consist of Traditional IRAs and a simple IRA. I also have equity in my home and business. I also keep way more money than I should in a savings account at my bank. I know how to make money through my business but, have no real desire or time to learn about my retirement accounts, stocks, etc.

Re: Do you understand your personal finances?
 

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right, but as it turns out most of these professionals are a big waste of money, yet few people know that.

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O RLY? Are you going to prove 'most?' I doubt it.

I think if they put a random person in a target VGuard or Fido fund, it'd be better than what 90% of people could do on their own. Or a balanced fund. Something a broker could do with 10hrs of training, for example.

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I meant these guys dont beat the market, so ETFs are better. Obviously a financial advisor can do better than a doctor buying individual stocks.

Re: Do you understand your personal finances?
 

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Is understanding just knowing where everything is, or understanding the fundamentals behind where your $$ is?

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Id like to think its understanding why your money is where it is so you can tell if the person managing it is competent. You dont have to understand all the financial jargon, but you should know a few principles or why this guy is putting your money where it is.

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I'm not old enough to have IRA's or finance people or whatever. I (will) have a vanguard account and maybe some CD's. I would like to think i am at least somewhat competent.

Re: Do you understand your personal finances?
 

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right, but as it turns out most of these professionals are a big waste of money, yet few people know that.

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O RLY? Are you going to prove 'most?' I doubt it.

I think if they put a random person in a target VGuard or Fido fund, it'd be better than what 90% of people could do on their own. Or a balanced fund. Something a broker could do with 10hrs of training, for example.

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I meant these guys dont beat the market, so ETFs are better. Obviously a financial advisor can do better than a doctor buying individual stocks.

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1) ETFs don't beat 'the market,' so aren't necessarily better than anything else. They're not even as predictable as they should be, according to recent research.

2) Not everyone's goal is to 'beat the market.' Most rich, successful people I know have other fin'l goals related to investing.
You take care not to define your terms, but I assume you mean the SPX. Most clients are very, very unhappy when you are down 20% with their money and the SPX is down 23%. Very unhappy.

A standard asset allocation program has been crushing the SPX since at least 2000, it would take any legit, competent fin'l advisor - fee only or broker, about 15 mins to do a minimal template that would have beaten the SP500 - if that was the bar you set.

Small caps also dominate large-caps over time. So it's very easy to beat the SPX as long as your universe includes simple things like small-cap stocks and Int'l stocks.

I believe long-term UST bonds were beating stocks from 1982 until relatively recently, and for far less risk. You should only put all your investable assets in the SPX if you're looking for 100% US large-cap exposure, which is going to be terrible advice anyway.

10 year returns -
VFINX {the market} returned 7.85% annually over 10 years.
Fido Balanced [incl bonds obviously] 10.7%
Fido Contra - 10.8
FDIVX - 13.2
FLPSX - 15.4
FDVLX - 12.1
DODGX - 14.1
CWGIX - 13.7
Clipper 11.8
Colum Acorn 15.1
Davis NY 10.2
ITHAX - 15.6
BJBIX - 16.9
LM Value Trust - 12.4
LAVLX - 14.7
Meridian Value - 17.9
Muhlenkamp - 12.7

Those are all 10-yr returns, all pretty much 3-10% over the SPX, annually, for 10 years [I own all of them for myself or my clients]. Meridian has more than doubled the return of the index, all returns after fees, of course, feel free to check some of these funds on MStar.

Re: Do you understand your personal finances?
 

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Curious to see what people say as in the finance forum alot of people's parents and friends dont know and dont care about their money positioning at all.

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Are these people's friends dim? I don't think I know anyone who doesn't.

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I meant that they have them stashed in some fidelity retirement fund recommended by some financial advisor. The thing is they place blind trust in that person and dont want to be bothered to understand or double check the allocation.

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Ya that is what I got from it. I don't know anyone that blindly trusts their money like that. Most people I know talk about their investments frequently.

I would say people track it with wildly different amounts of success though. As would be expected.

Re: Do you understand your personal finances?
 

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Small caps also dominate large-caps over time. So it's very easy to beat the SPX as long as your universe includes simple things like small-cap stocks and Int'l stocks.

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Total derailment: I think small caps, as a whole, are currently overvalued due to this becoming the prevailing wisdom.

Re: Do you understand your personal finances?
 

Yes, I manage it myself.

Until recently, our money was split about 1/3rd in Vanguard funds, about 1/3rd in a handful of stocks (Scottrade account, buy and hold philosophy), with the rest in a couple managed Asia funds and a Japan ETF. Something like 80/5/15 stocks/bonds/money market, 60/40-50/50 US/Intl.

Retirement money is mostly in "Target Retirement" type accounts (the kind that get more conservative over time), international index funds, with like 1/10th in a random aggressive stock fund I opened five years ago. One thing I want to do soon is rollover a couple old retirement accounts into a single IRA.

Also have a primary bankroll and a backup money market account "assigned" to poker.

But we just bought a condo; so nearly all of paragraph 1 is now invested in Chicago RE! Time to rebuild.

I have a spreadsheet I use for forecasting savings/targeting an overall allocation. Not very good about details of monthly budget, but have a handle on average monthly expenses.

Re: Do you understand your personal finances?
 

No, I suck at it and it's something I want to get better at, but keep shying away from actually learning about it.

I've got a pretty good job for my age with a solid 401(k) and stock plan. I only put 5% of my pay in my 401(k), I definitely should bump that up. After that, I've saved up about 35K, and all it does is sit in ING.

Re: Do you understand your personal finances?
 

ive gotten a lot better. went from 90% in gambling sites to about 40%.

Re: Do you understand your personal finances?
 

I'd say yes I understand, but that doesn't do me much good. Not much there to manage after a couple bad years on the employment front. As someone above said, most of my 'wealth' consists of student loan debt.

Re: Do you understand your personal finances?
 

ND,

will each of those funds will beat the vanguard total market fund by at least 3 percent over the next 10 years?

Re: Do you understand your personal finances?
 

I have living expenses for the next 2-3 years in CDs and savings accounts, a checking account for monthly expenses, some cash for live poker/clothes/gadgets...

the rest of my money is tied up in the market. i don't know the first thing about the market, so I sat down with a family friend who is very successful and said this is the amount of money i have i don't wnat to have to touch it for a while...he selected half 6-10 ishares ranging from small - large cap and intl/national and it's all there...i plan on learning more about the market/econ/finance this summer...

Re: Do you understand your personal finances?
 

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I think if they put a random person in a target VGuard or Fido fund, it'd be better than what 90% of people could do on their own. Or a balanced fund. Something a broker could do with 10hrs of training, for example.

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Key words here are random and Vanguard. Folks who end up at Vanguard (randomly or not) are going to be fine.

Unfortunately, lots of people randomly end up somewhere else where some broker w/ approx 10hrs of training ends up steering them into "approved" loaded mutual funds w/ high expense ratios.

Re: Do you understand your personal finances?
 

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will each of those funds will beat the vanguard total market fund by at least 3 percent over the next 10 years?

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Econ, 100% asset allocation to equities is horribly, horribly wrong for >90% of investors. T/F?

I've never met the investor whose goal is as you describe. Not one, in my many years in this business, working with hnw clients as a career.

If your question is really a masquerade for 'Give me a guarantee that XYZ fund or strategy will beat so-and-so index by 3% from today until 2017,' that's stupid, and you know why. To even ask shows a basic lack of understanding on managing others' personal fin'l assets.

If VG-TMI goes down 5% every year for the next 10, are you happy with that return? No? But you got an index-like return, ZOMG!!!111!

Side question - do you think Will Danoff, Chris/Shelby Davis, Saul Pannell, Ron Muhlenkamp, Richard Pell, and Rich Aster all are just very lucky? Meridian has beaten the SPX by 820bps, net, annually over 10 years - please ascribe what % of that significant alpha is due to luck and to skill, show your work. Thanks.

People, such as yourself, have the facile attitude that's it's okay to settle for mediocre, sub-index like returns, since the index fund[s] you mention are guaranteed to underperform, by definition. And if you lose 20-30% a year, you're 'happy' you didn't do worse. As of end of March, the SPX returned about 29% gross, before fees, in 8 years -- do you consider this good performance? Y/N?

Academic studies showing superior alpha generation, for those of you who would like to see more/historical HF data, using 100k+ of data points, I will suggest you read Ibbotson and Chen's academic paper on the topic of Hedge Funds:
http://papers.ssrn.com/sol3/papers.c...ract_id=733264
using Ibbotson's data for equity L/S funds only [Jan 1995-April 2006:
'L/S Hedge Funds create a net alpha of 5.41 per year - that is net, and overall return of 13.10%.

All results are for dead + live funds, and do NOT include backfill data/bias. Alpha per HF strategy:
Equity Neutral +1.94%
Fixed Inc Arb +3.91%
L/S Equity +5.41%.'
You can read their analysis for more details.

add'tl:
Goetzmann and Ibbotson's 1994 study, 'Do Winners Repeat?' Journal of P.M. and the updated

Do Winners Repeat with Style?
ROGER G. IBBOTSON , AMITA K. PATEL February 2002
http://papers.ssrn.com/sol3/papers.c...ract_id=292866
'Several studies have found that considerable persistence exists in mutual fund performance. We study this phenomenon in fund managers who achieve superior performance, after adjusting for the investment style of the fund. Our data of domestic equity mutual funds indicates that winning funds do repeat good performance. Style-adjusted alphas are evaluated on both an absolute and relative basis.'

Econ, you can make your career if you can refute Ibbotson, he sold his analytic firm for $tens of millions of dollars. Good luck!

Re: Do you understand your personal finances?
 

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Unfortunately, ... ends up steering them into "approved" loaded mutual funds w/ high expense ratios.

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If your point is that really, really bad and expensive advice leads to bad outcomes, I agree with you - that's so obvious we don't need to discuss it.

No different than a doctor, lawyer, or acc't. And yet people famously don't shop around for the lowest-priced heart surgeon, or defense attorney.

Re: Do you understand your personal finances?
 

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No different than a doctor, lawyer, or acc't. And yet people famously don't shop around for the lowest-priced heart surgeon, or defense attorney.

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Well, I thinks it's quite a bit different than that.

My point was just that most people aren't going to be able to distinguish between professionals who can help them and professionals who are going to screw them. I mean, you seem like an honorable guy to me, but you know that a nice chunk of the cash on Wall Street comes from steering folks into loaded funds w/ ridiculous expense ratios.

That's all I'm saying, that a lot of people of people (assets under 500k, say) would be better off with 100% of their funds in VFINX rather than looking for professional advice. (And of course, I'm not saying that is the best solution, just an improvement for many of them.)

Re: Do you understand your personal finances?
 

ND,

I only asked my question because I don't think listing some funds that have had high return in the past is very helpful or demonstrates anything. This thread seems to be about basic personal financial information.

The takeaway of your earlier post seems to be that it is pretty easy to beat some index fund (if that is what someone wanted to do). But what advice would you give to the average investor who wanted to do this? Would you tell them to invest in one of the funds on your list? Should they hire a broker (and if so, which one)? These kind of answers would be more on point for the OP.

Re: Do you understand your personal finances?
 

I think I have a pretty good handle on things.
I carry no debt, but I don't have a house.
5% cash - available poker bankroll.
5% cash - money market, earning interest.
20% etf - dow (dia) and dow dividend (dvy). a small cap fund will be next.
70% individual stocks (9) - (itw, jnj, c, vlo) I've been transitioning out of individual stocks and into index funds as my risk tolerance and attention decreases.

I do my own taxes, and can understand a balance sheet (when I bother [img]/images/graemlins/blush.gif[/img] [img]/images/graemlins/crazy.gif[/img]).

Btw, I owe most of my financial awareness to my father. One of the best gifts he gave me.

Re: Do you understand your personal finances?
 

NajdorfDefense

If a random person came to you and asked you for advice on how to plan for his future retirement starting right now with no initial capital, but with monthly contributions, what would you come up with for a plan for their money?

If that question takes too much to work, are there any books that you would recommend to help with this.

I'm extremely curious about what your answer is (or any really knowledgable investor) as this is basically my situation and I was looking at index funds for my primary investment vehicle. (I'm canadian so that will probably change the answer a little, but I'm not sure).

remember: I'm a layman and have no idea what an alpha or a beta is with respect to finances. I'm really just probing for advice on how to really get my head wrapped around this.

Re: Do you understand your personal finances?
 

I used to be very into investing my $ and read about investing daily. I invested 90% of my cash in stocks when I was about 19 and kept doing so for a while with good results.

Now I have gotten busy and pretty lazy and most of my money sits there doing nothing.
I have about 10% as a poker bankroll and the rest sitting in savings accounts waiting for me to figure out what to do with it.

This aggrevates me as I have a pretty sizeable amount of cash to invest. However I don't really feel like walking into my bank to see a financial advisor as I don't think they do a whole lot with my $, but I am not at a point where I'm going to look for my own investments.

Re: Do you understand your personal finances?
 

All,

Happened to come across this blog entry today that mentions a lot of introductory (as well as more advanced) books on personal finance/investing: blog entry

Re: Do you understand your personal finances?
 

no.

350k+

mostly in mutual funds. i handle it. and probably very poorly.

Re: Do you understand your personal finances?
 

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I think if they put a random person in a target VGuard or Fido fund, it'd be better than what 90% of people could do on their own. Or a balanced fund. Something a broker could do with 10hrs of training, for example.

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Key words here are random and Vanguard. Folks who end up at Vanguard (randomly or not) are going to be fine.

Unfortunately, lots of people randomly end up somewhere else where some broker w/ approx 10hrs of training ends up steering them into "approved" loaded mutual funds w/ high expense ratios.

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I'm in the process of moving my funds (at least short term) to a couple of Vanguard index funds (thanks in part to finance forum) and I have a financial advisor. Wow do those guys love mutual funds and wow do they hate these Vanguard Index Funds. This is my nth meeting where they try to steer me towards a new fund but my next meeting I'm 90% sure I'll finally be moving my money into the index funds. It is so hard to convince these guys that index funds are a better option especially when they get paid a bonus for putting a client into a mutual fund A share which they didn't disclose to me initially.

I would love someone to reply as to why if a mutual fund seems to have all the right characteristics it is still preferable to go with a vanguard index fund.

Sidenote - The current one they're looking to put me in is the Riversource Strategic Allocation Fund. Anyone have an opinion on this one? sorry for hijack, got more to say but got to go.

Re: Do you understand your personal finances?
 

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Sidenote - The current one they're looking to put me in is the Riversource Strategic Allocation Fund. Anyone have an opinion on this one? sorry for hijack, got more to say but got to go.

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RiverSource Strategic Allocation A IMRFX

Front Load 5.75%
Expense Ratio 1.12%

They are pushing this fund because they get 5.75% of everything you put in. There is 0 front load with vanguard and most of their expense ratios are < .5%. Please whatever you do, do NOT go with their choice. I would honestly never go back and talk to them again.

So basically if the fund returns 8% this year, you really only make 2.25% which is less than every online savings account and not even keeping up with inflation.

Hope this helps, and ask if you have any more questions.

Re: Do you understand your personal finances?
 

I've decided if I ever suck at online poker for some reason I could be a freelance accountant / money manager / tax guy and do better for my clients than 95% of the people out there.

Edit: 95% is probably selling myself short.

Re: Do you understand your personal finances?
 

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All,

Happened to come across this blog entry today that mentions a lot of introductory (as well as more advanced) books on personal finance/investing: blog entry

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Thanks el d. This is gonna be my summer project.

Re: Do you understand your personal finances?
 

Yes and no. Yes: 30% equities, 30% bonds and 15% investment real estate, not counting home equity (substantial) or retirement funds (also substantial because of a big pension payout when I switched careers). The other 25% is in private equity funds that I used to be able to purchase through my old firm. I did so on the premise that I had zero ability to liquidate and zero control over the money, and so regarded it all as a giant flush. I started investing in those in 1999, and the average annual return has been between 25 and 30%.

Retirement funds are in Fido Contra and my company's stock.

I would say that I understand where my money is and generally why, but I certainly don't have a coherent long-term strategy other than "earn more than I spend and keep my investments reasonably diverse and reasonably risky."

I've been meaning to apply more rigor to it.

Re: Do you understand your personal finances?
 

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All,

Happened to come across this blog entry today that mentions a lot of introductory (as well as more advanced) books on personal finance/investing: blog entry

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Thanks el d. This is gonna be my summer project.

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FWIW, Fisher's book is terrible. Read Graham, Greenblatt, Pabrai, O'Shaughnessy, Damodaran, and Lynch for primers on investing and valuation.