Do you understand your personal finances?

[Victor]

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

[bonds]

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.

[econophile]

ND,

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

[AZK]

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...

[spider]

[ QUOTE ]
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.

[/ QUOTE ]

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.

[NajdorfDefense]

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

[/ QUOTE ]

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!

[NajdorfDefense]

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

[/ QUOTE ]

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.

[spider]

[ QUOTE ]
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.

[/ QUOTE ]

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.)

[econophile]

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.

[NhlNut]

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.