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#1
06-13-2007, 03:23 PM
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Market Timing
I'm a financial moron for all intents and purposes; but I do have a decent amount of money available to invest (400k or so coming free over the next 6 months).
I fairly recently met with a 'financial advisor' (from Oppenheimer if it matters). These advisors came highly recommended to me by my companies CPA who has many clients worth significantly much more than I am who use and are happy with them. Their approach is primarily to invest in various mutual funds based on my acceptable level of risk for the long term (i'm currently 36). Their fee is 1% of my account value; gathered .25% per quarter. My question is that seeing as the market has been hitting highs these last few months...am I getting involved at the worst possible time (i know that no one other than shoe can predict this 100%). Is it just a common newb investor who is always worried about getting in at the wrong time? 
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#2
06-13-2007, 03:34 PM
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Re: Market Timing
Invest on your own........chances are you are probably smarter.
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#3
06-13-2007, 03:51 PM
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Re: Market Timing
[ QUOTE ]
Their fee is 1% of my account value; gathered .25% per quarter. [/ QUOTE ] [censored] them. The first lesson in investing is to keep costs down. [ QUOTE ] Is it just a common newb investor who is always worried about getting in at the wrong time? [/ QUOTE ] Yes. You don't know much about investing, right... yet you think you know more than the market?
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#4
06-13-2007, 07:36 PM
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Re: Market Timing
[ QUOTE ]
Their approach is primarily to invest in various mutual funds based on my acceptable level of risk for the long term (i'm currently 36). [/ QUOTE ] What type of mutual funds? Index funds or actively managed funds? Index funds tend to beat the vast majority of actively managed funds over long periods. [ QUOTE ] Their fee is 1% of my account value; gathered .25% per quarter [/ QUOTE ] This is pretty high. Note that if they are putting you in mutual funds you are paying a double layer of fees, the mutual fund fees (anywhere from .2% for an index fund up to 2% per year for actively managed funds). You can buy a "lifecycle" fund through Vanguard based on your expected retirement date and it automatically adjusts the portfolio allocations to reduce volatility as you get closer to retirement. You'll pay something 0.2% a year in total fees. That puts you at least 1% and maybe 2% a year ahead of the yahoos at Oppenheim, an signficant edge they are very unlikely to beat over long periods. Also you aren't likely to know if the Oppenheim guys are buying load funds (mutual funds that charge you an up front fee of up to 6% and pays most of that back to Oppenheim as a commission) unless you ask and research their recommendations. If they do that, starting 6% behind on top of fees will really hurt your results. [ QUOTE ] My question is that seeing as the market has been hitting highs these last few months...am I getting involved at the worst possible time (i know that no one other than shoe can predict this 100%). [/ QUOTE ] It's really difficult, if not impossible to time the market. That's why dollar cost averaging is your friend. If you spread the $400k across six months you'll get a small amount of dollar cost averaging benefit. If you are going to save significantly more over time, say at least $40k per year, then over ten years or so you'll have lots of dollar cost averaging to help. Otherwise you might leave some money in your money market and spread out the time that you put the $400k in, over two years say. You'll be trading some potential upside to reduce your downside and volatility. [ QUOTE ] Is it just a common newb investor who is always worried about getting in at the wrong time? [/ QUOTE ] It's a standard concern of all investors. Remember that even though some indexes are at highs right now, they hit similar levels in 1999/2000. The stocks that make up the indexes are definitely more valuable now (S&P 500 earnings have grown), so even if you are overpaying you aren't overpaying as much as people did then. For example, the S&P PE ratio was around 36 at the last peak, I think it's around 18 right now, historically it's averaged 15. You can argue it should be higher than average now due to more attractive tax rates than in most times in history. But interest rates are rising and as interest rates rise, stocks tend to get less valuable. Like I said it's tough to pick a spot. 36 was way too high, most other times, like now, are neither cheap nor expensive. Putting it all in now won't kill you 30 years from now. Missing out on the market for three years may significantly slow you down though. Usually the best advice is if you are committed for a long period (20-30 years) just dive in, it's your maximum +EV opportunity to grow your retirement portfolio. The "Vanguard Target Retirement 2030 Fund" already has 13% in bonds, that will increase over time reducing your volatility risk with the market. So if you went this route, you would never be 100% exposed to stock market swings.
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#6
06-13-2007, 09:13 PM
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Re: Market Timing
[ QUOTE ]
The "Vanguard Target Retirement 2030 Fund" already has 13% in bonds, that will increase over time reducing your volatility risk with the market. So if you went this route, you would never be 100% exposed to stock market swings. [/ QUOTE ] I noticed the target retirement fund (VTHRX) has 18% of its assets in international funds which is less than what you have recommended in the past (20% - 50%). Why do you think they allocate less capital to these funds? Their largest holding internationally is in European businesses which have done just as well as, if not better than, US businesses while offering a hedge to the declining dollar. So why not put more money in these funds? Also, what if I am interested in looking at the fundamentals of the MSCI indexes that Vanguard's international funds track? They don't seem to have any info. on their site for (P/E, ROE, historical EPS, ect...). Any idea where I can get this information?
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#7
06-13-2007, 10:29 PM
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Re: Market Timing
[ QUOTE ]
I noticed the target retirement fund (VTHRX) has 18% of its assets in international funds which is less than what you have recommended in the past (20% - 50%). Why do you think they allocate less capital to these funds? Their largest holding internationally is in European businesses which have done just as well as, if not better than, US businesses while offering a hedge to the declining dollar. So why not put more money in these funds? [/ QUOTE ] It all depends on what you think the dollar will do. Since our deficits have declined substantially recently, I'm less vigilant about the dollar declining further. But who knows? Clearly you can build a portfolio at Vanguard exactly like these life-cycle funds that allows you to control the allocation percentages. I'm not sure how they arrived at their percentages, but I'll bet it's explained in their prospectuses and letters from their managers. You are smart enough to make your own decisions, but their thinking might be helpful. In the case of OP, I'm assuming he/she knows nothing and wants to do nothing, so the life-cycle funds are something that's easy to recommend. [ QUOTE ] Also, what if I am interested in looking at the fundamentals of the MSCI indexes that Vanguard's international funds track? They don't seem to have any info. on their site for (P/E, ROE, historical EPS, ect...). Any idea where I can get this information? [/ QUOTE ] I'd start at www.mscibarra.com, my guess is they have some informational page that gives you that information.
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#8
06-14-2007, 01:01 AM
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Re: Market Timing
Do you think MSCI's small cap value index will select more stocks that are trading at a discount to intrinsic value and therefore achieve higher returns over long periods of time?
MSCI's definition of a "value" stock is one trading below a certain price-to-book and 12-month forward P/E with a high dividend yield. Their definition is obviously all quantitative and deals with analyst guesses at short-term earnings. But I wonder if it would make any difference over time. So far it has for the past 10 years... MSCI Small Cap Growth - 10.5% MSCI Small Cap Blend - 12.6% MSCI Small Cap Value - 13.7%
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#10
06-14-2007, 03:28 AM
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Re: Market Timing
Anything with low Price/Book will have higher returns (see Fama-French literature).
MSCI indeces have solid value loading... the only retail indeces with lower price/book are S&P Pure Value indeces. The ETFs RPV, RFV, RZV cover the S&P Pure Value indeces. PZI is lower Price/Book than MSCI Small Value, but it's quasi-active management and .72 ER. If you're looking for more than just screening, you'll have to go to active funds or stock picking, but I can't recommend either.
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