Predictions from the Motley Fool

[Beeazlebub]

Couple of favorites:

Pessimism will overshadow progress. Twenty years from now, someone
will be sitting in his or her self-driving car on the way home from a
doctor's appointment that miraculously cured a disease that's currently a
death sentence, and will be complaining about how awful the world is.
It's always this way. The odds are incredibly high that the average
American will have a higher standard of living 20 years from now; yet,
we'll look back at untold numbers of books and articles lamenting that
everything sucks. Few will notice how much progress we've made because
it happens slowly; but they'll pay attention to the doom forecasts
because they are repeated day in, day out.

Has anyone here invested with a company like Betterment or Wealthfront? I'm intrigued.


Financial fees will plummet; service will improve. "Financial
transactions are just numbers; it's just information," venture
capitalist Marc Andreessen wrote recently. "You shouldn't need 100,000
people and prime Manhattan real estate and giant data centers full of mainframe computers from the 1970s to give you the ability to do an online payment." Same
for investing advice. One-percent management fees from financial
advisors will shrivel as companies like Betterment and Wealthfront prove
their worth. Flat fees will become more popular. Twenty years from now, we'll look back baffled at how cavemen in New York could make $800,000 for pushing numbers around.

Prediction time

 

[Boiler20]

Regarding "Robo-Advisors"- It's a race to zero imo.

Which begets the old adage: "In the absence of value, the only thing left to discuss is price."

IMO, it will serve to not just expose what I call 'pie-chart advisors'...those that stick to strategic asset allocation that is based on fatally flawed Modern Portfolio Theory ("MPT") and those advisors that bring true value and out-performance above the averages to the table. And the simpleton argument posed by many 'pie charters', that reversion to the mean will nullify any out-performance over time, is flawed in and of itself...it is NOT a zero sum game. How do we know this? By the simple fact that there is and always will be, investors that lose money. Simple logic states that if there are investors that lose money, then there MUST be investors that make money, both in real terms as well as both inflation adjusted and versus long term averages.

 

[BoilerGrad02]

Yes there will always fund managers who beat the market, even for long periods of time but I think it can be hard to identify those people (they also maybe very hard for the average investor to even invest with if it takes 500k + just to get into their funds), so I would rather just go with a low cost index funds and save .8% to 1.3% a year on management fees. Being 34 it's very significant when projected over 25-30 years.

I use to buy individual stocks with a percentage of my portfolio and did alright but decided I would quit while I was ahead. I do have a pretty diversified portfolio with many different index funds, probably more than many prudent advisors would suggest having, everything from REITs to foreign small caps. As I add more money I usually buy more of a fund that's been beat down recently (right now that's foreign large caps) but Scottrade, who I have my accounts with, calls me every few months trying to give me help with an advisor to which I politely decline.

 

[gr8indoorsman]

Originally posted by Boiler20:

IMO, it will serve to not just expose what I call 'pie-chart advisors'...those that stick to strategic asset allocation that is based on fatally flawed Modern Portfolio Theory ("MPT") and those advisors that bring true value and out-performance above the averages to the table. And the simpleton argument posed by many 'pie charters', that reversion to the mean will nullify any out-performance over time, is flawed in and of itself...it is NOT a zero sum game. How do we know this? By the simple fact that there is and always will be, investors that lose money. Simple logic states that if there are investors that lose money, then there MUST be investors that make money, both in real terms as well as both inflation adjusted and versus long term averages.

I don't get it. You said there's no such thing as the "zero sum game", then explained exactly what the "zero sum game" is that I and other "simpleton" "pie chart" investors espouse. That is, people buy what others sell, so naturally some are winning and some are losing, and it's not always the same.

I don't believe that there are no advisers who can achieve outperformance. I believe there are few, and that they cannot do it long-term. If you want to hop from fund to fund or adviser to adviser and believe you can predict which ones will beat market averages, I wish you good luck! Much like market timing, the likelihood of being right often enough to make it profitable compared to indexing is low, and I do not care to expend the time nor effort required to attempt to achieve these gains. It is in this regard similar to being a professional gambler, where you must be right a minimum of 53-55% of the time in order to be profitable, except I'd estimate that you must be right more frequently due to higher relative fees, transaction costs, and tax implications of moving money frequently.

So for me, the choice to be a simpleton is a simple one: I do not wish to invest significant portion of my time researching, and I do not wish to pay someone to do it for me. I'm doing quite well with this strategy, thank you.

This post was edited on 12/5 3:45 PM by gr8indoorsman

 

[gr8indoorsman]

Originally posted by Beeazlebub:



Financial fees will plummet; service will improve. "Financial
transactions are just numbers; it's just information," venture
capitalist Marc Andreessen wrote recently. "You shouldn't need 100,000
people and prime Manhattan real estate and giant data centers full of mainframe computers from the 1970s to give you the ability to do an online payment." Same
for investing advice. One-percent management fees from financial
advisors will shrivel as companies like Betterment and Wealthfront prove
their worth. Flat fees will become more popular. Twenty years from now, we'll look back baffled at how cavemen in New York could make $800,000 for pushing numbers around.

I certainly hope the fees plummet because the service becomes unnecessary, but that would require people to educate themselves, which is unlikely. I spent Thanksgiving at the $1.4M home of a 35-year-old financial advisor, complete with Land Rover and Mercedes in the driveway. I had to stop myself from asking how many of his clients lived at the level he does, and found myself wondering what his personal retirement accounts looked like given his age, background, and spending habits.

I wouldn't pay the man (or any man) a dime to tell me what to do with my money.

 

[BoilerGrad02]

Originally posted by gr8indoorsman:

Originally posted by Beeazlebub:




Financial fees will plummet; service will improve. "Financial
transactions are just numbers; it's just information," venture
capitalist Marc Andreessen wrote recently. "You shouldn't need 100,000
people and prime Manhattan real estate and giant data centers full of mainframe computers from the 1970s to give you the ability to do an online payment." Same
for investing advice. One-percent management fees from financial
advisors will shrivel as companies like Betterment and Wealthfront prove
their worth. Flat fees will become more popular. Twenty years from now, we'll look back baffled at how cavemen in New York could make $800,000 for pushing numbers around.

I certainly hope the fees plummet because the service becomes unnecessary, but that would require people to educate themselves, which is unlikely. I spent Thanksgiving at the $1.4M home of a 35-year-old financial advisor, complete with Land Rover and Mercedes in the driveway. I had to stop myself from asking how many of his clients lived at the level he does, and found myself wondering what his personal retirement accounts looked like given his age, background, and spending habits.

I wouldn't pay the man (or any man) a dime to tell me what to do with my money.

It is simply education but many people have heard "the complex world of international finance" and excepted it as something they simply can't do themselves. I really believe I could sit down with a majority of people for 20 minutes and give them a good enough education to manage their own portfolio and do a decent job of it. You can go to sites like Motley Fool or buy a old issue of Money Magazine at Half Price Books for 50 cents and learn enough to do it yourself but like I said, firms like T Rowe Price (I think "complex world" is even in their tagline during commercials) have got enough people thinking it's difficult so they never take the next step to do a little research.

Hell, I'm not a huge fan of target date funds but their better than what a lot of these high fee/heavy portfolio turnover funds are and a person can just put money in one every month and still do alright while saving the 1-1.5% a year. It couldn't be simpler.

 

[qazplm]

situations

where investments are significantly wiped out happen often enough that people are legitimately scared.

It's like those risk management matrices where you have likelihood of risk on one side, and magnitude of risk on the other side.

It may not be highly likely that your savings will be significantly wiped out, but the magnitude of such an event is so high, and the likelihood is non-zero thus that the risk is significant enough for people to make the concept of investing scary. It's also not something we ordinarily deal with in our lives (outside of accidents or catastrophic illness).

I'm not suggesting that investing is thus an impossible proposition or even necessarily fraught with danger (albeit there is certainly risk) but there's enough danger and the proposition is complicated enough that it's completely understandable why folks avoid it.

 

[gr8indoorsman]

Re: situations


Fear drives the industry. I hear it played out every morning as I listen to Colin Cowherd on my way in to work. "Are you investing in an IRA or 401(k)? Well, I hope you're ready to lose 30, 40, or even 50% of your savings. It's not a question of if; it's a question of when. It's going to happen. BUT!!!" And then he talks about going to a website which pushes an insurance annuity product where folks will pay exorbitant fees for poor returns mixing two things that shouldn't be mixed by anyone but the most wealthy and even then as a last-ditch safeguard.

Sadly, many who fall victim to this fear are unaware that while the market did indeed crash by nearly 50% in late 2008 and early 2009, it has since rebounded and gained well beyond the original level. If you bought into the stock market in mid-2008 (precrash peak) and held through to today, you're up an average of 6.0% after inflation. That's pretty damn good.

Unfortunately, too many people are convinced that once the market goes down 50%, it's never going back up, and they lock in their losses. Too many people misunderstand and think "I've lost $__________". You don't lose till you sell. You still possess those assets, which history tell us will regain and exceed their value within a few years. The key is being able to wait those few years.


This post was edited on 12/5 5:11 PM by gr8indoorsman

 

[qazplm]

well but

we are talking life savings. Yes, if you hold on long enough things end up ok, but some can't afford to, or some want that money to be more consistently protected.

My whole point here is that some folks like to portray folks who are concerned in this area as "idiots" who if they would just take five seconds could understand it all and do just fine, and some folks like to suggest privatizing things like SS (even while arguing the former).

There are legit, non-idiot reasons why folks are leery of or even scared of the world of investment. There's risk, and people don't tend to like risk. And, back in the day, not so long ago, one could earn a pension which when combined with SS resulted in a reasonable, non-cat food existence in old age. Those days are gone, but the appeal of the pension days are still there. Heck, it's why I'm sticking out these last 2.5 years to retirement when I could potentially make a wee bit more in the private sector, because that military pension really provides a baseline level of security that makes everything better.

 

[gr8indoorsman]

Re: well but

Originally posted by qazplm:
we are talking life savings. Yes, if you hold on long enough things end up ok, but some can't afford to, or some want that money to be more consistently protected.

My whole point here is that some folks like to portray folks who are concerned in this area as "idiots" who if they would just take five seconds could understand it all and do just fine, and some folks like to suggest privatizing things like SS (even while arguing the former).

There are legit, non-idiot reasons why folks are leery of or even scared of the world of investment. There's risk, and people don't tend to like risk. And, back in the day, not so long ago, one could earn a pension which when combined with SS resulted in a reasonable, non-cat food existence in old age. Those days are gone, but the appeal of the pension days are still there. Heck, it's why I'm sticking out these last 2.5 years to retirement when I could potentially make a wee bit more in the private sector, because that military pension really provides a baseline level of security that makes everything better.

I don't think people who don't invest are idiots. I do think that people like my parents who don't start saving until they're 60 are unfortunate, and then when they do, they do so with an advisor who charges 1% of their assets every year, amounting to thousands of dollars. I've advised them against that and even told them I'd do it for them for free, but no. Some people just want to pay someone instead of learn on their own.

Otherwise, it's all about risk tolerance based on personal circumstances, and that's as individual as it gets. You said it:

"we are talking life savings. Yes, if you hold on long enough things end
up ok, but some can't afford to, or some want that money to be more
consistently protected."

I am also sticking out my last five for the pension as that will be the first stream of income. The second stream will be funded from investments, and eventually the third from SS. While I may continue to work when my Navy time is done, my goal is to not HAVE to. Savings and investment on my own will be the vehicle which makes that possible. It's too bad that many others don't see it that way.

But, since it is a zero-sum game, it truly takes all kinds! So, I urge all of you to become day-traders.

 

[qazplm]

Re: well but

I will, barring something crazy, have about 1/3 of a million saved. I will have my military pension kicking in covering a baseline level, and then of course whatever I can make as an attorney with 12 years of experience trying cases and training others to try cases (which I think means I should be able to make enough to at least reach six figures annually for as long as I want to (ignoring inflation)).

I'm cool with that.

 

[indyogb]

Similarly, almost no one ever says "the economy is great".

I've heard "man, the economy was great back then". In the moment its hard to see success, I guess. I can remember people complaining about Purdue basketball in the late 90s, and that team won 19 games (only! ) and went to the Sweet Sixteen if my memory is correct.

I'm not saying current struggles are all perception. However, things could (and have been) worse.

This post was edited on 12/7 12:33 PM by indyogb

 

[gr8indoorsman]

Re: Similarly, almost no one ever says "the economy is great".

When the economy is great, many spend their time dreading the next recession or market crash. On a few of the financial forums I frequent, I read about how someone just can't get themselves back in the market after 2008, and now it's too high, so they'll wait for the next "crash." It's that kind of psychology that "buy-and-hold" investors avoid. Only after the bull runs are over do most people recognize them.

In investing, your biggest enemy is usually yourself (followed closely by inflation, IMO).