I recently was talking with a financial advisor which is not something I've done before. I have been a professional saver for some time. In retrospect, it appears to me that I have been way too conservative utilizing DA and opening cds etc. If I had taken some of these assets and invested in broad market indexes, I think I would have been way better off and perhaps paying less taxes all the way. Something for you all to think about especially the younger ones. What do you all think?
Answers
Taking the "long view" diversification is the key. It is impossible to time the stock market. That said, over the long term, stock market returns have bested bonds, CDs, and plain vanilla cash. It's just a fact. Over the short term, well, just look at 2008 - 2009.
Stated plainly, a prudent investor will have equity index funds, bond index funds, a healthy dollop of laddered CDs, and a potload of cash. Yup, you guessed it, it's a snapshot of our AA.
Such a combination will help said investor to "sleep well at night", or SWAN.
I awake each morning knowing my investments might jog up or down, but even in the depths of the 2008 - 2009 crash, I knew our retirement was not threatened, thanks to our CD ladder.
As an aside, I chuckle at the pundits on CNBC (and elsewhere) who talk about three to five years as being a "long-term" investment. My parents bought a science and technology mutual fund for me when I turned 21. I am now 70. Now, that's a "long-term" investment.
Do you still have the science and technology fund from 50 years ago? How much did it appreciate?
Some trivia. Waddell & Reed sent me the early records from the late 60's - early 70's. Typed on a manual typewriter, no less.
In Calendar Year 2016, I spent countless hours calculating capital gains on my inherited equities. I did the right thing. Under the Trump system, I suspect tax evasion will become the new best thing.
CDs are safe and secure, you know what you will get and will get it, and not suffer any losses. As for anything else, you might might big, you might lose big, you might come in at least that you could have had at the bank, or just a little more.
I have only in about the past year finally broken even and in the past year gotten ahead in my mutual funds, mainly since the presidential election. I suffered huge losses in the last decade thanks to the economic collapse. All the people who were so irresponsible in their house-buying collapsed the entire economy and got bailed out, but I, who stayed in what had been a responsible investment in stocks, which were not overpriced, lost big time and got no bailout. And when the market goes down, the taxable income you get from mutual funds tends to go up, and in a crash like we had, you find yourself losing huge amounts of principal and at the seam time getting hit with huge taxes on gains anyway — because the funds have to sell to pay all those people fleeing the market, and every sale generates taxable gains for everyone still in the fund. So even as you’re losing huge amounts in the fund, you are getting hit with huge tax bills from it, a double whammy.
Sure you can make decent returns — but you also can lose a LOT. And if you can’t wait a decade just to break even again, if you need that money, you take the big loss. If you were counting on that money, it won’t be there in that decade. If you get cancer and need to cash that in in that decade, you might find you can’t pay for your cancer treatment — but if your money were in the bank, it would still be there.
That is to say, the risk is real and serious. The general rule is that the higher the possible return, the greater the risk. And if you will be devastated if you lose that money, then you better think twice before putting it in other than CDs. When you go into the market, you are gambling. Don’t gable with your basic need, only gamble with your extra.
And individual mutual funds will tend to have a good period, whether for a year or two, five years, even 10, and then be crap. In fact, the push to index funds is because people are giving up on trying to predict where to invest in the market, they have started thinking that actively trying to pick and choose in an effort to do better than the market doesn’t tend to produce better over the loge run, yet you get hit with higher management fees for all that activity and capital gains to pay taxes on now. Index funds are basically the idea of giving up on trying to pick stocks, and just settle for whatever the market does, good or bad, and with no or little activity in the fund, produce very little capital gains for now, let that ride.
Over the long run, you CAN come out ahead in the market, maybe nicely so, but if you can’t wait many years for that to actually be the case, then you might have to suffer a big loss. Just ask all the people who found themselves in foreclosure in the Great Recession, after getting into an investment they were so convinced always goes up — but you won’t be getting bailed out like they were.
About that financial advisor: They don’t mind risking YOUR money. And they do not necessarily have the kind of training and knowledge that you think they have. And if they do, nonetheless, the theory behind the index funds is that none of those people know what they are talking about.
a nervous wreck. We got out completely before the tech bubble broke and took everything out and went into 8-9- and 10% CD's as long as we go out. Never will get back into the market. Have more than enough to live and I gift each each and let the kids invest.
I suspect the "savings gene" is passed down from generation to generation. Not that it's a bad gene. It's probably a good gene. Our A/C finally died yesterday, and we need a new system. Our "savings gene" will pay for it. Well, we did get 40 years of service from our A/C,