Madison MoneySports - Personal Finance Thread

[Apoc]

My guess is you'll land on 50/50 invest/mortgage and not full way or the other.

I've never considered mortgage debt to be "real" debt, although it is. I think I've just accepted that we're going to upgrade, downsize, or relocate enough over the next 20 years that I won't ever live somewhere mortgage free unless we pay cash for the whole thing. I also don't really consider our equity as part of assets, because we owned through the last housing bust. I have thought it would be awesome to move somewhere cheap and pocket the equity, but that likely requires living somewhere where job options are limited should I ever lose my current gig. Only 20 more years until retirement!

[V1GiLaNtE]

Reddit PF will tell you:
00)Pay off any debt with an interest rate higher than 6% (YMMV)
0) Build emergency fund
1) Get employer 401k match
2) Max out your IRA
3) Go back and up your 401k until you max it
4) Then consider taxable investments once you have maxed all of your retirement options (including an HSA if you have one)

It would be wise to maximize your tax sheltered accounts while you are young and your salary is "lower".

[.RJ]

- 401k (currently 50% match plus 2%, so 8% + 4% + 2%.. not bad) + my other half's
- Money goes into betterment out of every paycheck
- Bonuses usually split between paying off car loan and betterment
- House Equity (whenever I move a large chunk of that equity is getting rolled into betterment)

It doesnt have to be difficult. Its such a long game and consistency matters more than strategy.

[WRXtranceformed]

We use my brother and his DC-based team as our FA through Merrill Wealth Management.  They've made me a lot of money and have a lot of intellectual resources on every investment conceivable.  When you get to a certain level, you also get invited to private investment opportunities that generally have very large short term gains. 

But you don't have to be wealthy to have a FA, the biggest value add is that they help you build a plan to reach your retirement goals instead of you just winging it.   If you want his contact info just PM me. 

Otherwise, I'm pretty sure I posted all of my mutual fund and Roth 401k allocations in the other finance thread.   I did recently buy 5 shares of AMZN that are killing it (except when Bezos and Trump start beefing).  Also, when you're bored with all of those things and have some more cash to play with, do something fun as an "investment" tied to your hobbies.  My obvious one is watches but maybe for you it's old collectable drum equipment or something.

[Senor_Taylor]

I certainly think a financial advisor is for me eventually. I definitely don't have enough money to entertain one currently. I talked to Simon about being my advisor before he switched careers.

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[Apoc]

I don't use one, but I probably should. When you have a degree in finance and you think you know everything, it's hard to justify paying someone else. That said, there are a shit ton more things to know than rate of return so at least talk to a few before you dump any real cash anywhere. No matter what you do, take a look at everything once a quarter. Even if you aren't managing it yourself, it's good to know what your money is doing relative to the various industries.

[Senor_Taylor]

Yeah, I don't know enough, nor do I care to know enough to get good at investing anything. I just don't have the drive to all of this extra stuff people do.

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[Evan]

Financial Advisers are basically just salesmen for a bank's investment products. They are also incredibly expensive which destroys your returns and have been historically proven to make no more money than index funds.

Roboadvisers give you diversification, rebalancing and in most cases tax harvesting. Most roboadvisers also have hybrids with real FAs if a voice on a phone gives you a warm and fuzzy.
Vanguard will give you free advice if your account is over a certain amount (50k IIRC)

[.RJ]

[JPolen01]

You can get free advice through Fidelity I believe. PNC also offers free financial advising with their checking accounts.

[WRXtranceformed]

Financial Advisers are basically just salesmen for a bank's investment products.   They are also incredibly expensive which destroys your returns and have been historically proven to make no more money than index funds.  

Roboadvisers give you diversification, rebalancing and in most cases tax harvesting.   Most roboadvisers also have hybrids with real FAs if a voice on a phone gives you a warm and fuzzy.
Vanguard will give you free advice if your account is over a certain amount (50k IIRC)

I think this used to be more the case back before the legislation was passed a few years ago that changed a lot about the finance industry, including financial advising.  The fees in my particular situation are pretty nominal based on the growth I've seen.  But it's just like anything else, you have to do your research and "buy the seller".  For instance, I wouldn't just use my brother to manage our investments if he and his team were not good, or if I felt like the fees killed the upside.  

One of the other benefits to using an FA is that they give you access to diverse investments that you wouldn't normally be able to buy on your own (ie. you're going to have to buy through a broker no matter what).  The biggest upside here is in tax havens; about half of my tax free income when I retire will come from funds that I couldn't buy just by clicking a button.  Having expertise to walk you through how to structure your retirement income so Uncle Sam doesn't keep raping you is worth its weight in index funds.

I bet if you got in a room full of wealthy people, the majority of them would tell you that they use some kind of money management services.  It's almost a given when you build serious wealth.  Unless you are an expert in finance, wealth management and actually possess licenses to obtain the best kinds of investments, the odds are that you're not going to perform as well as you could.  There have have probably been studies on that, I'm just too lazy to look them up.

Either way, you will certainly save money investing your money on your own.  It's just like working on your car, if you do it yourself you'll save the labor costs.  But if you don't know what you're doing, you might blow up your motor.

[.RJ]

I bet if you got in a room full of wealthy people, the majority of them would tell you that they use some kind of money management services.  It's almost a given when you build serious wealth.  Unless you are an expert in finance, wealth management and actually possess licenses to obtain the best kinds of investments, the odds are that you're not going to perform as well as you could.  There have have probably been studies on that, I'm just too lazy to look them up.

Yes, if you are in the 10's to 100's of millions of dollars, then I agree.

For the rest of us?  I'd like to see some data that hiring this out is better in the long run.  Everything I've read says the opposite.

[V1GiLaNtE]

I bet if you got in a room full of wealthy people, the majority of them would tell you that they use some kind of money management services.  It's almost a given when you build serious wealth.  Unless you are an expert in finance, wealth management and actually possess licenses to obtain the best kinds of investments, the odds are that you're not going to perform as well as you could.  There have have probably been studies on that, I'm just too lazy to look them up.

Yes, if you are in the 10's to 100's of millions of dollars, then I agree.

For the rest of us?  I'd like to see some data that hiring this out is better in the long run.  Everything I've read says the opposite.

Agreed. For most of us "normal" people the term investing is mainly picking your funds, putting your money in there, and checking your investment allocation at a pre-defined interval (yearly, quarterly, etc.). If you're doing anything more than that you're basically speculating as you continue to attempt to time the market and make jumps. I can see having a FA to act as a confidant to help you choose funds, but any active management I think is going to crush you in terms of fees vs. gains. UNLESS, you're making buku money.

[WRXtranceformed]

Some good articles about FA's worth reading:
https://www.fool.com/retirement/2017/07/...th-it.aspx

Just how worthwhile are financial advisors?
Beyond getting your overall finances in shape, a good advisor can also improve your investment performance. A Vanguard study found that by tapping the services of a financial advisor, you might improve your results by as much as three percentage points annually. Here's a look at just how powerful those three points can be -- the following table shows how an annual $8,000 investment can grow over time, at 7% annually and at 10% annually:

$8,000 Invested Annually For:

Growing at 7%

Growing at 10%

10 years

$118,269

$140,249

20 years

$350,951

$504,020

25 years

$541,412

$865,454

30 years

$808,584

$1.4 million

DATA SOURCE: CALCULATIONS BY AUTHOR.

That's pretty powerful, no? Even over just a single decade, the difference was almost $22,000 -- and over 30 years, it was close to $600,000! Of course, not everyone who uses a financial advisor will see their returns juiced this much. But even a two-percentage-point bump can make a big difference, and some might enjoy a bump of four points or more.

By the way, Vanguard broke out how they arrived at the three percentage points, finding, for example, that being able to consult an advisor at any time, such as when they were thinking of selling during a market correction, added as much as 1.5% to their returns because the advisor kept them sticking to their plan. On top of that, advisors setting a sensible asset allocation to follow added up to 0.75%. Advisors can also help keep fees low, by guiding clients to low-fee options. That can add another 0.45% to performance.

Robo vs. Digital advisors (Robo-advisors often cost money too): https://www.nerdwallet.com/blog/investin...l-advisor/

This dives more into that Vanguard study and another from Morningstar which is really interesting: https://www.forbes.com/sites/wadepfau/20...abe5461333

Overall net impact of good advice: about 3%

Suppose a good comprehensive financial advisor who does all these things charges a fee of 1% of assets under management. An investor who is capable of doing all of the above on his or her own is able to keep all of these advantages. However, an investor who doesn’t know how to effectively implement the above, or who wishes to instead devote their energy elsewhere, misses this extra Advisor Alpha. Even though they saved the 1% advisory fee, they end up worse off.

Justin Wagner from Vanguard offers the following example. Suppose the overall market return is 8%. Without good financial decision making, the combined impact of fees, taxes, and poor investment decisions is around 4%. This leaves a net return of 4% to the investor. However, for someone working with a capable advisor, they eliminate poor investment decisions, minimize taxes, and only pay the 1% fee, leaving a net return of 7%. That is the Advisor Alpha. The value added by good advice can greatly exceed the fees.

Link to the Vanguard whitepaper: http://www.vanguard.com/pdf/ISGQVAA.pdf

I realize opinions are like buttholes, but IMO it's worth doing the research into an advisor before you commit to turning your own financial wrench for your entire life. Don't get me wrong, I have a very active role in our retirement planning (including a hard pass on a recent employee private stock purchase, because the deal was not favorable at all to the buyer. I got free FA advice from the Weber-Wise team on that btw) but it helps having someone who helps you design a plan and execute. "A man without a goal is a ship without a rudder." - Thomas Carlyle

[Apoc]

The mechanic analogy is pretty spot on. Some people just don't have interest in dedicating time and brain power to money management. Sometimes mechanics upsell you, sometimes they save your ass from a costly mistake or get you a deal on parts. I have no desire to work on my car so I'll pay someone else, but I'll follow my money like it's going out of style.

I think Lee and I have compared rates of return and they're within 1%... but not everyone is going to have the same discipline. My mom wanted me to help her with money after her divorce and I told her she needed to pay a professional. I'm okay managing my money closely, but I am not at all interested assuming that risk for someone else. She'd never be able to self manage effectively, so it makes sense for her to pay a mechanic.

[WRXtranceformed]

The mechanic analogy is pretty spot on. Some people just don't have interest in dedicating time and brain power to money management. Sometimes mechanics upsell you, sometimes they save your ass from a costly mistake or get you a deal on parts. I have no desire to work on my car so I'll pay someone else, but I'll follow my money like it's going out of style.

I think Lee and I have compared rates of return and they're within 1%... but not everyone is going to have the same discipline. My mom wanted me to help her with money after her divorce and I told her she needed to pay a professional. I'm okay managing my money closely, but I am not at all interested assuming that risk for someone else. She'd never be able to self manage effectively, so it makes sense for her to pay a mechanic.

100% 

The biggest thing though Taylor is to just control your spending.  If you can't stop spending, you can't save.  This is true no matter what your income level is.  I would focus on that first, build up your nest egg and take that time to research what makes the most sense for you while that grows.

[.RJ]

I realize opinions are like buttholes, but IMO it's worth doing the research into an advisor before you commit to turning your own financial wrench for your entire life.  Don't get me wrong, I have a very active role in our retirement planning (including a hard pass on a recent employee private stock purchase, because the deal was not favorable at all to the buyer. I got free FA advice from the Weber-Wise team on that btw) but it helps having someone who helps you design a plan and execute.  "A man without a goal is a ship without a rudder." - Thomas Carlyle

Things like employee stock purchases are worth consulting someone on, sure.  Issues like that are always valuable to have someone on retainer but the active management is what I have a problem with.

But long term (10yr) the vanguard 500 has a 10% return - 

https://investor.vanguard.com/mutual-fun...ance/vfinx

The robo funds (wealthfront, betterment) are similar in performance.  If your FA is selling you the product under the guise that you'll only make 7% on your own, and then taking 1%, that's a bad deal.

Also, be weary of "advice" given lately. The market has been hot for a long time and anyone speculating on the stock market is probably making money... but it isnt because they're smart.

[Mike]

This is a good podcast http://freakonomics.com/podcast/stupidest-money/

[WRXtranceformed]

Also, be weary of "advice" given lately.  The market has been hot for a long time and anyone speculating on the stock market is probably making money... but it isnt because they're smart.

Agreed on this, the best advice I've gotten is when the market is down.  Any dumb dumb can make money right now in stocks

[V1GiLaNtE]

This is a good podcast http://freakonomics.com/podcast/stupidest-money/

HO. LEE. CHIT. 

Outta left field.