DIY Investing
In a great textbook on DIY (Do-It-Yourself) investing, Boglehead's Guide to Investing, there is a great quote that says "I put two kids through Harvard - my stock broker's!"
As I've stated on other pages, cost is the greatest detriment to any investor. Having an investment advisor take care of all of your decision making may be easier, especially if you feel you don't know enough about investments (reading this site should help you!), but it comes at a cost. Paying a fee-only advisor for one meeting to look at your entire financial picture and develop a plan is not a bad idea, but paying a commission-based advisor to manage your portfolio year after year will do some serious unforeseen damage to your nest egg.
Remember, a 1% commission fee paid to your advisor on a portfolio earning around 10% is huge, especially if you compound that 1% fee over 20+ years. By the end of retirement, yearly commission fees can cut your total portfolio by as much as 30-50%! The best solution is to be a DIY Investor.
Investing is not as scary as you think. The news does a great job of scaring us into who to vote for, who to listen to, and it portrays the stock market as free-for-all casino. Although there are those few slimy CEO's that do lie and rip off investors, the best companies in the US and abroad care as much about their businesses success as they do returns for their shareholders. The financial markets in the US and abroad (as a whole group) are a great place to have your dollars invested.
What happens if the market crashes?
This has happened and will likely happen again (most feel it won't happen to the extent of the 1929 crash, but 2008 could certainly happen again). In every major negative event that caused the stock market to plunge, the market returned to its previous years' high in every case except WWII and the 2008 housing crisis. On 9/11/01, the market fell by over 500 points when it re-opened two days later, but the Dow Jones Industrial Average came back to its pre-9/11 value just 56 days later while Wall Street was still covered with dust!
The stock and bond markets are very resilient and by nature revert to the actual earnings and growth of the companies. In the short term, emotions can and do impact the daily rise and fall of the market, but over a number of years, market principles prevail and emotions are "watered down" with a steady incline of stock and bond prices.
You do not need an investment advisor to babysit your investments for the rest of your life. That is a waste of your hard-earned money. They don't know anything that the market doesn't already know, they don't have any magic, and most advisors underperform basic market indexes. If you pick 1, 2 or 3 index funds, contribute the same amount monthly (increasing contributions with increase in pay) no matter what the prevailing market conditions are, hold it for a long number of years (DON'T SELL DURING A CRASH!), and rebalance at least once a year to your desired Asset Allocation, you will outperform 70-80% of all investors. Your costs will be low, your risk is considerably lowered, and you will earn your fair share of the market. The biggest thing you must control is your own emotions.
Reading one or two books is all you need to do to be a knowledgeable and wise DIY investor. I strongly recommend Boglehead's Guide to Investing as your first book. This covers everything on this website and much more. I also recommend checking out the Bogleheads.org Wiki page that is packed with great links and information from very knowledgable investment experts. Bogleheads are a group of investors who follow the teachings of John Bogle and were also sick of being ripped off by bad investment advisors and took their destiny in their own hands.
DIY Investor Steps:
1) Have your high-interest (preferably all) debt paid off.
2) Save 3-6 months of living expenses in an emergency fund and keep it separate from your investments.
3) Decide on your risk tolerance and establish your desired Asset Allocation (Stock/Bond percentages).
4) Open a Vanguard, Schwab or Fidelity IRA account or start your 403(b)/401(k) at work. Start with any matches you get at work (if any), contribute up to the match, then fund a Roth IRA or a Traditional IRA and/or your HSA. I would probably do the 403(b) last since it has many hidden fees and typically has bad investment choices.
5) Contribute the same amount every month automatically to a fund or funds that align to your desired Asset Allocation.
6) Rebalance your portfolio every quarter, semi-annually or once a year to your desired Asset Allocation (you don't have to with a Target Retirement or LifeStrategy fund!).
7) Increase retirement contributions with increases of income. Remember, savings rate and starting earlier actually has a greater impact on your future nest egg than fund returns.
8) Review your statements, but don't take action. DON'T PANIC IF YOUR PORTFOLIO VALUE DECLINES... chances are everyone else's have, too. Be patient and wise - the market will eventually return as it always has in the past.
9) Consider writing a 1-2 page "Investment Policy Statement" that lists your goals, asset allocation (and when to change based on age or other factors), fund selection, rebalancing triggers, and becomes your contract with yourself. This is a great way to ensure that you do not make emotional decisions, but rational decisions based on history and sound investment principles.
10) STAY THE COURSE. Don't deviate based on performance, what you see on the news or what you hear from someone else. John Bogle even recommends not looking at your quarterly account statements until you retire! Wisdom and market principles prevail. Emotions should never be mixed with investment decisions. The greatest detriment to any long-term investing plan is making emotional decisions - you must get this in check to be successful.
11) Reading will ease any anxiety and make you a more knowledgeable investor. Check out the Resources page for a few good books to have in your personal library.
As I've stated on other pages, cost is the greatest detriment to any investor. Having an investment advisor take care of all of your decision making may be easier, especially if you feel you don't know enough about investments (reading this site should help you!), but it comes at a cost. Paying a fee-only advisor for one meeting to look at your entire financial picture and develop a plan is not a bad idea, but paying a commission-based advisor to manage your portfolio year after year will do some serious unforeseen damage to your nest egg.
Remember, a 1% commission fee paid to your advisor on a portfolio earning around 10% is huge, especially if you compound that 1% fee over 20+ years. By the end of retirement, yearly commission fees can cut your total portfolio by as much as 30-50%! The best solution is to be a DIY Investor.
Investing is not as scary as you think. The news does a great job of scaring us into who to vote for, who to listen to, and it portrays the stock market as free-for-all casino. Although there are those few slimy CEO's that do lie and rip off investors, the best companies in the US and abroad care as much about their businesses success as they do returns for their shareholders. The financial markets in the US and abroad (as a whole group) are a great place to have your dollars invested.
What happens if the market crashes?
This has happened and will likely happen again (most feel it won't happen to the extent of the 1929 crash, but 2008 could certainly happen again). In every major negative event that caused the stock market to plunge, the market returned to its previous years' high in every case except WWII and the 2008 housing crisis. On 9/11/01, the market fell by over 500 points when it re-opened two days later, but the Dow Jones Industrial Average came back to its pre-9/11 value just 56 days later while Wall Street was still covered with dust!
The stock and bond markets are very resilient and by nature revert to the actual earnings and growth of the companies. In the short term, emotions can and do impact the daily rise and fall of the market, but over a number of years, market principles prevail and emotions are "watered down" with a steady incline of stock and bond prices.
You do not need an investment advisor to babysit your investments for the rest of your life. That is a waste of your hard-earned money. They don't know anything that the market doesn't already know, they don't have any magic, and most advisors underperform basic market indexes. If you pick 1, 2 or 3 index funds, contribute the same amount monthly (increasing contributions with increase in pay) no matter what the prevailing market conditions are, hold it for a long number of years (DON'T SELL DURING A CRASH!), and rebalance at least once a year to your desired Asset Allocation, you will outperform 70-80% of all investors. Your costs will be low, your risk is considerably lowered, and you will earn your fair share of the market. The biggest thing you must control is your own emotions.
Reading one or two books is all you need to do to be a knowledgeable and wise DIY investor. I strongly recommend Boglehead's Guide to Investing as your first book. This covers everything on this website and much more. I also recommend checking out the Bogleheads.org Wiki page that is packed with great links and information from very knowledgable investment experts. Bogleheads are a group of investors who follow the teachings of John Bogle and were also sick of being ripped off by bad investment advisors and took their destiny in their own hands.
DIY Investor Steps:
1) Have your high-interest (preferably all) debt paid off.
2) Save 3-6 months of living expenses in an emergency fund and keep it separate from your investments.
3) Decide on your risk tolerance and establish your desired Asset Allocation (Stock/Bond percentages).
4) Open a Vanguard, Schwab or Fidelity IRA account or start your 403(b)/401(k) at work. Start with any matches you get at work (if any), contribute up to the match, then fund a Roth IRA or a Traditional IRA and/or your HSA. I would probably do the 403(b) last since it has many hidden fees and typically has bad investment choices.
5) Contribute the same amount every month automatically to a fund or funds that align to your desired Asset Allocation.
6) Rebalance your portfolio every quarter, semi-annually or once a year to your desired Asset Allocation (you don't have to with a Target Retirement or LifeStrategy fund!).
7) Increase retirement contributions with increases of income. Remember, savings rate and starting earlier actually has a greater impact on your future nest egg than fund returns.
8) Review your statements, but don't take action. DON'T PANIC IF YOUR PORTFOLIO VALUE DECLINES... chances are everyone else's have, too. Be patient and wise - the market will eventually return as it always has in the past.
9) Consider writing a 1-2 page "Investment Policy Statement" that lists your goals, asset allocation (and when to change based on age or other factors), fund selection, rebalancing triggers, and becomes your contract with yourself. This is a great way to ensure that you do not make emotional decisions, but rational decisions based on history and sound investment principles.
10) STAY THE COURSE. Don't deviate based on performance, what you see on the news or what you hear from someone else. John Bogle even recommends not looking at your quarterly account statements until you retire! Wisdom and market principles prevail. Emotions should never be mixed with investment decisions. The greatest detriment to any long-term investing plan is making emotional decisions - you must get this in check to be successful.
11) Reading will ease any anxiety and make you a more knowledgeable investor. Check out the Resources page for a few good books to have in your personal library.