EPTBeating Inflation - Page 5
| Blogs > micronesia |
|
MagisterMan
Sweden525 Posts
| ||
|
Durak
Canada3684 Posts
My suggestion is that you should go to a financial planner. I don't know the designations or situation in the US, as I'm Canadian, but there are free financial planning services offered at banks here. As I have a degree in Finance, I know that people are going to jump at that suggestion with comments like, "They don't know enough about investing to give you the best plan" or "They're not impartial" or "Anyone can be a 'licensed' financial planner." Let me explain why I think this is the best starting point for you and why those comments aren't relevant for you. Let's start with a quote about financial planners from wikipedia: The key defining aspect of what the financial planner does is that he considers all questions, information and advice as it impacts and is impacted by the entire financial and life situation of the client. Again, in spite of the fact that there is a broad range of financial planners of different abilities and services offered depending on where you live, they should consider your entire situation. This is the main reason why none of the suggestions here are going to be useful for you: they don't take into account your entire situation. The reason why your entire financial situation needs to be considered is because different countries/provinces/states/geographic locations have different tax laws and different investment opportunities. For example, we have Tax Free Savings Accounts (TFSAs) in Canada, which are incredibly useful for investing. A local financial planner should know about these investment opportunities and be able to mention them to you. In addition, financial planners are usually knowledgeable about small and safe investments, such as the kind you're planning on making, so they can provide advice there. Anyway, I suggest you go and get some information from a financial planner and then make your decision from there. They'll help you figure out what options you have and help you think about what maturities you'll want for the GICs, bonds, TIPS, or whatever you end up with. Personally, I commend you for looking at ETFs because I think they're a reasonable option, but you probably won't even end up with any equity securities unless you get some blue chip dividend paying stock. Edit: On January 07 2012 03:10 Glacierz wrote: I don't know how many people here are trading portfolios with limited finance background, but I highly recommend those who haven't taken any courses in investment getting to know the basic Gordon Growth stock pricing model (dividend discount model): I don't know how many people here are stupid enough to think that they can do a valuation better than the market if they're not an expert in Finance. | ||
|
Eben
United States769 Posts
-I am a total financial noob- | ||
|
Durak
Canada3684 Posts
On January 07 2012 04:09 Eben wrote: I know you have to invest lots of money to make any real money, but would starting with 200, and then adding 200 a month be a good way to start investing? -I am a total financial noob- In short, yes. The longer you have to invest, the more money you can make. Don't wait until you've made a huge lump sum and then think about investing -- start early. Basic retirement advice, yo. | ||
|
Glacierz
United States1244 Posts
On January 07 2012 04:07 Durak wrote: I don't think any of the posts in this thread are useful to the OP. You've got some ridiculous theoretical discussions going on (which the posters may think they have some knowledge about but are self-delusional) and then some suggestions that are reasonable but not descriptive enough for you to actually act on them. For example, BrTarolg's suggestion of TIPS is probably a safe bet for your situation, but it's not well-elaborated enough for you to actually do something useful with it. I intend to make this post useful by providing you some direction. My suggestion is that you should go to a financial planner. I don't know the designations or situation in the US, as I'm Canadian, but there are free financial planning services offered at banks here. As I have a degree in Finance, I know that people are going to jump at that suggestion with comments like, "They don't know enough about investing to give you the best plan" or "They're not impartial" or "Anyone can be a 'licensed' financial planner." Let me explain why I think this is the best starting point for you and why those comments aren't relevant for you. Let's start with a quote about financial planners from wikipedia: Again, in spite of the fact that there is a broad range of financial planners of different abilities and services offered depending on where you live, they should consider your entire situation. This is the main reason why none of the suggestions here are going to be useful for you: they don't take into account your entire situation. The reason why your entire financial situation needs to be considered is because different countries/provinces/states/geographic locations have different tax laws and different investment opportunities. For example, we have Tax Free Savings Accounts (TFSAs) in Canada, which are incredibly useful for investing. A local financial planner should know about these investment opportunities and be able to mention them to you. In addition, financial planners are usually knowledgeable about small and safe investments, such as the kind you're planning on making, so they can provide advice there. Anyway, I suggest you go and get some information from a financial planner and then make your decision from there. They'll help you figure out what options you have and help you think about what maturities you'll want for the GICs, bonds, TIPS, or whatever you end up with. Personally, I commend you for looking at ETFs because I think they're a reasonable option, but you probably won't even end up with any equity securities unless you get some blue chip dividend paying stock. Edit: I don't know how many people here are stupid enough to think that they can do a valuation better than the market if they're not an expert in Finance. Your first paragraph made me lol. Theoretical discussion? I don't know what kind of degree you have in finance, but all the stuff discussed here are either finance 101 or econ 101. People misunderstand basic concepts because they didn't take a class in the subjects, it's not even a debate, just plain right vs. wrong. On your last point, people don't even know what fundamentally drives equity returns, I'm simply pointing them to the right direction in order to understand how the market value stocks. Don't feel like you have better insight than the market? Then don't try timing the market. Most people who are giving advice here are advising a long-horizon investment, which is more than sound for people who are new. Do you seriously think a financial advisor will tell him to buy TIPS or stay in cash? You do know how they make money right? | ||
|
Glacierz
United States1244 Posts
On January 07 2012 04:09 Eben wrote: I know you have to invest lots of money to make any real money, but would starting with 200, and then adding 200 a month be a good way to start investing? -I am a total financial noob- Most retirement funds functions like this. However the money you put in later suffers from greater drawdown risk than the money you put in at the beginning. There is a typical de-risking pattern that most individual investors should follow, which involves taking risks early and reducing exposures and eventually converting everything into cash when you are close to retirement. The concept is you require a specific amount of cash each month to maintain your standard of living by the time you retire. The money you contribute into the plan can be used to take on more risk the further you are from the retirement date. With the basic assumption that the market goes up over the long run, any short term fluctuations is irrelevant when you have 30 years left until you retire. However, if you have 1 year left till retirement, you want to preserve your capital because the risk of you losing 10% over a month is much more significant as you have no time left for it to rebound. | ||
|
Durak
Canada3684 Posts
On January 07 2012 06:01 Glacierz wrote: Your first paragraph made me lol. Theoretical discussion? I don't know what kind of degree you have in finance, but all the stuff discussed here are either finance 101 or econ 101. People misunderstand basic concepts because they didn't take a class in the subjects, it's not even a debate, just plain right vs. wrong. On your last point, people don't even know what fundamentally drives equity returns, I'm simply pointing them to the right direction in order to understand how the market value stocks. Don't feel like you have better insight than the market? Then don't try timing the market. Most people who are giving advice here are advising a long-horizon investment, which is more than sound for people who are new. Do you seriously think a financial advisor will tell him to buy TIPS or stay in cash? You do know how they make money right? By theoretical discussion I am referring to both the relative and intrinsic valuation methods that are being discussed in this thread. PE ratios were mentioned and you just advocated the dividend discount model as "easy." The reason I call them theoretical discussions is because you guys are not nearly knowledgeable enough to have any sort of discussion on the models or propose that a non-financial expert use them. You're delusional if you think that you can just read up on the basics and value companies accurately. Thanks for trying to pigeonhole what I said as uneducated though. | ||
|
Glacierz
United States1244 Posts
On January 07 2012 06:39 Durak wrote: By theoretical discussion I am referring to both the relative and intrinsic valuation methods that are being discussed in this thread. PE ratios were mentioned and you just advocated the dividend discount model as "easy." The reason I call them theoretical discussions is because you guys are not nearly knowledgeable enough to have any sort of discussion on the models or propose that a non-financial expert use them. You're delusional if you think that you can just read up on the basics and value companies accurately. Thanks for trying to pigeonhole what I said as uneducated though. I'm not going to defend how deep my knowledge on the matter is as I don't see this having any relevance to correcting people who are simply misinformed on basic investment concepts. Since when did I propose to trade on any of these models? I am simply telling them to look into the factors others in the industry look at when pricing stocks and not to get bogged on information that has no relevance to what drives market returns. Nowhere did I or anyone else try to compare/debate the merits of relative vs intrinsic valuation methods. Please don't put words in other people's mouths. How do you reach the conclusion that the rest of TL is not knowlegeable enough, then proceed to do exactly what everyone else does, which is to give advice? Is it because you have a finance degree and you just assumed that everyone else is high school grad? You are smart about it though, a wall of text with no concrete advice but telling people to seek out professional advisors. If I have the capital to hire a financial advisor who actually gives a shit about me, I wouldn't be posting here (the ones who can truly afford a worthy financial planner are high net worth clients with millions of dollars in assets). I simply can't imagine the kind of bs you are going to get when you walk in telling them you want a portfolio that beats inflation. May I remind you that this is not a finance forum, if you got enough knowledge to actually educate people to become professional traders, you wouldn't be wasting your time posting here. I see nothing wrong with having a debate on various issues regarding economics and investments, when I see people misinterpreting facts, I feel that it would be beneficial to correct them and point them to the right direction. To blatantly denounce everyone's post as uninformed is extremely offensive and not the least constructive, not to mention you have yet to offer any criticism or evidence as to why you think people here have no idea what they are talking about. Apologies to OP and mods for derailing the thread, but I personally do not believe in bashing on posters without presenting any argument or evidence supporting one's claim. | ||
|
Durak
Canada3684 Posts
On January 07 2012 07:25 Glacierz wrote: I'm not going to defend how deep my knowledge on the matter is as I don't see this having any relevance to correcting people who are simply misinformed on basic investment concepts. Since when did I propose to trade on any of these models? I am simply telling them to look into the factors others in the industry look at when pricing stocks and not to get bogged on information that has no relevance to what drives market returns. You don't want people to get bogged down on information and yet you're telling them to read up on the dividend discount model. As was my point, it's absurd to tell someone to read up on the theoretical (my word) intrinsic price of a security just to "get an idea". You either understand everything about it -- including the all-important assumptions that you make about growth and discount rate -- or you don't bother with it. On January 07 2012 07:25 Glacierz wrote: Nowhere did I or anyone else try to compare/debate the merits of relative vs intrinsic valuation methods. Please don't put words in other people's mouths. Neither did I. Read what I wrote again. I simply said that people mentioning two different methods of valuation and that neither of them is important for the OP. On January 07 2012 07:25 Glacierz wrote: How do you reach the conclusion that the rest of TL is not knowlegeable enough, then proceed to do exactly what everyone else does, which is to give advice? Is it because you have a finance degree and you just assumed that everyone else is high school grad? Holy shit baseless assumptions. First of all, I said that TL isn't knowledgeable enough to discuss the theoretical aspects of investing. Again, that's about stuff like the dividend discount model that you brought up. It's not useful for anyone here. On January 07 2012 07:25 Glacierz wrote: You are smart about it though, a wall of text with no concrete advice but telling people to seek out professional advisors. If I have the capital to hire a financial advisor who actually gives a shit about me, I wouldn't be posting here (the ones who can truly afford a worthy financial planner are high net worth clients with millions of dollars in assets). I simply can't imagine the kind of bs you are going to get when you walk in telling them you want a portfolio that beats inflation. Again, this is totally irrelevant. Somehow you read the word "financial advisor" which is basically the lowest paid, run-of-the-mill financial advisor, that isn't even licensed in most places, and assumed I meant an investment officer for a high net worth individual. Maybe if you read the context of the OP's situation or even my full post where I said that they're free in every commercial bank, you wouldn't go off-the-wall. On January 07 2012 07:25 Glacierz wrote: May I remind you that this is not a finance forum, if you got enough knowledge to actually educate people to become professional traders, you wouldn't be wasting your time posting here. I see nothing wrong with having a debate on various issues regarding economics and investments, when I see people misinterpreting facts, I feel that it would be beneficial to correct them and point them to the right direction. To blatantly denounce everyone's post as uninformed is extremely offensive and not the least constructive, not to mention you have yet to offer any criticism or evidence as to why you think people here have no idea what they are talking about. You're supporting my point and yet chastising me. This isn't a finance forum; why are you discussing valuation models and investments that aren't relevant to the OP. The reason I'm not going through every post is exactly for that reason: they're unnecessary to his situation. Edit: Lol, I was going to write more and then stopped. Anyway, sorry if I offended you by saying that all the previous posts weren't useful to the OP. I still think my advice is more useful than what was discussed previously. | ||
|
Glacierz
United States1244 Posts
Are you suggesting seeking out a lowest paid, run-of-the-mill guy who's not even licensed to give solid investment advice? It is my personal belief that everyone who actively trades securities should know the basics of discounted cashflows. If you don't think it is relevant then don't post about it, why bother making the claim that people who do discuss it are for whatever reason not credible? I have simply posted a link to a wikipedia article, not some obscure paper written by a PhD in finance. I would still love to hear why you think some of the posts are ignorant or uninformed. I don't enjoy bashing people or being bashed without evidence. I come here for a healthy debate, not to listen to some guy telling me I give shitty advice but not saying why. | ||
|
phosphorylation
United States2935 Posts
| ||
|
happyft
United States470 Posts
Assuming you don't have the time to actively manage your savings, I recommend this simply strategy above all else -- once or twice a month, put in a static amount of money into the S&P 500 (ticker: SPY). This is called averaging-down, and it has been historically proven as by far the safest and best way to invest one's money (you can run the numbers in Excel yourself if you'd like, it's quite simply, if not time consuming). The reason why this simple strategy works is because since inception of the stock market, if you take *any* 30 year time period, you will have made anywhere from 8% to 11% returns per annum on average. Even taking any 10 year time period, you will have made a very similar amount per annum on average. So the question is not whether you should invest in the stock market or not, since in the long run you will beat inflation by a few percent. The question is, how do you invest? And as mentioned before, averaging down once or twice per month has been found as the least volatile way. Okay, so that's what the books say. Let me tell you from personal experience, I have attempted to actively manage a stock portfolio for 3.5 years. I am down over 20%. (Granted, I started when the market peaked and went thru the hell of '08-'11, but still...I lost a significant amount). What about my 401K that invested a couple hundred dollars every 2 weeks into the S&P 500? It's up over 30%, if not more, during that same time period. + Show Spoiler [My work experience] + 3.5 years of equity research specializing in consumer hardware technology stocks like Apple, Logitech, Garmin, etc. Edit: Also, I've worked 2.5 yrs in an investment fund that got money from financial planners who sent their clients to us. I've worked with over 100 financial planners, with over 250 clients. 95% of financial planners I spoke with are crooked and tried to find every way to cheat their clients out of a 1% return here, another 1% return there, and put it into their own pockets. In other words, I could count the number of financial planners I *might* trust with my money in one hand, the other 95+ I would not want to associate myself with ever. Anyone else who works with financial planners will tell you the same. | ||
|
Durak
Canada3684 Posts
On January 07 2012 08:14 Glacierz wrote:I would still love to hear why you think some of the posts are ignorant or uninformed. I don't enjoy bashing people or being bashed without evidence. I come here for a healthy debate, not to listen to some guy telling me I give shitty advice but not saying why. Firstly, I never said you gave shitty advice. In fact, I agree with the advice you've given. On page 2: On January 04 2012 02:32 Glacierz wrote: If your only goal is to beat inflation, any ETF indexed to real assets is sufficient. I don't agree with the suggestion of holding physicals as the storage cost and the illiquidity make this less attractive when purchased in high quantities. Gold ETFs do not track gold perfectly, but it does the job for what you are trying to do without the hassle. I think is great advice. Also, I think BrTarolg's opinion is valuable. I guess the problem is from my dismissive first sentence "I don't think any of the posts in this thread are useful to the OP." which I can see as being offensive. What I had a problem with was the fact that no one was giving specific advice to the OP that he can work with or anywhere to progress from where he is. I interpreted the best way to help him was to address his statement, "I don't know what to choose and how to choose it!". The best way to figure out what's best for his particular situation is to get the basics from a financial advisor who can hear more about his specific situation. Throwing out a whole bunch of acronyms and asset classes don't help him get anywhere as there are a million different instruments and opinions. In addition, alphas, betas, spreads, and portfolio management were being discussed. That all confuses laymen rather than providing a tangible suggestion. I wasn't going to quote four pages of posts because it would take a long time to read and write -- not really adding value. | ||
|
Glacierz
United States1244 Posts
On January 07 2012 09:06 happyft wrote: Edit: Also, I've worked 2.5 yrs in an investment fund that got money from financial planners who sent their clients to us. I've worked with over 100 financial planners, with over 250 clients. 95% of financial planners I spoke with are crooked and tried to find every way to cheat their clients out of a 1% return here, another 1% return there, and put it into their own pockets. In other words, I could count the number of financial planners I *might* trust with my money in one hand, the other 95+ I would not want to associate myself with ever. Anyone else who works with financial planners will tell you the same. Thank you for backing me up on this! It will shock most people how few professionals in finance actually know what they are talking about. I'm glad you are able to put some credentials behind your words as unfortunately I am prohibited from doing so. Your experience in the market involved very bad timing, which definitely sucked. But on the plus side, you had the privilege to work through one of the toughest markets ever. Many people called it the great recession, second only to the great depression. If people can put their egos aside (this is actually especially hard for guys working in finance), we could have much more constructive discussions here. | ||
|
Durak
Canada3684 Posts
| ||
|
happyft
United States470 Posts
On January 07 2012 09:15 Glacierz wrote: Thank you for backing me up on this! It will shock most people how few professionals in finance actually know what they are talking about. I'm glad you are able to put some credentials behind your words as unfortunately I am prohibited from doing so. I'd rather not say anything more about financial planners, because I have a very, very low opinion of them. But in terms of professionals in finance knowing what they're talking about, well -- when you look at people who work in brokerages, at least half know what they're talking about (hopefully the other half get fired within a year ... also, depends on the tier of the brokerage). Also, the stock market involves such an incredible, vast amount of information all across the whole world. So when an equity research analyst makes a call on Corning Glassworks based on the supply/demand of the LCD panel market, most people understand that he/she's providing a perspective on a single company based on tidbits of information patched together from contacts in suppliers, customers and competitors. Asking that same analyst what he/she thinks where the S&P 500 will go in 2011 is a bit unfair and out of his/her scope, but everyone freaking does it all the time anyway, and expect us to give answers anyway. But anyway, my long-winded point is that finance is made up of millions of specialists. They all know what they're talking about in their own little niche. | ||
|
EternaLLegacy
United States410 Posts
On January 07 2012 02:55 Glacierz wrote: You mixed up the steps. The reason you have P/E ratio around 12-14 is because expectations of earnings going up. How much a company's stock is worth is determined by a series of expected future casflows discounted by a pre-assumed discount rate. If there is no future growth prospect for a company, it will not trade at anything higher than its book value. Expected profitability is the main driver for stock returns. Note that I highlighted expected, the reason you see so much noise in the market is partially due to rapid changes in expectations due to changes in the environment. Looking into the long term, inflation will flow into the pricing of goods/services, which ultimately gets captured by the firm's revenue. However, that's probably the most minor source of risk/return when it comes to stocks (unless you are in a hyper-inflationary environment, then it does matter a lot). BrTarolg makes a very relevant point. Bonds gets impacted by inflation and rising rates much more than stocks, avoiding bonds is much more sensible if you are worried about inflation/interest rates picking up rapidly. The reason you don't want to invest in stocks right now is the future uncertainty in growth and the high possibility of recession, which would have a huge impact on firms' profits. Well, generally you want to avoid buying stocks with high P/E and buy low P/E in the hopes that people simply misvalued the stock. Regardless, you guys are right about the bonds vs stocks, and you hit the nail on the head with why investing in stocks is risky right now. I'm just saying that stocks go up over time due to inflation just like any other thing, which shouldn't be of any controversy. | ||
|
Glacierz
United States1244 Posts
On January 07 2012 09:20 Durak wrote: What financial planners are you guys talking about? Institutionalized financial planners in Canada have no incentive to provide bad investment advice because they don't take a fee for managing your money. It's a service provided for having an account with the bank. By your definition, I think those guys are only there to give you information on products, but they won't offer any useful advice on what to buy if you tell them you want to hedge inflation risk. Inflation hedging is actually very complex, as TIPS doesn't guarantee 100% hedge when implemented loosely. Many sophisticated institutions / endowments around the globe are doing active research in proper inflation hedging without sacrificing too much returns by making your portfolio TIPS only. OP's question may seem like a simple one, but I hope people realize there is no right answer to his question. I gave him what I think is the best solution based on the information he's provided, anyone should feel free to challenge it / offer alternatives. | ||
|
Glacierz
United States1244 Posts
On January 07 2012 09:31 EternaLLegacy wrote: Well, generally you want to avoid buying stocks with high P/E and buy low P/E in the hopes that people simply misvalued the stock. Regardless, you guys are right about the bonds vs stocks, and you hit the nail on the head with why investing in stocks is risky right now. I'm just saying that stocks go up over time due to inflation just like any other thing, which shouldn't be of any controversy. Yea, but over time is the key here. I will give you an example of why buying low P/E didn't work out for me. Look at RIMM (I bought back when it was trading around $50), complete value trap. I'm starting to hope it becomes a takeover target soon. | ||
| ||
