Newbie Question | General financial discussion | Discussion forum

tcharger67 said
Read, Read, Read. Than diversify, and cover your tax loses
Personally I'm and Index fund. A good book to read, is how a 5th grader beat wall street.
I stick to TD e-series, and CIBC's Index funds. The lower MER's outweigh the little extra trimming from high MER funds
Personally, I was invest in TDB900, TDB902 just to name a couple this year. That being said, everything is sitting in cash low interest savings accounts right now.
The markets are now in the second longest bull run in the history of the market, and with so much instability. In august 2018 it will be the longest run ever. In my opinion, the markets have always stayed in cycles, and to think the small potential gain in the near future will outweigh the guaranteed loses, or the idea that you'll jump out at the right moment, is in my opinion just ludicrous.

I'm not giving advice, just voicing my personal aptitude. This being the position of a 32 year old, whom was read the wealthy barber as a young child, with over 342,000$ in savings.

Remember the rule of 72
Ken  

Thanks for this Ken. The tip that we're in the longest bull run ever is good to know. Gives me cause to rethink if I'm even going to invest at this particular moment. But read read read is what I've been doing, so onward I will go with that strategy for now.

Loonie said
Since this is a general discussion sub-forum, I think your questions are not inappropriate. For more detail, you might do better at other forums, but right now you are asking some basic questions. Also, since most people on this forum are on the more conservative end of investing, you are more likely to get cautious advice and get into less trouble!.

The fundamental question that you have asked is about the discrepancy between the apparent ability to draw much larger returns than the ones that are likely to in fact come. You are wisely second-guessing your own optimism. Take your time. Don't jump in.

You can read about this in any number of books. If you haven't read the newer version of Wealthy Barber, it's not a bad place to start.

Some things that I think are important:
1. What has happened in the past has little to do with what will happen in the future. Thus, last year's 40% is likely to be this year's 1% or might even come in at a loss. Higher rewards are typically balanced by higher risk and tend to be more volatile. Next year's winner was probably last year's laggard.
2. Markets are not predictable, period. Repeat, not predictable. But lots of people make lots of money forecasting, promising, advising, packaging, directing, and, perhaps most importantly, selling, so there will always be lots of recommendations and pseudo-promises and choices. They will always be overwhelming, and, if you pay attention to them, you will never be sure of what to do. It is meant to be overwhelming, because lots of people want a slice of (your) pie. The more confusing it is, the more likely you are to be willing to pay them, and they will get paid whether you win or lose. It's always set up that way.
3. Unless you are one in a million, you will never know enough to regularly outsmart the markets. If the average that people are getting is, say 6%, it's extremely unlikely you will do better on a consistent basis. And it would take so much time and effort (or luck) to do so that it wouldn't be worth it.
4. Most people who have stars in their eyes about spectacular profits made by someone else in some other year are going to be in for a hard landing.

Those are the realities as I see them.

Now, once you've absorbed those realities, you will perhaps see that it is not necessarily going to be easy to get 10% (or any other specific figure for that matter). What you can hope for is to do at least as well as most other thoughtful prudent investors, and to get reasonably consistent results over time. Even so, there will be bad years and good ones.

If you don't follow the prudent route, you can expect some terrible years and some good ones, and perhaps even some spectacular ones once in a while. And, if you're like most of us, you can expect to have a number of sleepless nights. In the end,you will not likely be any further ahead, you might be down, and worst of all, you might be down at a time when you need the money. If you do a really bad job, you might lose it all.

If you are itching to chase that 40% stock or fund or the one that is promised for next year, whatever it may be, put "play money" into your budget, with the understanding that you could lose it. Keep it separate from your other investments. When it's gone, it's gone, until you decide to devote some of the another year's budget to it. Consider it like buying lottery tickets or going to bingo.

For the serious stuff, you will, sooner or later, probably realize that what works best is:
1. Have a long horizon. You are only 32, so you have lots of time.
2. Choose a few good funds and put equal amounts into them. The list at Couch Potato is as good as any. Don't spend a lot of time splitting hairs between various funds. Less is more.
3. Make sure you are not choosing 2 funds that basically carry the same stocks or bonds.
4. Choose one fund for each category of investment. This is diversification. Couch potato can guide you with this. They have already figured it out and you really don't need to spend time trying to do a better job.
5. Every so often, to maximize your profits, rebalance your portfolio. In other words, if you started with 10K invested in each of five funds, then, after a year, one might be at 8K and another at 12K, etc. You want to bring them back to even amounts. This means profit taking on the ones that have done well and reinvesting that in the ones that will profit in t future. Advice on how often to rebalance varies from 3 months to 1 year, but the important thing is to do it and not just let them sit there
indefinitely. Keep an eye on them. This allows you to take profits and increase your profits. Wait for any outstanding dividends to come in before you do it. You can rebalance and avoid selling fees by simply adding more to the underdogs.

I should perhaps say that I haven't done this myself, but I've read enough to be convinced that this is the way to go. I don't feel my horizon is long enough to make this significantly worthwhile, it's too much bother and worry for me, and I have no need of or interest in market risk.  

Hey Loonie. I appreciate your response very much. It's the reality check I've been looking for, and lot's to contemplate. The more I read about investing, the more I realize that trying to "make money," by chasing any of these high yield funds or companies, is not a long term strategy that's going to pay off. So now, I need to figure out how to get started with a sound strategy. Index funds are looking like my style at this moment.

Loonie said
Good one, Norman!   

Thanks for that Norman, puts things in perspective!