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« Another Clueless Interaction with Best Buy | Main | Reader Profile: JB »

January 16, 2012

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Agree

In many ways, I count myself thankful that I knew nothing about investing until I got my 401(k) and one of my friends vaguely advised me to only buy ETFs with "index" in the name. From my 401(k), I saw funds with "index" in the name and copied that when I opened a Roth IRA. I'm very much looking forward to the day when I have enough funds invested to use Admiral shares, though those are not available in my 401(k), which has a significant portion of my funds at this point.

I like Vanguard a lot as well and will most of my retirement portfolio to their products at some point.

Absolutely important to check expense ratios. People pay too little attention that that metric. Taking the concept further, it's interesting how many folks don't think of how small savings today can grow to be massive figures many years down the line.

The power of compounding needs to be kept in mind. If you earn a significantly higher rate than inflation, the present value can be substantial.

This approach is OK, if for a variety of reasons you are content to spread your investment over a conglomeration of many thousands of individual stocks & bonds and are willing to diversify your money between the very best performers and the very worst performers.

In my working days my 401K offered far fewer choices than all of you have today. I then had only 3 choices, a diversified stock portfolio, a diversified bond portfolio, and a money market fund, managed by a large insurance company, and could choose the allocations I wanted to go into each. I was also only allowed to change my allocations twice/year. I did quite well, primarily because the market traded in a fairly narrow range between between 1960 and 1980, but then had a great run between 1980 and 1992 when I retired. By 12/28/92 I had rolled my 401K into an IRA and consolidated it and our taxable accounts all at Fidelity Investments - the total was $320K.

After retiring I decided to become a very active investor, to subscribe to a proprietary database of most available funds, to learn how to use the software that came with it to find the best performers (regardless of their expense ratio) and to make all of my own investment decisions. I also started writing my own ranking software that could also use the fund database. I generally only owned 5 or 6 mutual funds at a time and seldom held one longer than 6 months. I reached my first million in '97. the 2nd. in '99, the 3rd. in '00, the 4th. in '03, the 5th. in '06 and the 6th, in '09. I moved totally into income investments at the start of '08. Now the combined tax deferred and tax exempt income we receive from our Corporate and Municipal bonds, our CDs, our pensions, and our Social Security has put us into the top 1%.
I have never, ever owned an index fund and never will.

I don't understand why you're pumping the Vanguard funds when they're all losing money and performing under the historical averages?

Old Limey,

How did you celebrate hitting your first million in '97?

Nice progression...

-Mike

Mike:
That would have been on 10/9/1997 and I don't remember any special celebration. However I looked back into my database for that period and it clearly demonstrated an aspect of my investing style other than "Fund Selection" which was, "Ride them up", but "Don't ride them down".
We were in the early stages of the dot.com bubble so if I take the starting date of 5/6/97 and compare myself with the Nasdaq 100 which mirrored the bubble it is quite interesting. The huge surge in the bubble started the following year and peaked on 3/27/2000 with the Nasdaq 100 at 4704.73. Those were the "Good Old Days".

................... 5/6/1997 .......... 10/9/1997 ......... 12/24/1997
Me ............. $827,738 ........ $1,007,144 .......... $1,019,923
Nasdaq 100 .... 914.9 ............ 1148.2 .............. 938.99

I also checked my data and found that I made 82 trades during 1997 - that's active! In those days most companies didn't object to active trading but I have to admit that Vanguard blacklisted me years ago for selling a fund at a nice profit when I had only held it for a couple of weeks.

Old Limey,

Not riding down the index funds was really key.

I am tracking about 10 - 15 years behind you... it would be very nice to have the good old days back again... unfortunately the genie is already out of the bottle.

-Mike

Mike:
There have been so many important changes since "The good old days", such as:
1) The rapid spread of the Internet
2) The volume of trading
3) The increase in the number of participants
4) The proliferation of financial data
5) The dominance of the big Investment Banks like Goldman Sachs
6) The manipulation of the markets using super computers

The little guy in the 80's who was willing to do his homework could have a very high success rate. Now, information travels around the globe in the blink of an eye. Back then a weekly market newsletter that arrived in the mail was quite advantageous - today it would be useless.


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