Though this is on the subject of investments, it is not meant to be investment advice for you, the reader, specifically but information you can use in your thinking.  It is vitally important that you come to a completely rational conclusion about how you will manage your money over time.  [The author is a former financial advisor with an MBA, with honors, in Financial Management and Investments at the Stanford Graduate School Of Business, who was also a Certified Investment Management Consultant (very rigorous and detailed) and a Certified Fund Specialist (fairly easy) and a Certified Financial Planner.  This does not mean he is omniscient, but if he has come to these conclusions, you might want to consider the reasoning.]

I include here, first, an excerpt from my writing on the thinking of human beings: "In investing, the prime belief is that a manager can, if smarter, cause higher gains.  'Surely, this must be true!  It is so logical!'   But it is, alas, not true, if you look at the actual data.  You should not be operating from that magical viewpoint, but should be considering a wiser way to invest.  See The Irrational Investor."

The asker's comments or questions are in regular font, my "answers" are in bold, so you can tell which is which.

Excerpts from an email reply:

Q.  ...and do not know what to do with the money x left for me. It has to make money and my broker just wants me to take one of the formula portfolios, when I need something that has dividends, providing some income.

A.  Actually, it does not matter whether you get income.  What you need is cash to spend.  And that can come from systematic liquidations of investments to provide cash for you.

Another comment:  I still remember the "wisdom" from my training, where the principles still hold.  I don't write much on this, but of possible interest:  Investment Wisdom And Reasoning and The Irrational Investor.

Q. Sorry to ask you again, but my broker has never suggested Vanguard.

A.  There is no commission, which is one of the reasons why the investor makes more over the long term.


I think, for you, that I would just (I know it's not fancy or sophisticated but it is workable and according to the correct principles).

1. Move everything to Vanguard.  They'll help you do that, but will not help you stifle your broker's snide remarks.

2.  Diversify, realizing that you have a long term portfolio in the sense that you don't need all the money at once.  And a reasonable mix that is inherited by others can be maintained without them having to sit down and decide. 

This will work!  (Of course, keep emergency funds [maybe 20K to 50K] on the side so you don't have to cash out some of the funds often, even though it is always ok to do so.  Keeping some money in a local account and some in a checking money market fund at Vanguard would work.  They'll set that up for you.  877-662-7447) 

Over the long term, of course, as you know, equities are expected to make more, but it is not realistic to expect the return premiums to be as high as before.  And, since nobody truly knows the future, we are left only with the necessity to diversify to avoid big mistakes. [This means that we do not need managers to "move our assets around" out of their brilliance on predicting the future.]   Over time a diversified portfolio will be up and down but will not go as far down and will tend to provide more stable returns.  Your level of risk aversion determines how much you have in "safe" investments versus in fluctuating investments. (I know you know this, but I'm just leading up to making a point.).  (See the Vanguard Funds investment questionnaire.)

Anyway, do this recommended  (diversified) strategy and things will be settled and automatic and easy - and you can just get money monthly and just relax about it all.

Watch this video (or, if video is pulled, reenter his name in the search engine for YouTube):  Daniel Solin Interview.


"Meanwhile, in other, somewhat tangential news, none other than Warren Buffett went on an epic tirade over the weekend bashing Wall Street. According to the WSJ, just before lunch at the Berkshire Hathaway annual meeting on Saturday, Warren Buffett unloaded what he called a "sermon" about hedge funds and investment consultants, arguing that they are usually a "huge minus" for anyone who follows their advice.

The Berkshire chairman has long argued that most investors are better off sticking their money in a low-fee S&P 500 index fund instead of trying to beat the market by employing professional stockpickers. He used the annual meeting to update the tens of thousands in attendance - and others watching via a webcast - -about his multi-year bet with hedge fund Protege Partners. The bet, initiated by the New York fund back in 2006, was that over a decade, the cumulative returns of five fund-of-funds picked by Protege would outperform a Vanguard S&P 500 index fund, even when including fees.

Mr. Buffett showed a chart comparing the cumulative returns of the two since 2008. As of the end of 2015, the S&P 500 index fund had a cumulative return of 65.7%, outdoing the hedge fund teams's 21.9% return. The S&P has outperformed in six of the eight individual years of the bet too.

The chart was preamble to the real point Mr. Buffett wanted to make: that passive investors can do better than "hyperactive" investments handled by consultants and managers who charge high fees.
"It seems so elementary, but I will guarantee you that no endowment fund, no public pension fund, no extremely rich person" wants to believe it, he said. "They just can't believe that because they have billions of dollars to invest that they can't go out and hire somebody who will do better than average. I hear from them all the time." He was just getting started.

"Supposedly sophisticated people, generally richer people, hire consultants, and no consultant in the world is going to tell you 'just buy an S&P index fund and sit for the next 50 years.' You don't get to be a consultant that way. And you certainly don't get an annual fee that way. So the consultant has every motivation in the world to tell you, 'this year I think we should concentrate more on international stocks,' or 'this manager is particularly good on the short side,' and so they come in and they talk for hours, and you pay them a large fee, and they always suggest something other than just sitting on your rear end and participating in the American business without cost. And then those consultant, after they get their fees, they in turn recommend to you other people who charge fees, which... cumulatively eat up capital like crazy."
Buffett said he's had a hard time convincing people of this case. "I've talked to huge pension funds, and I've taken them through the math, and when I leave, they go out and hire a bunch of consultants and pay them a lot of money," he said, earning a laugh from the crowd. "It's just unbelievable. "And the consultants always change their recommendations a little bit from year to year. They can't change them 100% because then it would look like they didn't know what they were doing the year before. So they tweak them from year to year and they come in and they have lots of charts and PowerPoint presentations and they recommend people who are in turn going to charge a lot of money and they say, 'well you can only get the best talent by paying 2-and-20,' or something of the sort, and the flow of money from the 'hyperactive' to what I call the 'helpers' is dramatic."

A passive investor whose money is in an S&P 500 index fund "absolutely gets the record of American industry," he said. "For the population as a whole, American business has done wonderfully. And the net result of hiring professional management is a huge minus."

As the WSJ adds, Buffett has long had a testy relationship with Wall Street, and he's positioned himself for decades as an outsider to the world of New York finance. In addition to repeatedly attacking the fees charged by hedge funds and investment professionals, he's criticized the tactics of activist shareholders, the danger of derivatives and the heavy use of debt by private-equity firms.

To be sure, the antipathy has run in the opposite direction as well. Over the years many on Wall Street believe the Berkshire chairman to be a hypocrite, hiding behind the image of a folksy, benevolent investor while pursuing some of the tactics that are the targets of his attacks. Others have rightfully and repeatedly accused the Oracle of Omaha of perpetuating his wealth while standing for nothing more than crony capitalism.

That did not stop Buffett from continuing his rant.

"There's been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities," he said. "There are a few people out there that are going to have an outstanding investment record. But very few of them. And the people you pay to help identify them don't know how to identify them. They do know how to sell you."

As so many hedge funds have found out the hard way, at least under the global central bank put regime, Buffett's assessment has so far proven correct but perhaps not for the reasons he thinks: after all when central bankers themselves have become Chief Risk Officers of the global equity markets, where even a 5% dip is immediately countered with relentless activist rhetoric by the money printers if not even further monetary action (there has been nearly 700 central banks easing decisions since the financial crisis, not to mention over $13 trillion in liquidity injections) who needs to hedge?"

May 2, 2016

Investment Wisdom And Reasoning

The Irrational Investor.

Tax Treatment Of ETF Gains - One of the factors to consider, but the main decision that is important is to go "no load."