Thursday, May 29, 2014

More of the Market Pundits and "Experts" are Getting Serious about Providing Worthy Investment Advice to Individual Investors

More and more investment advisory services are finally accepting and openly acknowledging the fact based reality that index funds are the most attractive vehicle for most people saving and investing for their retirement years. It's about time.

The externally provided expertise needed will be in the long term planning and executing, and not in the day-to-day doing. In other words, most individuals need help in acquiring the knowledge that inflation beating returns over time are to be found in stocks and that a well diversified portfolio of passively 'managed' index funds will almost always beat active fund managers and stock brokers who advocate in-and-out active trading. For the long haul, stocks are safe and the only way to go down the road to retirement security.

That's the fundamental reason I've long recommended a dollar averaging low cost S&P 500 index fund as the best approach to long term investing by us 'amateurs.'

How Charles Schwab got religion on retirement indexing tells about the growing trend of experts advising that index funds are the best way to achieve long term investing success:

"What do Charles Schwab, Warren Buffett, Jim Cramer, Larry Fink, Ben Stein and John Bogle have in common?  . . . they all think that most Americans, up to 98% of us, should be using index funds to build a retirement nest egg .                                        

Schwab appears to be the most recent convert to the passive approach, telling reporters that tracking the indexes is far better than stock picking , even better than manager picking. "There's somebody out there, I know, who can pick the best managers. It may not be me," Schwab said. "That's why I stick to index funds."

You might find Schwab's candor a bit dumbfounding at first. After all, isn't he in the business of telling people how to "win" at investing? Hasn't the message been that trading is the way to go?

Sure, but he's also a smart businessman . . . . that book of business increasingly is to promote passive investing through portfolio management services, not hotshot online trading tools. . . . 

A few small, high-end trading services are still out there, catering to that 2% of investors who think they've got an edge on Wall Street and the few thousand individual money managers who work for them. They're deluded, but it's a free world. . . .                                       

That leaves behind 98%, the balance of investors who very much should avoid the siren call of trading.                                                

Right about now you might be thinking, Jim Cramer? The "Mad Money" guy? Yes, indeed. Here's a key quote from his book Stay Mad for Life , on page 126:
"The job of an index fund manager is simply to make sure the fund matches the index. These funds are universally cheaper than actively managed funds, and any index fund will consistently beat the vast majority of mutual funds, if only because the fees are so much lower."

Yes, Cramer advocates stock picking on TV, but when asked directly he falls back on the Schwab argument, that trading and manager picking is reasonable for a select few but not for most people and definitely not for anyone who has other things to do in life, such as focus on a career and raise a family. . . . The business opportunity in investment management isn't the tiny fraction of active investors. . . . 

No, the real money is that 98% of people who want expertise and guidance on how to minimize risk and ensure that they reach retirement with plenty of savings. Millions upon millions of Americans need exactly this kind of trustworthy guidance, and exceedingly few of them have access to it.

That's why . . . folks such as Charles Schwab seem to have suddenly gotten religion on passive investing.

Because it's past time for a serious approach to a serious problem — how to retire safely and on time."

Summing Up

So listen up, fellow amateurs. Here's how we beat the pros.

For the long haul, saving regularly by dollar cost averaging and then investing those savings in a passive S&P 500 index fund may not be exciting, but it is the 'winning way.'

The real effort is to become sufficiently knowledgeable about why saving and investing regularly in substantial amounts is essential to arriving at old age with enough money to take us to the end of life's road.

And besides that, today's younger workers will have more years in retirement than they will spend working. And their financial comfort during those retirement years will likely be dependent on their own success in a 'self-managed' 401(k) plan and not an employer managed and guaranteed pension plan benefit. Those days are either gone or going fast.

So the best advice of all for individuals entering the work force is perhaps that given by the Boy Scouts: --- Be prepared!

That's my take.

Thanks. Bob.

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