Down-To-Earth Financial Advice From A Mountain-Climbing Adviser
I just finished reading The New Coffeehouse Investor by financial adviser Bill Schultheis. He's an index-fund investor and discusses his rationale for investing in non-managed funds. What I enjoyed most, besides his conversational style and references to mountain climbing and other adventures, was the way he applied analogies of common activities to making some financial decisions.
- Put most of your equity investments in an unmanaged stock index fund (“…an unmanaged mutual fund that owns a piece of all the companies of a particular stock market index. The good companies and the not-so-good companies combined.”)
- Consider your investment time horizon when placing and keeping money in mutual funds (for example, if you need money in the next few years, then you can take it out of the stock market and put it in more conservative investments)
- Buy plain vanilla, unmanaged index funds (such as Vanguard’s 500 Index Fund) with minimal expenses rather than souped-up versions that are actively managed and charge heftier fees
- Have fun exploring your passions
- Capture stock market’s average returns, and help manage inflation risk
- Minimize fees associated with fund management
- Free up time to pursue interests, such as mountain climbing (Bill reminds me of Wise Bread blogger Nora Dunn, who also likes trekking around high, icy places) rather than spending time analyzing mutual funds and watching Wall Street news reports every day
- Have energy to deal with financial planning issues such as determining spending needs, buying insurance, and developing asset allocations among various asset classes
“I’ve had a few bad report cards in my life, including the one I got from Sister Lucida after telling her that I didn’t get much out of her religion class. But I have to say, in my eight years of attending Guardian Angel School, I never had a report card quite as ugly as the report cards of mutual fund managers. If these report cards were handed out by Sister Lucida, I suspect most mutual fund managers would be stuck in eighth grade.”
“Maybe investors are attracted to past performance numbers because past performance numbers work so well when selecting things like dishwashers…We do a little research, like maybe asking our friends and neighbors which ones they’ve liked, and then combine that information with research from something like Consumer Reports to find out which dishwasher has performed best in the past, and then buy it. Unfortunately, there is one small problem with using the dishwasher method to select mutual funds. It doesn’t work.”
“They (the mutual fund companies) don’t send you a bill every month like your utility company does, but believe me, you pay it. Mutual fund companies simply collect their fee by reducing your price per share. Maybe if mutual fund companies sent a bill each month, more investors would take the time to see whether they were getting their money’s worth.”
- Start off with investing no more than 5-15% of your portfolio in stocks of your choosing
- Buy stocks that you have selected rather than ones Wall Street has recommended
- Compare the return of your stock portfolio with the market average each year to see if you have beaten the market
- Know when to sell
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