It always baffles me when my highly paid engineering coworkers refuse to manage their own investment portfolios and insist that a professional needs to do it. All you have to do is buy a Vanguard index fund ETF at Interactive Brokers or something similar. They have such agency and competence in everything else, but think finances are unknowable. Even just a 0.5% fee adds up to a huge percentage of your net worth gone after a few decades.
It's actually quite counterintuitive for many folks than an index fund could beat a pro. In most fields, trained professionals add value.
It's also not known to many folks in concrete fields like engineering that some fields/disciplines are mostly total bs. Like, 90% of economics and finance is absolute nonsense.
Once you add those together, it's not surprising to see what you are seeing.
Are you including RenTech in your definition of "pro"?
My working theory is that the vast majority of portfolio and fund managers are full of hot air, but there are some at the top that are actually successfully using non-insider information that is not well known to their advantage quite successfully.
Unfortunately it also seems that investing in such plays is infeasible except for a select few, so I stick with index funds.
No, rentech are brilliant guys. But, those guys are right out there, they sort of represent nothing even close to 99.9999% of folks in the business.
The thing is, most fields aren't basically zero sum (not strictly true, but true enough) like money management. So if you are the 90th percentile doctor or lawyer you are hugely valuable. 90th percentile money manager is losing v index fund.
This sounds right to me. A while ago on HN someone posed a thought experiment. “What would happen if literally every investor bought only index funds?” This made me realize that you need active investors. Trouble is that no one knows who the good ones are. And the good ones now may be horribly next year.
I’m a Jack Bogle diehard index investor, but the idea that most economics and finance is BS strikes me as deeply incorrect. Not everything is long term retirement investing. Most car and home owners in this country would be SOL without modern finance, for starters, and I suspect a great many vacations would simply never happen if credit cards didn’t exist.
Even renters these days live in buildings largely financed by either banks, reits, private equity, etc and underpinned by securitization.
And when it comes to business lending the entanglements with corners of financial services that look nothing like mutual funds only get more extensive.
Just because you don’t know much about it doesn’t meant it’s nonsense.
I studied it, have an advanced degree in it, worked in it for years. The theory is 90% nonsense. There is a large difference between 90% nonsense and 100% nonsense. The basics of microeconomics and the basics of finance are fine. Some of the stuff around real option theory is good. Anything about "advanced asset pricing", "advanced portfolio theory", practically all upper level macroeconomics and a good chunk of microeconomics, is absolutely nonsensical. And the worst type of nonsense - sounds good, doesn't work.
The vast majority of finance is basic loans (as you call out). There is no 'sophisticated' financial theory involved, it's very basic.
The financial theory required to make corporate loans is also very basic - the complicated part is understanding the business so that one can make decent projections. For example, to make oil and gas loans you better have a very good understanding of oil and gas reservoirs, the engineering involved in drilling, pumping, fracking etc. Hell, the legal side of a corporate loan is more complex than the finance part. Even securitization is quite straightforward - there are just a lot of numbers.
Define your terms - what theory are you talking about?
You said most financial services and economics is useless but seem to be taking about a specific part of that world. Portfolio theory? Seriously? You’re clearly thinking that consumer retirement investing == financial services. Totally wrong.
“ Like, 90% of economics and finance is absolute nonsense.” -you
I disagree - you may be bitter from your experience but from where I sit this world falls apart without financial services in particular.
Not bitter, I love finance. The specific nonsensical theory I call out there. Those are course names (ie every business school has a course called something like those names).
You can disagree, but you seem to have taken none of the courses... the vast majority of financial services are based on very basic financial theory developed 10 thousand years ago. I never said financial services are nonsense - the academic fields are largely nonsense.
Respectfully - you have something like Gell-Mann amnesia. Not quite the same, but similar. It seems like you know just enough to be dangerous, maybe enjoy the shallow knowledge, but can't go deep enough to realize the massive amount of nonsense. It's kind of lame to appeal to authority, but go through all Warren Buffett's letters to the shareholders - he also calls out the nonsense.
I don’t dispute that there is a lot of BS taught in business school and shoveled in economics. But the MBA pipeline is distinct from the actual financial services industry. There is a lot of basic lifting and moving in financial service that gets done by people who did not attend ivy league schools or get mbas or get massive year end bonuses and that has helped make the US economy particularly dynamic and resilient. Try spending time in specific industries and you will start to see entire ecosystems of financing. (Sometimes you will even see a message board.)
At this point you are being disingenuous. Actually read comments if you are going to reply to them. The specifics of financing oil and gas are called out...It's not nonsense, but it's based on financial theory so elementary it's taught in the first couple weeks of 101.
10% of financial and economic theory (at most...) powers 99% of financial services. People (like me..) take entire degrees in this stuff and one class would have more than sufficed. That is absolutely not true in computer science, for example.
You could say that a single class of programming where is teached loops, variables, data structures is enough for most of the work in the industry as well.
That's true - but if they take a class on networking or operating systems or distributed systems or (insert lots of courses here) they aren't being taught nonsense that doesn't work... and those disciplines mentioned are used to build the systems that applications run on top of, ie those areas are foundational to the overall system. In finance & economics, all the courses one doesn't need to take isn't material that they can just build on top of because of nice abstractions - they are nonsense that literally isn't used in industry... maybe they are akin to research done in software engineering rather than computer science...
Actually that's kinda true. In software, the vast majority (maybe the 90%) of things they teach and people learn are either snake oil, cargo culting or just suboptimal. I think it's true for many other fields, too.
My European perspective is that the brokenness is on a more fundamental level. My family has for three generations now avoided any and all debt. We earn and we spend what we earn. Yes, under current circumstances this is coming from a place of privilege. But its not too far off from the default in Europe, with free public education and healthcare and public retirement systems. All of them with flaws but actually mostly working.
My grandparents did not own a credit card. My parents do not. We rent. We have around 30 paid days off plus “unlimited“ paid sick days and months of paid maternity leave. Just to name a few things that are so standard here that most people just consider them a given and nothing worth even mentioning. I am in my forties myself and expect never to need a credit line on my bank account or card. Each generation has built their own “wealth“ sufficient to live well, with no inheritance or property ownership, and with support from the next generation in the final decade - most of it coming from the public pension system built on the idea of solidarity and community, not individualism.
So: No, where I am, credit cards could disappear without much effect. They are far from required. They are a component of a system meant to push you into slavery.
No, “modern” does not mean “in the last 30 years,” but credit cards have evolved extensively in that time.
Without contemporary (vs modern ) credit cards you don’t have airbnb, you don’t have online airline booking, you are not putting things on your visa in other states much less other countries. Credit cards have changed a LOT.
If you think debt is the main way credit cards enable travel you are missing a ton. But the fact is that is a key function too, regardless of whether you approve. Most of the country and world are not living as comfortably as folks on this board.
Appreciate what we have instead of dismissing a whole industry as useless. It seems useless until it goes away, sort of like the police, competent politicians, etc etc.
I’m a passive investor too but there needs to be some ACTIVity happening for those index funds to make money. Startups, restaurants, hair salons, housing developments, and factories don’t get any money without expensive humans you dismiss as useless making decisions in the field of financial services and economics.
Incidentally, credit card marketing focused on international usage in my childhood (Europe in the 80s and 90s). There was little need for a credit card in your daily life, as cash and debit cards were cheaper and/or more convenient. But when you traveled internationally, you either had to carry large amounts of cash or some weird stuff such as travelers cheques, which were all inconvenient to convert to the local currency. But if you had a credit card, you could simply withdraw cash with a very competitive exchange rate.
The original comment almost certainly meant "the real time digital payments system run by banks and the visa/mastercard/amex/etc networks"... "credit card" is synonymous for that in the US, sort of.
It's still wrong advice. Stocks are not the only way to invest your savings if you are retail. Money markets are less fashionable but much better at the moment but those don't give juicy commissions and arbitration to the financial industry.
Index funds fueled this stock bubble. And BlackRock/Vanguard knew exactly how to play it. P/E makes no sense, and nothing else makes sense. Good luck.
The thing is, contrary to normal expectations, experts in financial investments don't come with expected increase in returns.
You surely don't normally expect people to be their own doctors, or electricians, or any sort of professional work themselves (other than their own field).
And yet, it is not the case for financial investment. This is counterintuitive, despite being absolutely true. But without decent exposure to the literature and education about it, it is very easy to not know or find it baffling that a low cost index fund is the optimal for the average person. Not to mention the myriad of tiktoks and finfluencers claiming otherwise!
It is hard to not notice that most of the actively managed funds that consistently do well are almost if not entirely their own customers exclusively. Management fees and performance hit differently in these cases.
It should be a lesson about incentives as much performance.
I thought it was the opposite of what you’re saying. Index funds buy more of stocks that are higher. And why would a 95 percent NVIDIA be against the law? It just wouldn’t be an index fund.
It seems to work so. Both Nokia and Nvidia started to disappear when they hit the 30% mark. Might depend on the country too. -- "Index Fund" is often run by robots and exempt from some curbs and cautions.
Fidelity’s been nagging me to come in and talk with them recently to make sure my index fund portfolio is “performing well.” Am I correct in guessing this discussion likely doesn’t have my best interests at heart?
Despite these headlines, there are reasons that someone may want to rebalance their portfolio. Performance over time is not everything -- for instance, it is often advisable for someone approaching retirement to rebalance into investments that are lower performing but more less volatile.
An S&P 500 index fund might give a reliable 20 year performance, but if you're cashing out next year, you're gambling on somewhere between a -40% and +60% return.
This is all to say, just because you have money in index funds doesn't necessarily mean they're the right index funds for your situation.
It's fine to have it, but you can also tell them you're managing your own retirement and they'll back off. In my experience, it starts with them just making sure you have a plan. You can use their web-based free retirement planning tool to do that yourself:
I'm not sure how it progresses after that if you keep talking to them. AFAIK though, they just want to make sure you're aware of everything that Fidelity offers. Some discussions here:
They need to sell you more products. Passive index investors are the worst type of customer, because they tend to be careful about their spend, expense ratios and understand what they're buying!
I knew someone who let Fidelity manage hen's money.
It gave access to some funds that aren't available to the hoi polloi but I don't remember what the fee was.
In this case, it was also the service of "I don't want to think about money so I'll pay you to do it" in the nouveau riche way of trying mimic the aristocrats who needn't dirty their hands with it
Mutual funds have a lot of risk aversion, they even keep some of your money in cash. This poor performance shines through in the up years since the risk aversion wasn't needed in hindsight. They'll do better than index funds in down years but we haven't had one of those in a while now.
That's ultimately all this is. The fees are similar really but if one puts something like 50% in stocks, 30% in bonds, 10% overseas and 10% in cash while the other puts 100% in stocks the stocks will win if stocks alone were the best investment. That has been true since 2008 but may not always be true.
It always baffles me when my highly paid engineering coworkers refuse to manage their own investment portfolios and insist that a professional needs to do it. All you have to do is buy a Vanguard index fund ETF at Interactive Brokers or something similar. They have such agency and competence in everything else, but think finances are unknowable. Even just a 0.5% fee adds up to a huge percentage of your net worth gone after a few decades.
It's actually quite counterintuitive for many folks than an index fund could beat a pro. In most fields, trained professionals add value.
It's also not known to many folks in concrete fields like engineering that some fields/disciplines are mostly total bs. Like, 90% of economics and finance is absolute nonsense.
Once you add those together, it's not surprising to see what you are seeing.
Are you including RenTech in your definition of "pro"?
My working theory is that the vast majority of portfolio and fund managers are full of hot air, but there are some at the top that are actually successfully using non-insider information that is not well known to their advantage quite successfully.
Unfortunately it also seems that investing in such plays is infeasible except for a select few, so I stick with index funds.
No, rentech are brilliant guys. But, those guys are right out there, they sort of represent nothing even close to 99.9999% of folks in the business.
The thing is, most fields aren't basically zero sum (not strictly true, but true enough) like money management. So if you are the 90th percentile doctor or lawyer you are hugely valuable. 90th percentile money manager is losing v index fund.
This sounds right to me. A while ago on HN someone posed a thought experiment. “What would happen if literally every investor bought only index funds?” This made me realize that you need active investors. Trouble is that no one knows who the good ones are. And the good ones now may be horribly next year.
I’m a Jack Bogle diehard index investor, but the idea that most economics and finance is BS strikes me as deeply incorrect. Not everything is long term retirement investing. Most car and home owners in this country would be SOL without modern finance, for starters, and I suspect a great many vacations would simply never happen if credit cards didn’t exist.
Even renters these days live in buildings largely financed by either banks, reits, private equity, etc and underpinned by securitization.
And when it comes to business lending the entanglements with corners of financial services that look nothing like mutual funds only get more extensive.
Just because you don’t know much about it doesn’t meant it’s nonsense.
I studied it, have an advanced degree in it, worked in it for years. The theory is 90% nonsense. There is a large difference between 90% nonsense and 100% nonsense. The basics of microeconomics and the basics of finance are fine. Some of the stuff around real option theory is good. Anything about "advanced asset pricing", "advanced portfolio theory", practically all upper level macroeconomics and a good chunk of microeconomics, is absolutely nonsensical. And the worst type of nonsense - sounds good, doesn't work.
The vast majority of finance is basic loans (as you call out). There is no 'sophisticated' financial theory involved, it's very basic.
The financial theory required to make corporate loans is also very basic - the complicated part is understanding the business so that one can make decent projections. For example, to make oil and gas loans you better have a very good understanding of oil and gas reservoirs, the engineering involved in drilling, pumping, fracking etc. Hell, the legal side of a corporate loan is more complex than the finance part. Even securitization is quite straightforward - there are just a lot of numbers.
Define your terms - what theory are you talking about?
You said most financial services and economics is useless but seem to be taking about a specific part of that world. Portfolio theory? Seriously? You’re clearly thinking that consumer retirement investing == financial services. Totally wrong.
“ Like, 90% of economics and finance is absolute nonsense.” -you
I disagree - you may be bitter from your experience but from where I sit this world falls apart without financial services in particular.
Not bitter, I love finance. The specific nonsensical theory I call out there. Those are course names (ie every business school has a course called something like those names).
You can disagree, but you seem to have taken none of the courses... the vast majority of financial services are based on very basic financial theory developed 10 thousand years ago. I never said financial services are nonsense - the academic fields are largely nonsense.
Respectfully - you have something like Gell-Mann amnesia. Not quite the same, but similar. It seems like you know just enough to be dangerous, maybe enjoy the shallow knowledge, but can't go deep enough to realize the massive amount of nonsense. It's kind of lame to appeal to authority, but go through all Warren Buffett's letters to the shareholders - he also calls out the nonsense.
I don’t dispute that there is a lot of BS taught in business school and shoveled in economics. But the MBA pipeline is distinct from the actual financial services industry. There is a lot of basic lifting and moving in financial service that gets done by people who did not attend ivy league schools or get mbas or get massive year end bonuses and that has helped make the US economy particularly dynamic and resilient. Try spending time in specific industries and you will start to see entire ecosystems of financing. (Sometimes you will even see a message board.)
> There is a lot of *basic lifting and moving * in financial service that gets done by people who did not attend ivy league
I have no dog in this quarrel, but you seem to have agreed with the OP.
It’s mostly all fundamental/basic knowledge.
At this point you are being disingenuous. Actually read comments if you are going to reply to them. The specifics of financing oil and gas are called out...It's not nonsense, but it's based on financial theory so elementary it's taught in the first couple weeks of 101.
10% of financial and economic theory (at most...) powers 99% of financial services. People (like me..) take entire degrees in this stuff and one class would have more than sufficed. That is absolutely not true in computer science, for example.
You could say that a single class of programming where is teached loops, variables, data structures is enough for most of the work in the industry as well.
That's true - but if they take a class on networking or operating systems or distributed systems or (insert lots of courses here) they aren't being taught nonsense that doesn't work... and those disciplines mentioned are used to build the systems that applications run on top of, ie those areas are foundational to the overall system. In finance & economics, all the courses one doesn't need to take isn't material that they can just build on top of because of nice abstractions - they are nonsense that literally isn't used in industry... maybe they are akin to research done in software engineering rather than computer science...
Actually that's kinda true. In software, the vast majority (maybe the 90%) of things they teach and people learn are either snake oil, cargo culting or just suboptimal. I think it's true for many other fields, too.
My European perspective is that the brokenness is on a more fundamental level. My family has for three generations now avoided any and all debt. We earn and we spend what we earn. Yes, under current circumstances this is coming from a place of privilege. But its not too far off from the default in Europe, with free public education and healthcare and public retirement systems. All of them with flaws but actually mostly working.
My grandparents did not own a credit card. My parents do not. We rent. We have around 30 paid days off plus “unlimited“ paid sick days and months of paid maternity leave. Just to name a few things that are so standard here that most people just consider them a given and nothing worth even mentioning. I am in my forties myself and expect never to need a credit line on my bank account or card. Each generation has built their own “wealth“ sufficient to live well, with no inheritance or property ownership, and with support from the next generation in the final decade - most of it coming from the public pension system built on the idea of solidarity and community, not individualism.
So: No, where I am, credit cards could disappear without much effect. They are far from required. They are a component of a system meant to push you into slavery.
> most economics and finance is BS strikes me as deeply incorrect
But it’s true based ok numbers. All of these “professionals” as a whole are not beating passive investors.
Modern finance isn’t the reason we have credit cards. Those were common 30+ years ago.
Additionally, someone taking a vacation they can’t afford that they finance via credit cards is not an example of success.
No, “modern” does not mean “in the last 30 years,” but credit cards have evolved extensively in that time.
Without contemporary (vs modern ) credit cards you don’t have airbnb, you don’t have online airline booking, you are not putting things on your visa in other states much less other countries. Credit cards have changed a LOT.
If you think debt is the main way credit cards enable travel you are missing a ton. But the fact is that is a key function too, regardless of whether you approve. Most of the country and world are not living as comfortably as folks on this board.
Appreciate what we have instead of dismissing a whole industry as useless. It seems useless until it goes away, sort of like the police, competent politicians, etc etc.
I’m a passive investor too but there needs to be some ACTIVity happening for those index funds to make money. Startups, restaurants, hair salons, housing developments, and factories don’t get any money without expensive humans you dismiss as useless making decisions in the field of financial services and economics.
Incidentally, credit card marketing focused on international usage in my childhood (Europe in the 80s and 90s). There was little need for a credit card in your daily life, as cash and debit cards were cheaper and/or more convenient. But when you traveled internationally, you either had to carry large amounts of cash or some weird stuff such as travelers cheques, which were all inconvenient to convert to the local currency. But if you had a credit card, you could simply withdraw cash with a very competitive exchange rate.
You absolutely do not need credit card for travel. Debit card literally does everything credit card can do
The original comment almost certainly meant "the real time digital payments system run by banks and the visa/mastercard/amex/etc networks"... "credit card" is synonymous for that in the US, sort of.
Most debit cards globally run over credit card rails.
A 0.5% fee doesn't seem unusual also for an ETF. Or am I being ripped off?
Being ripped off hard. Shovel your money into VTSAX, get .04% . Fidelity actually has lower fees.
It's still wrong advice. Stocks are not the only way to invest your savings if you are retail. Money markets are less fashionable but much better at the moment but those don't give juicy commissions and arbitration to the financial industry.
Index funds fueled this stock bubble. And BlackRock/Vanguard knew exactly how to play it. P/E makes no sense, and nothing else makes sense. Good luck.
The thing is, contrary to normal expectations, experts in financial investments don't come with expected increase in returns.
You surely don't normally expect people to be their own doctors, or electricians, or any sort of professional work themselves (other than their own field).
And yet, it is not the case for financial investment. This is counterintuitive, despite being absolutely true. But without decent exposure to the literature and education about it, it is very easy to not know or find it baffling that a low cost index fund is the optimal for the average person. Not to mention the myriad of tiktoks and finfluencers claiming otherwise!
Hmm i wrote almost the exact same thing at the exact same time...
This is wrong for most professions except doctors, who actually can't be their own doctors for obvious reasons.
It is hard to not notice that most of the actively managed funds that consistently do well are almost if not entirely their own customers exclusively. Management fees and performance hit differently in these cases.
It should be a lesson about incentives as much performance.
Index funds are the worst. Everytime they hit the motherload, they have to sell it early on, so that the portfolio stays "balanced".
You cannot have a fund that has 95% Nvidia, it is (probably) against the law.
I thought it was the opposite of what you’re saying. Index funds buy more of stocks that are higher. And why would a 95 percent NVIDIA be against the law? It just wouldn’t be an index fund.
It seems to work so. Both Nokia and Nvidia started to disappear when they hit the 30% mark. Might depend on the country too. -- "Index Fund" is often run by robots and exempt from some curbs and cautions.
Fidelity’s been nagging me to come in and talk with them recently to make sure my index fund portfolio is “performing well.” Am I correct in guessing this discussion likely doesn’t have my best interests at heart?
Despite these headlines, there are reasons that someone may want to rebalance their portfolio. Performance over time is not everything -- for instance, it is often advisable for someone approaching retirement to rebalance into investments that are lower performing but more less volatile.
An S&P 500 index fund might give a reliable 20 year performance, but if you're cashing out next year, you're gambling on somewhere between a -40% and +60% return.
This is all to say, just because you have money in index funds doesn't necessarily mean they're the right index funds for your situation.
Just remember that as you near retirement odds are you have more than 10 years left - don't rebalance too far out of high preforming index funds
It's fine to have it, but you can also tell them you're managing your own retirement and they'll back off. In my experience, it starts with them just making sure you have a plan. You can use their web-based free retirement planning tool to do that yourself:
https://www.fidelity.com/what-we-offer/planning
I'm not sure how it progresses after that if you keep talking to them. AFAIK though, they just want to make sure you're aware of everything that Fidelity offers. Some discussions here:
https://www.bogleheads.org/forum/viewtopic.php?t=349342
https://www.bogleheads.org/forum/viewtopic.php?t=420550
They need to sell you more products. Passive index investors are the worst type of customer, because they tend to be careful about their spend, expense ratios and understand what they're buying!
So make sure you are the worst type of customer.
Yes. The alpha in "high-finance" is in the sale. Your sale is their alpha and your loss.
I knew someone who let Fidelity manage hen's money.
It gave access to some funds that aren't available to the hoi polloi but I don't remember what the fee was.
In this case, it was also the service of "I don't want to think about money so I'll pay you to do it" in the nouveau riche way of trying mimic the aristocrats who needn't dirty their hands with it
Mutual funds have a lot of risk aversion, they even keep some of your money in cash. This poor performance shines through in the up years since the risk aversion wasn't needed in hindsight. They'll do better than index funds in down years but we haven't had one of those in a while now.
That's ultimately all this is. The fees are similar really but if one puts something like 50% in stocks, 30% in bonds, 10% overseas and 10% in cash while the other puts 100% in stocks the stocks will win if stocks alone were the best investment. That has been true since 2008 but may not always be true.
https://archive.ph/Ceo5u
If you let someone invest money for you they should have a fiduciary duty to you. Otherwise they are just trying to take your money via fees.