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I currently have about $45,000 invested with SmartPro Financial. I've invested $1000 per month, for the past 44 months, so I only have a profit of about $1,000 since I started.
That is crazy. The S&P 500 index has gone from 2900 to 4800 in that timeframe. That is 65% growth. You are being ripped off.
Put all your money at Schwab in a low-cost stock-index fund.
The problem with such psychological interrogatives, is divergence between what’s best for us emotionally, and what’s best for us quantitatively. Generally, I would choose the option with the highest expectation, subject to some kind of utility function or constraints… where “expectation” is just the integral of the first moment of the probability density function. This is the “best” choice from a wealth-maximization point of view, but hardly the best choice from the viewpoint of personal comfort, felicity or peace.
He's talking about a risk-parity portfolio, like your Carolina Reaper, but adjusted to mimic the standard deviation of 100% equities, instead of 60/40. I broached this in an earlier thread, but you were not interested, because that particular risk-setting didn't appeal to you. The broader point is that leverage can be used to improve the risk-adjusted level of return, for whatever risk-level one deigns to assume... well, if we get the covariances right. If we don't, we can end up like LTCM in 1998... not an exact analogy, but you see the gist.
This again is a tension between psychology and behavior. If the investor gets skittish and behaves badly, then yes, the advisor could be invaluable. If the investor gets just as skittish but makes no changes, then the advisor is pointless. What is needed instead is a psychologist, or even better, a gathering of like-minded peers... which in ideal would would be something like this Forum; sadly, it's not an ideal world.
he never mentioned a risk parity portfolio nor is that something most will do , especially if not a 60/40 version.
as well as there are no options in a 401k for that
Certainly don't jump into anything you don't understand. For a starting point I'll recommend opening an account at either Fidelity or Schwab. Learn how to buy T-bills, which are very safe. This is less clumsy than scattering the money across multiple banks (to stay under the FDIC insurance limit of $250k). You can invest that money in mutual funds (or whatever you decide upon) later, but not until you've educated yourself.
The next step is to learn. You can do this yourself, or by engaging an advisor as people here have suggested. Do a web search on "Safe Withdrawal Rate" and you'll find a lot of things to read. Here is one to start out with (I'll suggest ignoring the "No Inflation" charts, since we all have to account for inflation):
People do retire at your age and even younger, but I would tread with caution on fully retiring. The cost of health insurance is a consideration. Then there's also the cost of maintaining a home. Big expenses come up from time to time... does the $25k you mentioned account for things like a new roof, new furnace, etc? Working part time or at a job you like better is IMO, more realistic financially speaking.
I am a bit late to this thread, I don't read this forum all the time. But first, I wanted to extend my condolences for the loss of your mom. And then, I just want to second what this person said easy on. The only big thing I would add is hire a CPA or unbiased tax expert too, before you do anything.
Then spend time learning as much as you can about finance. Don't rush into anything, educate yourself first. The book linked to by hikernut is excellent! Do this even before you hire a financial advisor. Why? Because a lot of so called professional financial advisors are really insurance salesmen that will try to make a profit off you. So make sure you can tell a good one from a bad one by knowing the basics yourself. Sure, get their advice (especially a fiduciary) but make sure you fully understand everything they are telling you and why. Don't blindly trust.
Edited to add, this might be a good place to start:
he never mentioned a risk parity portfolio nor is that something most will do , especially if not a 60/40 version
Not directly, but that's the theory behind the "efficiency frontier"... the hyperbola defining the locus of the so-called optimal portfolio, for any given level of risk-tolerance.
Not directly, but that's the theory behind the "efficiency frontier"... the hyperbola defining the locus of the so-called optimal portfolio, for any given level of risk-tolerance.
for the masses , there is nothing that is going to grow more money over decades then diversified equity funds that are easily available thru their 401ks and ira’s
any bonds added to that long term investment will likely hurt long term performance just as it has since 1871 .
there is nothing else involved here .
it is only when their own behavior has them introducing less capable assets in the mix and their own investor behavior hurts those returns that less capable alternatives have to be found .
then they may want to research different portfolios with different assets for something close to what they want .
but none will likely match a simple 100% in an s&p fund over that accumulation stage without getting involved in leverage and complex portfolios
shorter term money is a different story , all kinds of fixed income is fine.
my income model for short term spending is 75% assorted bond funds and 25% low volatility equity funds. the mix is 75% less volatile then the s&p
Last edited by mathjak107; 02-03-2024 at 02:44 PM..
The problem with such psychological interrogatives, is divergence between what’s best for us emotionally, and what’s best for us quantitatively. Generally, I would choose the option with the highest expectation, subject to some kind of utility function or constraints… where “expectation” is just the integral of the first moment of the probability density function. This is the “best” choice from a wealth-maximization point of view, but hardly the best choice from the viewpoint of personal comfort, felicity or peace.
That, in a nutshell is what Harry Markowitz did to earn the Nobel Prize. You certainly have the math chops to read the following:
Forget him, he has no consideration for "life events". He may be accurate in a theoretical sense, but for him it's all calculations, not permutations, making his advice pretty much useless in the real world.
I'm usually the one accused of being too theoretical.
I'm usually the one accused of being too theoretical.
you just get to deep in the wood with things that just have no bearing on what i said . .
that is why i said show us a time frame that spans a typical accumulation of decades where having bonds improved the return in a CONVENTIONAL portfolio .
the simple answer is you can’t …
it is only when you start to introduce less capable assets where they really play no role because of investor behavior that different added assets will have an effect.
which is why there are loads of different portfolios with different holdings and allocations but none have returned what a simple s&p fund did.
these portfolios are for time frames other then decades out or for investors with a lower pucker factor who are willing to give up some growth on their money, but that is a behavioral issue
Last edited by mathjak107; 02-03-2024 at 03:50 PM..
Today is February 3, 2024. When making asset allocation decisions today, the past doesn't matter. The past has already occurred and is deterministic. The reason the past doesn't matter is all publicly available information from past time periods has already been incorporated into and reflected into the price of assets today, regardless if those assets are equities, debt, fine art, precious metals, commercial real estate, antique Rolexes, 1960s muscle cars, single family homes, etc.
Unlike the deterministic past, the future is not deterministic - it is stochastic. It is probabalistic. We deal in a world of mathematical expectations. We deal in a world of asymmetric loss functions. We deal in a world of risk/return indifference curves plotted from iso-utility solutions. We deal in a world of mathematical formulas for mathematical expectation and variance, among other concepts. That's why the first prerequisite for a first PhD course in asset pricing is a solid foundation in the calculus of stochastic processes. And then it gets interesting - sometimes these things can best be imagined as relative surface tensions of an N-dimensional superfluid bubble - but that's going pretty far afield. Sometimes it is as simple as understand how the covariance of asset classes A and B affect the variance of the portfolio of A+B.
At the end of the day, it is all about the math. When you don't speak math, you can't learn. That's one reason that quant shops tend to keep theoretical physicists on the payroll - they speak math better than your run-of-the-mill economist.
Last edited by moguldreamer; 02-03-2024 at 03:28 PM..
MJ, in which way is the OP in his "accumulation phase" when what he wants to do is to essentially retire now at 47?
If he took the advice to keep working then maybe that would be true. But, it does not sound like that is his intention.
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