Are you saving enough for retirement?

[Brupal]

Today the Technology sector makes up 35 percent of the S&P 500. That’s great, until it isn’t. Consider diversifying into other regions and market cap sizes beyond that crowded trade.

Also, how do you feel about lottery tickets?

[RoadGame]

Originally Posted by Bill Bumface

I think recommending anyone pick their own stocks is dangerous. Just head over to reddit/wallstreetbets. Trading hits the same parts of our brains as gambling, and it's very challenging to manage the emotional parts of trading to save yourself from yourself.

I would actually recommend that no one get a trading account at all until they are sure they are ready for it. The best part of a managed account (robo or human) is it keeps your fingers out of the pie.

Not to say that no one should pick their own investments, I just wouldn't send someone down that path, especially someone without the time to make up for the mistakes that often come with that learning curve.

Totally agree with Bill here.

***If*** you are going to trade some or all of your own portfolio, here are two suggestions that have served me well:

1) have a well-defined strategy that you're implementing. Personally I use a specific 'tactical asset allocation' strategy called 'growth trend timing' and there's virtually no room for emotions to play a role if I'm implementing it honestly. This is not a comment about the virtues of GTT, rather that I have to do the Ulysses thing and "tie myself to the mast" of a set strategy so I don't end up sinking the ship.

2) Have a performance metric that you use to track yourself. Personally I like the Sortino Ratio. My retirement fund is divided broadly into three parts, one of which is professionally managed. I use Sortino on all three. I have "fired myself" as manager of certain accounts (e.g. TFSA) after a couple longer stretches of relative underperformance measured using Sortino, handing them over to the pros instead. (I also changed professional managers once ~ten years ago on the same basis, tbf). Having said that, the above has allowed me to continue playing a role (I'd say "active" role but the activity has more to do with monitoring than transacting) in my own retirement funds while avoiding a repeat of some expensive lessons I learned back in ~2008 when I only had a small amount of money invested but I managed it all and succumbed to nearly every mistake you can make... especially letting emotion inform transaction decisions.

[Brupal]

The original poster has basically never invested before. Suggesting he go to an online DIY platform to do some growth trend timing while watching his Sortino ratio is not particularly helpful in my opinion. In fact in this case I would not be opposed to him sitting down with a bank employee even for some rudimentary planning and advice before being steered into their highest MER balanced fund. The few hundred dollars in fees they might end up paying would be money well spent for advice on TFSAs, asset allocation, diversification, professional management, etc and having a point of contact to ask follow up questions. Maybe after a year or two they could consider setting up a DIY account but a bit of actual guidance would be ideal.

[Slava]

Originally Posted by Brupal

The original poster has basically never invested before. Suggesting he go to an online DIY platform to do some growth trend timing while watching his Sortino ratio is not particularly helpful in my opinion. In fact in this case I would not be opposed to him sitting down with a bank employee even for some rudimentary planning and advice before being steered into their highest MER balanced fund. The few hundred dollars in fees they might end up paying would be money well spent for advice on TFSAs, asset allocation, diversification, professional management, etc and having a point of contact to ask follow up questions. Maybe after a year or two they could consider setting up a DIY account but a bit of actual guidance would be ideal.

Sure, or just skip the bank and talk to an independent advisor and get unbiased advice instead of someone poorly qualified shilling proprietary mutual funds?

[Brupal]

Slava, we both know you would not want a client with $10,000 - $20,000 to invest. Bank branch until they are ready for full service advice.

[Slava]

Originally Posted by Brupal

Slava, we both know you would not want a client with $10,000 - $20,000 to invest. Bank branch until they are ready for full service advice.

I’ve started plenty of people with zero. Is it the greatest business decision? No. But I grew up super poor, so my opinion is that people who don’t have much should still get proper financial advice.

[Table 5]

Originally Posted by Slava

The S&P 500 love is a recent phenomenon. It wasn't long ago that investors didn't want the S&P. The massive push for people to look there today is primarily based on recency bias, where past returns are viewed as if those times are destined to continue. That's a dangerous mindset in investing, though, and it can have disastrous consequences.

I definitely think more (or at least some) ex-US exposure is warranted these days, as things currently are very overweight US wise. US companies make up something like 60% of global market cap, and the Mag 7 stocks alone makes up around 22%! Unless we think that will grow even more, chances are the ratio will mean-revert.

Never mind that you rarely hear about how the rest of the world has been kicking as lately. Despite another pretty good year, the US is actually having it's worse year versus the rest of the world since 2009. And as those above numbers show, historically things are still very skewed. I'm not saying people should dump the US, but I do think more people should be exposed more outside of it...even if something simple like VEU.

[Slava]

Originally Posted by Table 5

I definitely think more (or at least some) ex-US exposure is warranted these days, as things currently are very overweight US wise. US companies make up something like 60% of global market cap, and the Mag 7 stocks alone makes up around 22%! Historically that's pretty heavy, so chances are things will mean revert.

Never mind that, the rest of the world has been kicking as lately. Despite another pretty good year, the US is actually having it's worse year versus the rest of the world since 2009. And as those above numbers show, historically things are still very skewed. I'm not saying people should dump the US, but I do think more people should be exposed more outside of it...even if something simple like VEU.

Well there are all kinds of issues with the index, and maybe none more prevalent than today. A dollar invested in the S&P 500 is 40% into the ten biggest companies and over 30% into the biggest companies involved in AI. I think a decade ago, tech was about 19% of the index and today that’s doubled.

Does this mean you should be piling into puts, or shorting? No, because the timing is so impossible. You need some kind of catalyst, and who knows what that is or when it will happen. I’m a believer in the idea that this kind of risk is something we don’t see coming (otherwise people would plan for it). That might not be the case 100% of the time, but it’s kind of how these risks materialize.

Anyway, the markets could run like this and be totally fine for a long time. But people should at least be cautious and use some common sense.

[CliffFletcher]

Originally Posted by Slava

I see this all the time, and clients will make these kinds of investments both through me and on their own, because its "play money". Some of the reasons that people buy various investments is just so interesting.

When my dad retired, day trading became his hobby. He was buying and selling on a daily basis. He bought stocks in the companies my sister and I worked at - even when we warned him not to - because he thought he was being supportive.

When I took over his finances after he was put in care for dementia, he had frittered away his bank account to under $30k. Thank God my mom had a separate account where all the real savings were.

[Slava]

Originally Posted by CliffFletcher

When my dad retired, day trading became his hobby. He was buying and selling on a daily basis. He bought stocks in the companies my sister and I worked at - even when we warned him not to - because he thought he was being supportive.

When I took over his finances after he was put in care for dementia, he had frittered away his bank account to under $30k. Thank God my mom had a separate account where all the real savings were.

It's so interesting, but men seem to gravitate to this. They retire, start watching BNN, and my career (where I have years of training, education and experience) is suddenly their hobby. They know some things about business and then buy companies with no revenues or ones that are trading at 22x sales and can't believe that they get blown up. It's fascinating.

[RoadGame]

Originally Posted by Brupal

Slava, we both know you would not want a client with $10,000 - $20,000 to invest. Bank branch until they are ready for full service advice.

I started with $5,000 and an appetite to learn. I found people who were willing to share their own experiences, perspectives, learnings. If that doesn't appeal to the OP that's fine, they can walk straight into the bank if that's their preference. In which case there's not much more to discuss, is there?

[Brupal]

^^ I’m not sure why you are quoting me. You starting with $5k much like the OP, is pretty much how everyone starts. I’m just saying that a bank branch is not the worst place for someone like that to start, they are actually designed for that kind of customer. A seasoned, knowledgeable advisor has limited time available and does not seek out such clients, although every one of them make occasional exceptions for various reasons.

But I still don’t see your point regarding your attitude to learn and the banking system. Help me understand.

[RoadGame]

You wrote this:

Originally Posted by Brupal

The original poster has basically never invested before. Suggesting he go to an online DIY platform to do some growth trend timing while watching his Sortino ratio is not particularly helpful in my opinion.

In response to some thoughts I shared, prefaced by this (asterisks added subsequently for emphasis)

***If*** you are going to trade some or all of your own portfolio, here are two suggestions that have served me well:

My points were subject to the condition (if statement) the original poster is going down some form of DIY path. I did not take a position on investing through a bank, trying to retain another advisory relationship, or going DIY.

You took a position on DIY vs working through a bank initially, instead. That's fine, I'm not advocating against working with an advisor. Since you were critical of the utility of my contributions to the conversation however, I chose to elaborate by pointing out I started in a similar position to the OP (whose vulnerability about the $20k I can relate to), opted to go largely DIY, and found success by learning as much as I could and engaging with ideas, including those you were... if not dismissive of, skeptical of, I'll say. If someone takes the time to understand what a Sortino ratio is doing, for instance, it's a good lesson in needing to consider both risk and return. If that's more complexity than they want to engage with out of the gate that's fine, park it for later. I came across tons of stuff I didn't understand initially but made a list that I would circle back to and eventually came to understand better. It was indeed useful, for me anyway, to be engaging with a lot of ideas and content early on.

Edit:

Maybe this is why you're asking - I quoted your comment to Slava rather than your earlier comment because it's part of the same conversation, about what options people have when they're starting out. Just the same as if the three of us were in a room discussing this in person synchronously rather than asynchronously on a message board.

But whatever, I hope the OP comes away from all this feeling empowered and with some ideas on how to move forward. I'm not trying to convince you of anything or change your mind about anything.