If you want to feel wealthy, don’t focus on how you compare to peers or worse still random Internet users posting about their net worth in a forum focused on increasing net worth. Such forums can become echo chambers of like minded outliers, which distorts perception of what is typical. I realize that the irony of posting this statement on the CC forum.
There will always be someone wealthier than you , wealthier than your parents are, wealthier colleague at work, wealthier person in your neighborhood, … And that rarely matters. Who cares if a random guy on the Internet claims to have $19M? What’s more important is whether your parents have enough for their goals, including retirement.
It’s the same idea with who you are comparing yourself to. As touched on earlier, the median household income in the US is currently ~$70k. If you grew up 20 yeas ago, the median household income would have been ~$40k at that time. I’m guessing you were not comparing yourself to families with that type of income.
Supposed there are 99 people with $1 and 1 person with $1,000,000,000. The median net worth is $1, while the mean (average) net worth is $10,000,000.99.
Bogleheads members tend to be self-selected people who have money to invest and are interested in investing. So it is no surprise that they tend to have more money than the typical person.
This is somewhat analogous to College Confidential members who tend to have choices or are looking for choices of colleges, rather than attending the only college they believe that can afford (commuting to a local community college or in-state public university). The latter make up a large portion of college students overall, but are very underrepresented on College Confidential. So College Confidential forum members overrepresent the profile with at least one of (but often both of) parents with money and high achieving students for whom highly selective colleges and competitive scholarships are at least somewhat realistic to try for.
I think the data makes a lot of sense. They both are very on target with similar numbers at the older ages - the numbers are not that different on the 60+. The classification categories are a little different.
And one can see why the selected net worth percentiles by age, Federal Reserve SCF Data excludes the top 1% due to skewing of the medians and averages.
I know my parents did better than average in a large part due to dad being a good businessman (owned his own business) who worked hard/smart, but also could have done better (on wealth) if he had moved/established in the larger city once he was going ‘full steam’. He did well with property investments - he had no education/experience with stock market (only US masonry tech education after the Army - was a Swiss immigrant), and it is a shame my brother didn’t show my dad the ropes with the stock market (brother did well with the stock market from age 14 on – he worked with newspaper route, then as a short order cook at 14, and later FT 2nd shift at a local manufacturing plant at 16/17). Brother picked up tips with the downtown restaurant and asking a lot of questions/figured it out. Health issues and death of dad at age 64. Mom lived their same lifestyle - once the business/properties were really doing well and no college expenses any more/4 college graduate kids - they spent more traveling (but less travel for mom alone, only when arranged to travel with others) but didn’t spend down wealth due to cash flow from properties, SS money, no house payments. Had live in housekeeper for last 1 1/2 years, and was able to die at home (abrupt downhill slide after accelerating downhill from dementia) at age 77. Dad had set up A/B Trust, and that played out well.
DH’s parents were truly very modest income; dad was a store clerk who was promised a 401k but never came through – when that business closed, he bounced around until he did become a FT rural route postal employee. He would have done better if he got to post office sooner, but clerk job was with a family member and he was content. Mother was a first grade teacher - so her pension and retirement benefits (and her salary) and her own home leadership had her the backbone of the family. All 4 sons went to private colleges (which actually they had better financial aid, and also received state tuition grant as well). They graduated college 1978, 1978, 1980, and 1983 – all with some student loans, but relatively small amounts by today’s standards. DH graduated before his older brother, who needed an extra semester because he first majored in international business (what was he thinking? they could not afford a semester study abroad)…Brother behind DH was smart and motivated - he and DH/me are in the best shape for retirement. Youngest brother just is retiring - his wife is 12/13 years older and they have budgeted to live the life style they want – he didn’t want to miss the summer/fall when his wife would largely be at the vacation RV/permanent location.
A couple can hit the ‘average net worth’ and live comfortably if they have the right cash flow situation and live where it is not too expensive (or if they own the right property, can manage a higher cost of living area). ‘Comfort’ means a lot of things, including one’s health.
Quality of life means different things to different people. We had Mother’s Day with DD1/grandkids – now that was a peak QOL experience – not too much driving (round trip 200 miles), DD1 and I (mostly DD1) put on a great meal, and lots of wonderful time together. Better to me than a vacation to a desirable location.
We hang with a comfortably retired crowd… but we simply yearn for the a possible splurge to first class flight tickets for a special occasion. Never even thought about the ability to rent a private jet. And that’s fine by me. I still consider myself a lucky ducky to have the means to travel to Europe, even if in economy seats.
Which makes me wonder, do people here pick stocks, let others pick stocks for them, or invest in ETF’s or index funds.
We own a few individual stocks and our track record isn’t good. Fortunately we have less than 2% of our net worth invested in the stock market, and we’re doing well with our other investments.
My son works as a stock analyst and his advice is to invest in indexes, and believes that the only people who should even attempt to pick individual stocks are those who can treat it as a full time job and have tens of millions to invest.
His point is that there’s no way a retail investor can compete with people like him, with their Bloomberg terminals, access to corporate earnings calls, and research departments combing alternative data sources.
Even the active management industry is struggling. Asset management firms have been consolidating over the past few years.
Most fund managers don’t even beat their benchmarks (which are different for different firms). Fees are declining as institutional clients know they hold the power.
Obviously, I believe markets are inefficient. Only an academic would argue otherwise. So it’s possible to profit off market inefficiencies. I certainly don’t think it’s easy but it’s definitely possible.
Alternatively, you could take more risk (use margin or derivatives) and get a higher return. But that’s not beating the benchmark, that’s just accepting more risk for more return.
I personally invest in indexes but I take more risk by using derivatives to increase the return.
I will say though, it’s insane how much information we have access to as institutional investors.
We get to meet with the management of companies - boards are always visiting our office to meet with portfolio managers and analysts.
It’s surreal how much access institutional investors have. As a retail investor, I don’t have the chair of the board willing to give me a call to explain things yet that has happened as an institutional investor.
When a company was undergoing restructuring, the management approached us as one of the largest holders of the stock to ask us our opinions.
I can tell you that’s never ever happened to me as a retail investor. I didn’t even know management did that with investors.
Yes, I don’t have direct personal experience, but what my son tells me from his perspective as an analyst at a hedge fund is consistent with your yours.
The amount of information he has at is fingertips on any stock is mind blowing, but his knowledge of stocks within the sector he covers is much deeper. Calls with management, buy side and sell side analysis, things that normal people would never get their hands on.
But the most incredible thing is the trend toward analysis of “alternative” data.
He is forbidden to trade individual stocks for his own account or to make recommendations to friends and family.
But he says that without that prohibition his advice would remain the same: buy an index fund.
I agree with your son, completely. Years ago I worked in the industry, on both sides of the street. H and I do only index funds for the equity portion of our investments. We like to sleep at night.
It’s very difficult to pick individual stocks that will be winners beyond the overall market. The overwhelming majority of people who claim to do so are just lucky, rather than having superior knowledge to the overall market. For example, back in the dot com boom, one of the top 0.5% most successful money market mangers was a chimpanzee named Raven who picked stocks by throwing darts (see https://www.guinnessworldrecords.com/world-records/most-successful-chimpanzee-on-wall-street ). I think most people who are successful at picking individual stocks have similar reasons for success to Raven – being lucky and choosing from a handful of familiar names that often have a high beta.
In my opinion, a similar statement could be made about most managers. In general managers results distribution looks suspiciously like a normal distribution of random chance, after compensating for risk level of selections. As such, managers who charge a 1% of assets type fees are rarely able to outperform standard total market type index funds over long periods, after that fee. It’s even worse if the manager chooses “special” funds that have high expense ratio.
That said, there are valid reasons why someone may want to choose active management or consultation. Rather than beating the stock indexes after fees, these reasons include things like having unique time horizons, unique goals, choosing how to distribute assets to minimize tax burden, unclear on how much to withdraw from which asset, etc. While index funds are great for many persons, if you are going to withdraw from your balance soon in retirement, 100% stock indexes with high variance is likely to be undesirable.
You asked how people here pick stocks. I am considering retiring in the near future. My usual investment strategy is quite boring. I invest ~90% of my post tax/property tax earnings every week, regardless of market conditions. If you accept that you do not have superior knowledge to beat the overall market and you are investing over a long time horizon, then it follows that the best balance between overall return and variance occurs when investing in the full market, rather than picking individual stocks. I invest mostly in low fee total US type index fund, but also a notable percentage in an low fee international type and some in lower variance categories. It’s not far from a 3-fund portfolio type strategy. I first max out tax advantaged investments (401k, IRA, backdoor, …), then invest the remainder through a brokerage.
I also keep a good a portion of assets in more liquid accounts. For immediate transactions, I use a standard brokerage sweep account. Vanguard’s sweep account is currently at the equivalent of 5.14% APY. From there I move a portion to shorter term investment that maintain a >5% APY for a period measured in months. For example, last week, I invested in a bank at equivalent of 7.92% APY for 3 months after bonus. I find being aware of this type of opportunity for higher APY and moving money around each x months interesting and rewarding. It’s a way of keeping myself busy beyond my usual boring index fund investing, without individual stocks.
I have mostly index funds. I do have some money managed for me, and I “beat” the return they get whenever I’ve checked. I’ve kept the guy mostly for non-monetary reasons, but I really do need to get rid of him.
I also keep way more in cash than I need to or should. I do sleep well a night.
We don’t do much stock picking (other than employer stock, much of it none gone for college as intended and retirement funds for better diversification).
I am tempted to dabble in some stock or index funds with “green” priorities (my mother liked Green Century) or socially responsible priorities. But so far we’ve just followed the suggestions of financial advisor.
Money is managed by others. We have index funds primarily. I don’t see any individual stocks (used to have a few companies that I liked – Apple and Berkshire Hathaway). We also have a few private investments.
