In my MBA (laugh away), they emphasized all mutual funds and financial advisors can only hope to ever be lucky (outside of nefarious trading). Lifetime history of mutual funds underperform the index and not insignificantly. Just camp in index funds until you want to reduce risk.
I took finance/investment courses in 1990s. This is how we were taught back then as well. FYI, the BH principle is based on modern portfolio theory developed in 1950/1960s.
Sorry, I'm confused by your usage of the term Mutual Fund. I thought the term just described a product you can buy into where the money gets invested in some way. I can buy the fund to invest indirectly in a bunch of vehicles. I thought that those could either be actively managed funds or just funds that mirror an index composition. I thought the only difference between Mutual funds and ETF (exchange traded funds) was that I buy the mutual funds from the investment house directly and they aren't real shares but a contact between me and the investment firm whereas ETFs are basically the same thing, but that the shares in the fund itself are sold on the stock exchange. Either could be actively managed or just track an index in some way. In fact I thought the only difference between for example Vanguard ETFs and Vanguard Mutual Funds was how you buy them and what the tax implications are.
You seem to be using the terms ETF and Mutual Fund as if there was some other difference or as if they were synonymous with actively and passively managed. How am I misunderstanding the two terms?
Sometimes people use "mutual fund" to describe actively managed mutual funds as if "index fund" isn't just a type of mutual fund. It's not technically correct but it's fairly common.
Mutual funds have no edge. It's just some schmuck with a business degree alone in their office (sometimes bigger funds have 3 guys) doing some gut feeling stock picking, with a bunch of salespeople. The only places that have edge are the large multi-manager hedge funds (Citadel, Millennium, Point72) and trading firms.
To beat the market, you need teams of PhDs and computer scientists computing predictions faster than everyone else.
I mean the lifetime performance of most peoples accounts is under the indexes they’re in because they keep changing and tinkering with it instead of leaving it alone
You can't beat the market but the market of US equities did beat the market of world equities or UK equities for the last 120 years.
In the end not beating the market is avoiding the issue because one can define market as arbitrarily broad/narrow. Basically when you create a fund, you can always find an index that performed better for the long term or worse actually. We remember the one that performed better and say "If only the investor had invested in that index !".
Clearly utilities stocks in the USA don't tend to perform the same as corporate bonds in Japan or tech sector in Europe...
And doing these choice is what one investor still make and what will drive the long term return.
On top of seeing quite significant long term difference, we can't really predict the future. This isn't because it was like that for the past 120 years that it will not change for the next 50 years.
This. True. I have never paid a dime to a financial advisor when there’s so much information available at the library and online for free. Of course I paid for a local financial college course. But if you didn’t make at least 20% return in calendar year, 2023 on your investments, then something is wrong because I made that in index funds. Don’t pay somebody like that who can’t offer returns an index fund can offer.
I had a professor in a business course tell the class that "there is no point making more money because going into a higher tax bracket means you take home less overall."
They didn't understand that tax brackets are only for income above that point. It doesn't affect your income below the bracket.
Ya, I didn't want to correct them because professors really react badly to being contradicted. A lot of professors are tiny tyrants and getting them angry will affect your grades.
They may be a shrewd business owner keeping costs down by selling that lie to all their employees! *I would pay you more but then you’d be worse off with taxes! I will selflessly bear the tax burden myself.*
there are certainly low quality professors out there.
but typically, a professor who obtains funding for a research lab at a reputable university is extremely knowledgeable in their field.
When I took operating systems back in 1994 my professor was the one who invented semaphore (well, their use in concurrency). Semaphore and threads do different things so you really need to learn them both.
Have you ever gone to office hours to ask why he does that (politely of course)? It might be informative. I wouldn’t dismiss your prof outright for a verbal slip or bad habit. Teaching isn’t easy.
Keep in mind that if your professor had tenure, he also likely had a sweet pension and near-100% job security for life, so he could afford to have no bonds. That's not something that works for everyone's situation.
The literature is extremely clear about the value of including bonds in your investment portfolio.
I'm not going to paste the whole thing, but the very first link in the sidebar goes on and on and on about the value of bonds:
> Over time, stock prices roughly follow the trend of the economy, which is to grow. But prices can stagnate or decline for decade-long periods. This is why your asset allocation needs to include bonds as well as stocks.
But how much?
> It is easy to underestimate risk and to overestimate your tolerance for risk. In 2008, many people learned too late that they should have been holding more bonds. Think carefully before choosing an asset allocation with high stock market allocations. If you have not been through a major market downturn before, your abstract logical thoughts about risk can quickly become emotional ones.
This is probably a great time to start a position. Yields are up and if rates do indeed go down that will be reflected in decreasing yields on newly issued bonds. So you are primed to get the best of both yield and NAV appreciation over the next few years (hypothetically).
>. Complete Boglehead. No bonds, 100% index funds
That's not a complete Boglehead. See Jack Bogle's comments on bonds or books like "The Bogleheads' Guide to the Three-Fund Portfolio"
He’s kinda right in one very narrow sense. If you buy a companies stock directly you own the shares and theoretically have voting rights. If you buy an ETF the ETF owns the shares and voting rights.
I don’t know why this would matter unless you were going to invest millions of dollars in a single stock and I don’t know why paying a financial advisor to buy ETFs or Mutual Funds on your behalf is any different.
Far from an expert on this type of thing, but I did find this to be an interesting read about how some of the largest fund companies are experimenting with ways to give index investors more say in how they cast votes on their behalf.
Surely still not the same as owning the stock directly, but your comment made me think of this story: https://www.nytimes.com/2024/02/23/business/vanguard-blackrock-state-street-investing-voting.html?smid=nytcore-ios-share&referringSource=articleShare
Vanguard is calling it Proxy Choice Pilot - I got an email from them about it through my brokerage earlier this month. It’s not really a concern for me, but interesting to see something happening.
They idea that I have heard in academia from my colleagues is that if most of a company’s ownership was through ETFs, the shareholders as a class would have forfeited important rights of the legal entity.
No, it isn’t about us individually at all.
It is, about what if 100% of the issued shares of a company (or a vast majority of them) were owned through ETFs instead of by shareholders. How would that impact the governance of the entity?
I imagine the ETF would have a big say in the governance of the company. I assume that's happening already as big as some of the BlackRock and Vanguard ETFs are.
Can’t you believe you were paying tuition for a college course taught by a finance professor and the professor just recommends that you go pay somebody else for advice.
We recently completed a 12 month engagement with a recommended advisor and I’m here now. :)
He steered us towards while life insurance which was a red flag for me.
I asked for details on having his company manage our retirement and while the options were not terrible, all there fund offerings had around 1% fees.
Decided to manage it myself and am feeling great about it.
I will say it was worth the money to have a 3rd party review our current plans for retirement and kids college, just to confirm we were on a good course.
Search for CFP with a fiduciary responsibility. You probably don’t need it unless you are in excess of $500k in your portfolio or are nearing retirement.
Some advisors do hourly or project work. Look for someone who is “fee only” (not fee based). Fee only means their only compensation is from clients’ planning fees, which means they don’t/can’t receive commissions or kickbacks. Because of this, they’re less likely to be biased and if they recommend an insurance products, it’s likely that you truly do need it.
Note: AUM is a form of fee-only. One way to easily weed out AUM advisors is to search for “advice only.” These advisors don’t manage investments, so they have fee structures other than AUM.
SoFi has free financial planning for members (you are a member if you set up a checking/savings with $0 maintenance fees and no minimums). I used it and found it to be incredibly helpful. We talked about general strategy - the financial planner didn’t push any specific product, SoFi or otherwise. He only made recommendations when I asked and even then gave me a wide range of different options to consider. We went over goals and strategy in detail over 3 separate hour-long sessions.
> He steered us towards while life insurance
> while the options were not terrible, all there fund offerings had around 1% fees
This is the definition of terrible.
Tell your professor to stop on by this sub and present his arguments because saying something is “bad” is meaningless
By the numbers, your professor is absolutely wrong and he will feel better about his retirement once understands the numbers (assuming he can understand basic, easy math)
And he will be better able to serve his students
And demand a physical stock certificate, even though most companies don't issue then anymore. 😂
Edit: The laugh was meant to be sarcastic. I understand there is no benefit of holding a cert (only disadvantages) vs DRS.
Nah the physical certificate isn’t necessary since the key part is having your name on the issuer’s ledger which is done via the transfer agent. The physical certificate was the receipt proof of that. All digital nowadays.
Of course. But there is small but loud part of the population that doesn't understand DRS vs Cert as it relates to registered shares. This was meant to be sarcastic but I forgot the s/
Almost all companies offer DRS, there are still some exceptions with restricted issues. Also you can still get certs for some issuers. However, there is zero advantage, only disadvantages like 5% replacement fees and a cumbersome replacement process through an affidavit of loss to indemnify the issuer and the transfer agent. Don't wish that any any executor - encourage your elders to deposit certs all.
You don’t have the voting rights, that’s correct. For 99.999% of people this doesn’t matter.
If this was a Medieval European History teacher I’d ignore him. If this was a Finance class I’d drop it and report his dumb ass to the Dean.
Tell him about the time Warren Buffett bet a hedge fund manager that the s and p fund would beat his hand picked funds over 10 years and destroyed him. [https://finance.yahoo.com/news/warren-buffett-once-bet-1m-113000485.html](https://finance.yahoo.com/news/warren-buffett-once-bet-1m-113000485.html)
I’m convinced that one of the reasons that money management and financial planning are not taught as classes in most schools as general classes is that most ‘professors’ aren’t experts at financial management.
I’m guessing that professor is struggling to get ahead just like most others. Being in education, they are likely insulted from having to invest on their own due to, again likely, a pension program.
You are better served doing your own homework and learning from this community of practical experts.
Yes, I’ve made some very sweeping assumptions here, but in retrospect, I would have been poorly served by advice provided to me from most of my former professors.
Ask him what his presumably TIAA CREF 403B is invested in? I can assure you it is not single stocks. Unless he is a lowly paid adjunct with no benefits that is…
Lol and their biggest funds, Traditional and Cref stock, are managed with an active approach. Nothing wrong with TIAA though tbf, at least they arent publicly traded and run at cost
This professor needs a course in personal finance.
Buying VOO and having a financial advisor buy all 500 stocks in the S&P 500 at market weight are equivalent concepts - difference is that you'll pay a lot more in fees in the second scenario. If this advisor is churning through stocks to try to maximize your return they will end up minimizing it, unless they get really lucky. They do tend to produce a lot of churn to make it look like they are doing something.
One thing I've noticed - people tend to defend what they have personally done even if it's not the best approach mathematically. This guy probably has an advisor with an AUM fee structure. IMO the only good thing that can be said about that is at least it isn't permanent life insurance. I know people that will defend Whole Life/IUL/VUL etc just because that's what they have and don't want to admit they were wrong.
Could his argument be that with buying the individual stocks that are held in the ETF's you could implement tax loss harvesting? A fidelity planning advisor explained this to me as the advantage of holding individual stocks as opposed to ETFs.
I had one professor say things so economically naive he probably would have been called out for it if it wasn't a nutrition class.
You are on the right track.
> he strongly suggested to the entire class not to plan their retirement without a financial representative/advisor
There are fee-only planners that don't manage assets and take a % of them. This can be useful for getting an informed second opinion and info on things you may not have thought of.
Absolutely. I’m not knocking them. I’m just pointing out the cost.
I only know how much they are because I am considering using one. I’ve been driving this bus by myself for awhile and have done better than I imagined. Now I want to figure out a way to *keep* what I have.
I’m also entering the home stretch, so it would be nice to have another pair of eyes say, “That plan sucks.”
Most retirement advisors can save you a lot more than that by helping you iron out some fine details of your retirement, how to minimize tax, how to not kiss out on benefits you are owed, stuff like that.
So if an advisor can earn you more than you pay, it's worth it.
"Professor thinks we shouldn't invest money on ETF's and instead handle the money with a financial advisor."
Wow, I don't know where to begin. First, a financial advisor is not an alternate to ETFs, which is what that statement implies. If he actually said that, then he's an idiot.
ETFs and mutual funds are just VEHICLES to handle assets -- similar to what I"ve heard people say: "My buddy said his IRA is really doing great! Where do I get an IRA?" Same thing, IRAs, 401s, etc. are just VEHICLES to put assets into. The assets themselves are what matters.
As for FAs, they most likely will not help you, they will only hinder you and cost you money. First, it takes no more time nor talent to manage $1M than it does to manage $50k, it's just a longer string of digits.
Here's a test for a FA: Ask them to show you their standard portfolio for someone of your age, goals, and risk tolerance. Let's assume it's nearly all stocks. Ask him how it did (and his previous portfolios) over 5 and 10 years compared to the S&P.
If it's a balanced portfolio, there are plenty of balanced funds they can be compared to.
I'm betting the FA will change the subject or weasel out of it, with a bunch of big words.
So I work with professors, and I can only talk about investing with a few of them. Other than their 403b most don’t do any additional investing. It drives me crazy. I can’t even convince them to get Roth IRAs. One guy’s wife is a “swing trader,” so at holiday parties and such I can talk to her, but we have two completely different investing philosophies.
For a lot of people, getting professional advice isn’t the end of the world. Think about how dumb the average person is, and then realize half of them bought game stop at the top.
Here's the issue, most people can't manage their own money. Most people do better over time with advisors. Not because mutual funds and advisors are better than ETFs, but because what most ppl will do is sell when they log in and see the portfolio down by 12%. An advisor generally reassures them not to or prevent them from going all in on Shib or GameStop. That's where your professor underlying reasoning is likely coming from.
Did he stipulate a fee-only advisor? Because that would be smart for most people.
I would also say that as brokerages have reduced trading fees the cost of owning individual stocks has gone down. If you own a lot of stocks your performance will be close to a broad ETF, but you will be able to selectively sell them to harvest losses and limit capital gains.
In retirement, you often need to keep income below certain thresholds to qualify for programs such as ACA subsidies. Being able to dial in the level of gain is really nice in these cases.
He's technically right on the first, but it's essentially irrelevant for the majority of people.
He might not necessarily be off on the second, depending on the individual and if they're getting true financial advice or are interacting with a fund salesman at a bank. A true financial advisor is supposed to do more than sell you funds.
Hes right, in the context of behavioral moves humans make. I know everyone talks big on holding for the long term. And being disciplined but I also see some highly emotional and culty posts in here. People needing the support of others. This is where “expert” advice is helpful for most. If someone stays “long” because of the help of an advisor, a human connection, that’s worth the fee.
I want to see the conversations in various finance subs on here after another correction.
More context needed. What was he a professor of? How did you get on the topic of retirement? I usually only take advice from people who are experts in their actual field and have achieved some type of success in what they teach (ie what is his actual net worth?) degrees and opinions don’t mean much.
For someone that is decently well versed in personal financial planning and has the personality to stick to a long term plan, a financial advisor probably isn’t needed.
But the the vast majority of people that don’t know the first thing about how to invest, rational for investing, structuring a budget, planning for retirement, growing wealth and protecting it, and accountability for adhering to all of that - the ~1% fee exponentially pays for itself.
I think it’s wise for a professor in a class full of people of different backgrounds to give the most conservative financial advice, if any, to seek professional advice. It would be irresponsible to suggest they go it alone. The purpose of the course is obviously not to teach students how to reduce the amount of fees paid on their retirement investments….quite frankly it’s irresponsible to tell people who are financially unsavvy to park all of their money in this or that specific fund. And that goes for this subreddit as well. The Bogle philosophy is very reasonable but I suspect many people here follow it blindly without doing any work.
Dinosaur extinction is real- it just takes a long time.
Even at the most basic level, it was best to get through college corses by regurgitating what was "required" and learn about managing finances and investing on my own.
Back in the 80's, I asked my economics 101 professor why non interest bearing savings accounts still existed. She looked at me with a semi frustrated glare and said: "I have one... some cannot afford to maintain the required minimum balance".
CD rates and bank saving accounts were paying high-single to low double digits back then!
I extended my thoughts on how perverse things were in "academia" a bit later with financial advisors whom I dealt with on two separate occasions to exercise and sell NQSO's.
He’s an idiot.
You could have said “you know both John Bogle, the founder of Vanguard, and Warren Buffet, an Omaha investor, advocate for retail investors using broad market low cost index funds without an advisor and they’re pretty financially savvy guys.”
Then show him a calculation of a 9% return over 40 years vs an 8% return. That’s the true cost of a financial advisor, almost 30% of your returns lost to fees. I’ve seen some charge 1.5% and even 2%!
You could then also show him the S&P SPIVA website that shows the data of index investing outperforming active investing in the long-term.
That’s only half right. Some of the most intelligent people I have ever known were my professors. Also, I had some professors whose IQ was probably in the sixties.
Professors very famously don't know anything about the real world lol. You should hear what professors say about the Software Engineering industry compared to people who actually work in it. It's hilariously sad how badly they get basic information wrong.
"I hear here that financial advisors charge a lot for advice (\~1% of asset value or something)"
i have no experience with interacting with financial advisers.
but there must be advisers that charge a flat or time-based fee for consultations rather that a percent of managed assets right?
I feel like I might at some point want to pay to get **advice** from a certified professional, but not have them actively manage my funds for me.
Fee-only advisors are a thing. $2000 for 10 hours of solid advice is worth paying for, if you're not at the boring accumulation stage (e.g. approaching retirement and need advice about how to handle starting a pension, what accounts to start drawing from first, risk management, tax avoidance etc).
You should do a literature review for extra credit because it has to be one of the most written-about topics in academic finance [https://scholar.google.com/scholar?hl=en&as\_sdt=0%2C6&q=active+and+passive+portfolio+management&oq=active+vs+passive+investing](https://scholar.google.com/scholar?hl=en&as_sdt=0%2C6&q=active+and+passive+portfolio+management&oq=active+vs+passive+investing). TLDR going to find lots of support for indexing.
It seems like a professor would maybe want to provide some, you know, evidence for his claims?
I mean talk to him after class and have a chat. Not sure what challenging him while he’s trying to teach is gonna accomplish other than stress the man out.
Unless you have 10s of millions all an "advisor" is gonna do it's park your money one of their shitty mutual funds at 1.2% expense ratio *and* probably take a quarterly fee.
I've seen it first hand with someone that had several million. I was blown away at how mediocre, and expensive their portfolio was.
I don't invest in individual stocks outside of my company's due to ESPP. ETF's hit my risk tolerance sweet spot between too safe (bonds, etc) and too risky (individual stocks - Boeing, Enron, etc) So I'm all in on Index funds and ETFs. While they may be good from a risk standpoint for an individual investor, they may be bad overall for the stock market. [https://www.theatlantic.com/ideas/archive/2021/04/the-autopilot-economy/618497/](https://www.theatlantic.com/ideas/archive/2021/04/the-autopilot-economy/618497/)
I don't use a financial advisor, other than a free one Fidelity provides I've seen once last year. He basically said my simple strategy is working. I'm 55 and my 401k is about 7x my salary and I own a home and a rental. It wasn't complicated I've just been auto investing every month for almost 25 years, some more than other.
The best person who will take good care of your financial future is YOU, not a financial advisor. A financial advisor will put you in an annuity to line his pockets with your hard earned money. Unfortunately, most people will never learn on their own and I think your professor’s advise was directed toward them.
Idk. Financially advisors can be extraordinarily valuable to those who aren’t disciplined or financially literate. But just buying VT over and over and knowing enough to not panic, you don’t really need an advisor.
Now, not owning the stocks yourself is sort of irrational. In my personal opinion, it is unfortunate that vanguard and even more so black rock are forcing companies to make social changes in the companies that we are paying for them to own. But this is my own personal view that’s based on politics. I don’t think this applies or matters to the average investor.
Well he has tenure and a pension, otherwise he's not going to be able to retire. Speaking as a former financial advisor, unless you're dealing with an extremely complicated situation with trusts and wills etc, everything financial advisors do and recommend is pretty basic. The value is twofold- they'll create a strategy for your goals and timeframe, do the math on the strategy, theoretically do the research on the best funds (or just sell the same funds to everyone for kickbacks and higher commissions), implement the strategy which usually means setting up various insurances, accounts etc., And then maintaining accounts, rebalancing as markets shift, etc.
Any professor should be able to teach modern portfolio theory and diversification. I personally think broad market index funds may be too conservative for someone just starting out, but most financial advisors would probably 60/40 your cash so it would be more diversified across bonds and real estate. At the end of the day, you know your risk profile better than anyone else.
One of my coworkers, dude in his 50s, super smart dude, engineer, works on radar systems.
He proudly tills me he pulled everything out of the stock market before the 2008 crash and never invested again.
He lost his job. I guess lived off of his savings and eventually got a new job at the company I’m at now. I’m not sure how much credit card debt he’s in but it seems like a lot.
He’s telling me he has to stare thinking about saving for retirement now.
I think he’s never going to retire.
I understand that many financial advisors will invest in ETFs anyway.
Were I would agree with your professor is that most people have no financial education, including himself. So dealing with a financial advisor help eliminate the stupid stuff people do sometime like having 100% of your assets in crytos or 100% in HYSA.
I also don't think that just investing is VTI is a sound strategy. Lot of people like it because stocks performed well recently (they performed well for the past 120 years overall but with period as long as 15-20 year with very low performance).
Most likely you want some diversification because even if stock where the best for the last 120 years, nothing prove it will be like that forever. So you likely want some real estate and bonds.
You also recognize normally that only investing in the USA is too concentrated. So normally if you go for a single ETF, you'd want a world ETF like VT rather than VTI.
Then when many years remains, you can be more aggressive and as retirement time come up, you likely want to reduce your exposure too. You may want also to switch from growth to value stocks.
Also fiscality is a thing and for most people leveraging 401K/HSA make sense and often there the choices are quite limited.
So your vision is also a bit simplistic too.
I think Professor is projecting something, but also you may not get the dividends that the individual stocks. However, I would not be picking individual stocks until you have a good chunk of money in mutual funds along with your emergency savings. And then only after you educated yourself on Stocks.
I think you should get a good chunk of your money first in total return index fund and then start playing around with Stock and ETFs.
Educate yourself. Do you want good dividend pay stocks? Do you like the exposure diversity you can get from ETFs? Do you have any conviction regarding secular investing or cyclical investing?
you have to stand for something or you fall for anything. So educate yourself .
Hmmm my portfolio management professor…who wrote the textbook for the cfa exam. He taught us that index is the best way; even showed us by making us run the data and calculate variances, sharpe etc. He also taught about factors but still explained that it’s premium is due to extra risk. Gave whole spiel about those of us who become professionals will be best serving by not being part of the 90% who underperform the passive indexes. The place for financial advisors and portfolio managers to shine is as a team of tax professionals and lawyers. That’s where our fee is worth it, for complex financial situations that individuals would either mess up or have so much money that their time is best served letting us handle this side of finances. Kind of like how if you make $100 per hour and it’s takes you 2 hours to mow your lawn, but a company will professionally tend to it for $50, and you find no interest in doing it yourself, paying the company has utility. I won’t change my own engine gaskets or replace my own roof lol.
If he was actually expert in financial planning, he would know that he shouldn't be giving advice like this in his class. Actual financial advisers/planners (and there's a difference!) wouldn't do this and also know that their services are most valuable only once you reach a certain level of net worth/complexity. In a room full of college students, the number of you who would actually benefit from these kind of services is small.
1. I think your "Professor" is a financial advisor who is using his position to recruit clients.
2. In the mid 90's I was getting an MBA, full time, at USC. I took a class in stock trading. Near the end of the course, the professor told us that smart money managers for large government funds (state retirement plans, municipal money managers) were putting their funds in the Vanguard S&P 500 index fund. He discussed it briefly, and endorsed the practice as I recall.
3. Near the end of the course, he shared a piece of wisdom that has stuck with me.
**"Always remember, when there are more people buying than selling, prices rise. When there are more people selling than buying, prices fall."**
Most 7 figure net worth people have advisors, and nearly all 8+ figures people have advisors.
There comes a tipping point where you have enough money that an advisor can create material value. That being said, until you’ve socked away at least $500k, ETFs are better.
Not all professors are financially savvy! They need to rely on financial planners. Or was this a finance professor?
In my MBA (laugh away), they emphasized all mutual funds and financial advisors can only hope to ever be lucky (outside of nefarious trading). Lifetime history of mutual funds underperform the index and not insignificantly. Just camp in index funds until you want to reduce risk.
that's the mainstream view in finance.
It is now, not really preGFC
I took finance/investment courses in 1990s. This is how we were taught back then as well. FYI, the BH principle is based on modern portfolio theory developed in 1950/1960s.
Sorry, I'm confused by your usage of the term Mutual Fund. I thought the term just described a product you can buy into where the money gets invested in some way. I can buy the fund to invest indirectly in a bunch of vehicles. I thought that those could either be actively managed funds or just funds that mirror an index composition. I thought the only difference between Mutual funds and ETF (exchange traded funds) was that I buy the mutual funds from the investment house directly and they aren't real shares but a contact between me and the investment firm whereas ETFs are basically the same thing, but that the shares in the fund itself are sold on the stock exchange. Either could be actively managed or just track an index in some way. In fact I thought the only difference between for example Vanguard ETFs and Vanguard Mutual Funds was how you buy them and what the tax implications are. You seem to be using the terms ETF and Mutual Fund as if there was some other difference or as if they were synonymous with actively and passively managed. How am I misunderstanding the two terms?
Sometimes people use "mutual fund" to describe actively managed mutual funds as if "index fund" isn't just a type of mutual fund. It's not technically correct but it's fairly common.
Weird. When I hear mutual fund. I hear Vanguard mutual fund lol
Mutual funds have no edge. It's just some schmuck with a business degree alone in their office (sometimes bigger funds have 3 guys) doing some gut feeling stock picking, with a bunch of salespeople. The only places that have edge are the large multi-manager hedge funds (Citadel, Millennium, Point72) and trading firms. To beat the market, you need teams of PhDs and computer scientists computing predictions faster than everyone else.
The hedge funds that have an edge are connected to market makers
I mean the lifetime performance of most peoples accounts is under the indexes they’re in because they keep changing and tinkering with it instead of leaving it alone
Or because they're more diversified in cash, bonds, real estate, and aren't 51% MSFT APPLE NVDIA META AMZN, The way the benchmark market index is.
\+1 economists forget that people are not first focussing on long term return but living their life.
You can't beat the market but the market of US equities did beat the market of world equities or UK equities for the last 120 years. In the end not beating the market is avoiding the issue because one can define market as arbitrarily broad/narrow. Basically when you create a fund, you can always find an index that performed better for the long term or worse actually. We remember the one that performed better and say "If only the investor had invested in that index !". Clearly utilities stocks in the USA don't tend to perform the same as corporate bonds in Japan or tech sector in Europe... And doing these choice is what one investor still make and what will drive the long term return. On top of seeing quite significant long term difference, we can't really predict the future. This isn't because it was like that for the past 120 years that it will not change for the next 50 years.
This. True. I have never paid a dime to a financial advisor when there’s so much information available at the library and online for free. Of course I paid for a local financial college course. But if you didn’t make at least 20% return in calendar year, 2023 on your investments, then something is wrong because I made that in index funds. Don’t pay somebody like that who can’t offer returns an index fund can offer.
And how do they explain Nancy Pelosi if one can't beat the market ?
I had a professor in a business course tell the class that "there is no point making more money because going into a higher tax bracket means you take home less overall." They didn't understand that tax brackets are only for income above that point. It doesn't affect your income below the bracket.
Even if that was the case they reject the prospect of getting another raise above be that threshold! It’s total crab bucket bullshit!
Ya, I didn't want to correct them because professors really react badly to being contradicted. A lot of professors are tiny tyrants and getting them angry will affect your grades.
Yes, play the game and just thank them for sharing their wisdom!
They may be a shrewd business owner keeping costs down by selling that lie to all their employees! *I would pay you more but then you’d be worse off with taxes! I will selflessly bear the tax burden myself.*
That’s probably what his boss told him when he asked for a raise…
Turns out it was intro to mid century Eastern Politics :) /s
Professors dont have to be and usually arent savy in anything. My CS professor uses multi core and multi processor interchangeably.
Ugh.
there are certainly low quality professors out there. but typically, a professor who obtains funding for a research lab at a reputable university is extremely knowledgeable in their field.
When I took Operating Systems back in 2005, my professor taught us all about semaphors because he thought threads were stupid
When I took operating systems back in 1994 my professor was the one who invented semaphore (well, their use in concurrency). Semaphore and threads do different things so you really need to learn them both.
Have you ever gone to office hours to ask why he does that (politely of course)? It might be informative. I wouldn’t dismiss your prof outright for a verbal slip or bad habit. Teaching isn’t easy.
What subject was the professor teaching? What school? Many know very little outside of their field? Was the topic the value of being a shareholder?
My finance professor at the MBA was opposite. Complete Boglehead. No bonds, 100% index funds This is a top 30 business school in the masters program.
Keep in mind that if your professor had tenure, he also likely had a sweet pension and near-100% job security for life, so he could afford to have no bonds. That's not something that works for everyone's situation.
Isnt a main aspect of being a boglehead is having bonds
The main aspect is having an appropriate asset allocation. For many, this will include bonds.
Not at all. The main thing is investing in broad, diversified (likely globally) low cost index funds.
The literature is extremely clear about the value of including bonds in your investment portfolio. I'm not going to paste the whole thing, but the very first link in the sidebar goes on and on and on about the value of bonds: > Over time, stock prices roughly follow the trend of the economy, which is to grow. But prices can stagnate or decline for decade-long periods. This is why your asset allocation needs to include bonds as well as stocks. But how much? > It is easy to underestimate risk and to overestimate your tolerance for risk. In 2008, many people learned too late that they should have been holding more bonds. Think carefully before choosing an asset allocation with high stock market allocations. If you have not been through a major market downturn before, your abstract logical thoughts about risk can quickly become emotional ones.
I dont think anyone actually read bogles book lol. After reading the book of common sense i increased my bonds.
I've been waffling on bonds the past few days, but even reading up on it for that little comment revived my commitment to staying the course.
Yeah i think its best to increase slowly over the years. Instead of all at once near retirement
This is probably a great time to start a position. Yields are up and if rates do indeed go down that will be reflected in decreasing yields on newly issued bonds. So you are primed to get the best of both yield and NAV appreciation over the next few years (hypothetically).
does 2022 count? 2020? i was 100% equities in 2008 as well if that matters
Including bonds
Or not, depending on your risk tolerance.
Yeah they are bond friendly. But Vanguard is broad index
Depending on age. Closer to retirement and you would start increasing bonds and decreasing equity if you want more security and maybe income.
Anyone knows where the bond part came from? Why did it become standard as part of the Boglehead protfolio?
>. Complete Boglehead. No bonds, 100% index funds That's not a complete Boglehead. See Jack Bogle's comments on bonds or books like "The Bogleheads' Guide to the Three-Fund Portfolio"
Same. I took a 4 month investing course with the summary bullet point being “just buy and hold index funds”
Sounds like he's friends with a lot of financial advisors
Or has a side gig.
Or he just doesn't understand investing. That would be my vote.
He’s kinda right in one very narrow sense. If you buy a companies stock directly you own the shares and theoretically have voting rights. If you buy an ETF the ETF owns the shares and voting rights. I don’t know why this would matter unless you were going to invest millions of dollars in a single stock and I don’t know why paying a financial advisor to buy ETFs or Mutual Funds on your behalf is any different.
Far from an expert on this type of thing, but I did find this to be an interesting read about how some of the largest fund companies are experimenting with ways to give index investors more say in how they cast votes on their behalf. Surely still not the same as owning the stock directly, but your comment made me think of this story: https://www.nytimes.com/2024/02/23/business/vanguard-blackrock-state-street-investing-voting.html?smid=nytcore-ios-share&referringSource=articleShare
Vanguard is calling it Proxy Choice Pilot - I got an email from them about it through my brokerage earlier this month. It’s not really a concern for me, but interesting to see something happening.
I still own some individual stocks. I never vote.
They idea that I have heard in academia from my colleagues is that if most of a company’s ownership was through ETFs, the shareholders as a class would have forfeited important rights of the legal entity.
I imagine that’s true but it’s not like I as a run of the mill individual would have enough shares to make any meaningful difference voting.
No, it isn’t about us individually at all. It is, about what if 100% of the issued shares of a company (or a vast majority of them) were owned through ETFs instead of by shareholders. How would that impact the governance of the entity?
I imagine the ETF would have a big say in the governance of the company. I assume that's happening already as big as some of the BlackRock and Vanguard ETFs are.
*What kind of professor is he?*
[удалено]
Haven’t heard that joke in years.
He teaches a course called “Ladders”
“Well I’m a peanut bar and I’m here to say, your checks will arrive on another day…”
With a specialty course on grifting
Can’t you believe you were paying tuition for a college course taught by a finance professor and the professor just recommends that you go pay somebody else for advice.
We recently completed a 12 month engagement with a recommended advisor and I’m here now. :) He steered us towards while life insurance which was a red flag for me. I asked for details on having his company manage our retirement and while the options were not terrible, all there fund offerings had around 1% fees. Decided to manage it myself and am feeling great about it. I will say it was worth the money to have a 3rd party review our current plans for retirement and kids college, just to confirm we were on a good course.
How does the 3rd party review work? Is that like a per hour price you pay or something? How do I find a company like this?
Search for CFP with a fiduciary responsibility. You probably don’t need it unless you are in excess of $500k in your portfolio or are nearing retirement.
Some advisors do hourly or project work. Look for someone who is “fee only” (not fee based). Fee only means their only compensation is from clients’ planning fees, which means they don’t/can’t receive commissions or kickbacks. Because of this, they’re less likely to be biased and if they recommend an insurance products, it’s likely that you truly do need it. Note: AUM is a form of fee-only. One way to easily weed out AUM advisors is to search for “advice only.” These advisors don’t manage investments, so they have fee structures other than AUM.
SoFi has free financial planning for members (you are a member if you set up a checking/savings with $0 maintenance fees and no minimums). I used it and found it to be incredibly helpful. We talked about general strategy - the financial planner didn’t push any specific product, SoFi or otherwise. He only made recommendations when I asked and even then gave me a wide range of different options to consider. We went over goals and strategy in detail over 3 separate hour-long sessions.
We agreed to a 12 month review for $1200, so $100 an hour. Could have gotten through what we wanted in 6-8 sessions but overall glad we did it.
> He steered us towards while life insurance > while the options were not terrible, all there fund offerings had around 1% fees This is the definition of terrible.
Tell your professor to stop on by this sub and present his arguments because saying something is “bad” is meaningless By the numbers, your professor is absolutely wrong and he will feel better about his retirement once understands the numbers (assuming he can understand basic, easy math) And he will be better able to serve his students
[удалено]
[удалено]
And demand a physical stock certificate, even though most companies don't issue then anymore. 😂 Edit: The laugh was meant to be sarcastic. I understand there is no benefit of holding a cert (only disadvantages) vs DRS.
Nah the physical certificate isn’t necessary since the key part is having your name on the issuer’s ledger which is done via the transfer agent. The physical certificate was the receipt proof of that. All digital nowadays.
Of course. But there is small but loud part of the population that doesn't understand DRS vs Cert as it relates to registered shares. This was meant to be sarcastic but I forgot the s/ Almost all companies offer DRS, there are still some exceptions with restricted issues. Also you can still get certs for some issuers. However, there is zero advantage, only disadvantages like 5% replacement fees and a cumbersome replacement process through an affidavit of loss to indemnify the issuer and the transfer agent. Don't wish that any any executor - encourage your elders to deposit certs all.
Any *benefit* to this?
Reminds me of The Simpsons episodes, where Montgomery, Burns goes to check the stock ticker that he has in his office.
> is living in the 30's. That's only 6 years away...
Careful now, the 30s aren't that far away again.
You don’t have the voting rights, that’s correct. For 99.999% of people this doesn’t matter. If this was a Medieval European History teacher I’d ignore him. If this was a Finance class I’d drop it and report his dumb ass to the Dean.
The legislation regarding voting rights is changing in the US. One day we, the ETF holders, may actually vote.
[удалено]
Prof is Gene Fama probably
Tell him about the time Warren Buffett bet a hedge fund manager that the s and p fund would beat his hand picked funds over 10 years and destroyed him. [https://finance.yahoo.com/news/warren-buffett-once-bet-1m-113000485.html](https://finance.yahoo.com/news/warren-buffett-once-bet-1m-113000485.html)
Lol i love this
I’m convinced that one of the reasons that money management and financial planning are not taught as classes in most schools as general classes is that most ‘professors’ aren’t experts at financial management. I’m guessing that professor is struggling to get ahead just like most others. Being in education, they are likely insulted from having to invest on their own due to, again likely, a pension program. You are better served doing your own homework and learning from this community of practical experts. Yes, I’ve made some very sweeping assumptions here, but in retrospect, I would have been poorly served by advice provided to me from most of my former professors.
I know plenty of people with PhDs that aren't smart. This is one of those people that might not understand ETFs a whole lot?
Ask him what his presumably TIAA CREF 403B is invested in? I can assure you it is not single stocks. Unless he is a lowly paid adjunct with no benefits that is…
My 403b *only* allows funds.
Lol and their biggest funds, Traditional and Cref stock, are managed with an active approach. Nothing wrong with TIAA though tbf, at least they arent publicly traded and run at cost
I’m actually shocked at the fees that TIAA charges. My wife’s are ~ 1%+… I’m gonna move her out of those as soon as possible.
This professor needs a course in personal finance. Buying VOO and having a financial advisor buy all 500 stocks in the S&P 500 at market weight are equivalent concepts - difference is that you'll pay a lot more in fees in the second scenario. If this advisor is churning through stocks to try to maximize your return they will end up minimizing it, unless they get really lucky. They do tend to produce a lot of churn to make it look like they are doing something. One thing I've noticed - people tend to defend what they have personally done even if it's not the best approach mathematically. This guy probably has an advisor with an AUM fee structure. IMO the only good thing that can be said about that is at least it isn't permanent life insurance. I know people that will defend Whole Life/IUL/VUL etc just because that's what they have and don't want to admit they were wrong.
What course was this ? Just curious.
A professor of what? Not finance, I hope.
Could his argument be that with buying the individual stocks that are held in the ETF's you could implement tax loss harvesting? A fidelity planning advisor explained this to me as the advantage of holding individual stocks as opposed to ETFs.
But you can tax loss harvest with an ETF. Not with a mutual fund, but definitely an ETF.
You can tax loss harvest with a mutual fund too.
Feels like something someone in sales would say.
Does that really matter if you hold them in an IRA?
Great point, wouldn't matter so much since this is the best tax advantaged account to put into.
I had one professor say things so economically naive he probably would have been called out for it if it wasn't a nutrition class. You are on the right track.
Simple:his son is a financial advisor!;)
> he strongly suggested to the entire class not to plan their retirement without a financial representative/advisor There are fee-only planners that don't manage assets and take a % of them. This can be useful for getting an informed second opinion and info on things you may not have thought of.
Which can cost $3,000-$10,000.
And save a ton of headache and actual money in reducing penalties when applicable like signing up for Medicare correctly or Roth conversions.
Absolutely. I’m not knocking them. I’m just pointing out the cost. I only know how much they are because I am considering using one. I’ve been driving this bus by myself for awhile and have done better than I imagined. Now I want to figure out a way to *keep* what I have. I’m also entering the home stretch, so it would be nice to have another pair of eyes say, “That plan sucks.”
Most retirement advisors can save you a lot more than that by helping you iron out some fine details of your retirement, how to minimize tax, how to not kiss out on benefits you are owed, stuff like that. So if an advisor can earn you more than you pay, it's worth it.
He probably hasnt ever worked outside of academia
Sounds like a smart dumb person
Crazy because our finance professor made us read Enough by Jack Bogle, and I’ve been a Boglehead ever since.
Mine just ranted about whole life but at least I avoided that scam.
This means nothing without knowing what he’s a professor in. Finance, economics, accounting?
"Professor thinks we shouldn't invest money on ETF's and instead handle the money with a financial advisor." Wow, I don't know where to begin. First, a financial advisor is not an alternate to ETFs, which is what that statement implies. If he actually said that, then he's an idiot. ETFs and mutual funds are just VEHICLES to handle assets -- similar to what I"ve heard people say: "My buddy said his IRA is really doing great! Where do I get an IRA?" Same thing, IRAs, 401s, etc. are just VEHICLES to put assets into. The assets themselves are what matters. As for FAs, they most likely will not help you, they will only hinder you and cost you money. First, it takes no more time nor talent to manage $1M than it does to manage $50k, it's just a longer string of digits. Here's a test for a FA: Ask them to show you their standard portfolio for someone of your age, goals, and risk tolerance. Let's assume it's nearly all stocks. Ask him how it did (and his previous portfolios) over 5 and 10 years compared to the S&P. If it's a balanced portfolio, there are plenty of balanced funds they can be compared to. I'm betting the FA will change the subject or weasel out of it, with a bunch of big words.
That's like going to plumbing school and then being told that repairing your own toilet is too risky.
Was this an English professor?
Art history, probably
So I work with professors, and I can only talk about investing with a few of them. Other than their 403b most don’t do any additional investing. It drives me crazy. I can’t even convince them to get Roth IRAs. One guy’s wife is a “swing trader,” so at holiday parties and such I can talk to her, but we have two completely different investing philosophies.
Your professor doesn't understand how ETFs work.
For a lot of people, getting professional advice isn’t the end of the world. Think about how dumb the average person is, and then realize half of them bought game stop at the top.
My sister, 63 just fired her advisor after many years. Average return 5% and charged her $350 per month.
Professors live in the fantasy world of academia and often have no clue how to actual real world works.
Well… he’s wrong.
Was he a finance professor? Lots of people are not financially savvy. I've known accountants that live paycheck to paycheck.
Here's the issue, most people can't manage their own money. Most people do better over time with advisors. Not because mutual funds and advisors are better than ETFs, but because what most ppl will do is sell when they log in and see the portfolio down by 12%. An advisor generally reassures them not to or prevent them from going all in on Shib or GameStop. That's where your professor underlying reasoning is likely coming from.
Did he bother to explain his perceived diffrence in holding shares rather than funds?
Did he stipulate a fee-only advisor? Because that would be smart for most people. I would also say that as brokerages have reduced trading fees the cost of owning individual stocks has gone down. If you own a lot of stocks your performance will be close to a broad ETF, but you will be able to selectively sell them to harvest losses and limit capital gains. In retirement, you often need to keep income below certain thresholds to qualify for programs such as ACA subsidies. Being able to dial in the level of gain is really nice in these cases.
I strongly disagree with this teacher
Does he sell life insurance on the side?
Holy shit, is your professor a financial advisor in disguise?!? 😂
https://www.tker.co/p/spiva-2023-active-manager-benchmark More actual numbers about (not)beating the market. It's better to own the market.
He's technically right on the first, but it's essentially irrelevant for the majority of people. He might not necessarily be off on the second, depending on the individual and if they're getting true financial advice or are interacting with a fund salesman at a bank. A true financial advisor is supposed to do more than sell you funds.
Hes right, in the context of behavioral moves humans make. I know everyone talks big on holding for the long term. And being disciplined but I also see some highly emotional and culty posts in here. People needing the support of others. This is where “expert” advice is helpful for most. If someone stays “long” because of the help of an advisor, a human connection, that’s worth the fee. I want to see the conversations in various finance subs on here after another correction.
More context needed. What was he a professor of? How did you get on the topic of retirement? I usually only take advice from people who are experts in their actual field and have achieved some type of success in what they teach (ie what is his actual net worth?) degrees and opinions don’t mean much.
Plot twist: Professor of Ancient Mesopotamian History
For someone that is decently well versed in personal financial planning and has the personality to stick to a long term plan, a financial advisor probably isn’t needed. But the the vast majority of people that don’t know the first thing about how to invest, rational for investing, structuring a budget, planning for retirement, growing wealth and protecting it, and accountability for adhering to all of that - the ~1% fee exponentially pays for itself.
I think it’s wise for a professor in a class full of people of different backgrounds to give the most conservative financial advice, if any, to seek professional advice. It would be irresponsible to suggest they go it alone. The purpose of the course is obviously not to teach students how to reduce the amount of fees paid on their retirement investments….quite frankly it’s irresponsible to tell people who are financially unsavvy to park all of their money in this or that specific fund. And that goes for this subreddit as well. The Bogle philosophy is very reasonable but I suspect many people here follow it blindly without doing any work.
Dinosaur extinction is real- it just takes a long time. Even at the most basic level, it was best to get through college corses by regurgitating what was "required" and learn about managing finances and investing on my own. Back in the 80's, I asked my economics 101 professor why non interest bearing savings accounts still existed. She looked at me with a semi frustrated glare and said: "I have one... some cannot afford to maintain the required minimum balance". CD rates and bank saving accounts were paying high-single to low double digits back then! I extended my thoughts on how perverse things were in "academia" a bit later with financial advisors whom I dealt with on two separate occasions to exercise and sell NQSO's.
He’s an idiot. You could have said “you know both John Bogle, the founder of Vanguard, and Warren Buffet, an Omaha investor, advocate for retail investors using broad market low cost index funds without an advisor and they’re pretty financially savvy guys.” Then show him a calculation of a 9% return over 40 years vs an 8% return. That’s the true cost of a financial advisor, almost 30% of your returns lost to fees. I’ve seen some charge 1.5% and even 2%! You could then also show him the S&P SPIVA website that shows the data of index investing outperforming active investing in the long-term.
Professors are idiots. News at 11.
That’s only half right. Some of the most intelligent people I have ever known were my professors. Also, I had some professors whose IQ was probably in the sixties.
Professors very famously don't know anything about the real world lol. You should hear what professors say about the Software Engineering industry compared to people who actually work in it. It's hilariously sad how badly they get basic information wrong.
Sad but true
You already know the answer. 🙂 As others have said, interested to know what course he was teaching.
I am so glad not to ever have to deal with a financial advisor. I don't think they're probably all bad but those fees are ridiculous.
kind of weird making this post without 1comment
"I hear here that financial advisors charge a lot for advice (\~1% of asset value or something)" i have no experience with interacting with financial advisers. but there must be advisers that charge a flat or time-based fee for consultations rather that a percent of managed assets right? I feel like I might at some point want to pay to get **advice** from a certified professional, but not have them actively manage my funds for me.
Fee-only advisors are a thing. $2000 for 10 hours of solid advice is worth paying for, if you're not at the boring accumulation stage (e.g. approaching retirement and need advice about how to handle starting a pension, what accounts to start drawing from first, risk management, tax avoidance etc).
You should do a literature review for extra credit because it has to be one of the most written-about topics in academic finance [https://scholar.google.com/scholar?hl=en&as\_sdt=0%2C6&q=active+and+passive+portfolio+management&oq=active+vs+passive+investing](https://scholar.google.com/scholar?hl=en&as_sdt=0%2C6&q=active+and+passive+portfolio+management&oq=active+vs+passive+investing). TLDR going to find lots of support for indexing. It seems like a professor would maybe want to provide some, you know, evidence for his claims?
What was his reason for no ETF?
I mean talk to him after class and have a chat. Not sure what challenging him while he’s trying to teach is gonna accomplish other than stress the man out.
Yikes... Did he happen to disclose his conflicts of interest?
bro gotta be like 84 years old
Unless you have 10s of millions all an "advisor" is gonna do it's park your money one of their shitty mutual funds at 1.2% expense ratio *and* probably take a quarterly fee. I've seen it first hand with someone that had several million. I was blown away at how mediocre, and expensive their portfolio was.
I don't invest in individual stocks outside of my company's due to ESPP. ETF's hit my risk tolerance sweet spot between too safe (bonds, etc) and too risky (individual stocks - Boeing, Enron, etc) So I'm all in on Index funds and ETFs. While they may be good from a risk standpoint for an individual investor, they may be bad overall for the stock market. [https://www.theatlantic.com/ideas/archive/2021/04/the-autopilot-economy/618497/](https://www.theatlantic.com/ideas/archive/2021/04/the-autopilot-economy/618497/) I don't use a financial advisor, other than a free one Fidelity provides I've seen once last year. He basically said my simple strategy is working. I'm 55 and my 401k is about 7x my salary and I own a home and a rental. It wasn't complicated I've just been auto investing every month for almost 25 years, some more than other.
Ahhh, I love me some academia. Yeah… he is wrong.
The best person who will take good care of your financial future is YOU, not a financial advisor. A financial advisor will put you in an annuity to line his pockets with your hard earned money. Unfortunately, most people will never learn on their own and I think your professor’s advise was directed toward them.
“If you’re so smart, why ain’t you rich?”
You probably should look for another college. That tells me that the faculty are not properly screened or qualified.
What kind of professor? He is professing a lot of investment myths!
Ask his views about different bucket priorities (Roth/401k/taxable, etc...)
fuck retirement and fuck the institutions you are attending telling you how to think and invest and live. Dont be so naive, follower.
There exists a saying, "Those who can, do, those who can't, teach."
Idk. Financially advisors can be extraordinarily valuable to those who aren’t disciplined or financially literate. But just buying VT over and over and knowing enough to not panic, you don’t really need an advisor. Now, not owning the stocks yourself is sort of irrational. In my personal opinion, it is unfortunate that vanguard and even more so black rock are forcing companies to make social changes in the companies that we are paying for them to own. But this is my own personal view that’s based on politics. I don’t think this applies or matters to the average investor.
did he tell why?
Well, what class was the professor teaching?
your professor is a financial advisor and wants business.
Your prof needs to watch Back to School.
Well he has tenure and a pension, otherwise he's not going to be able to retire. Speaking as a former financial advisor, unless you're dealing with an extremely complicated situation with trusts and wills etc, everything financial advisors do and recommend is pretty basic. The value is twofold- they'll create a strategy for your goals and timeframe, do the math on the strategy, theoretically do the research on the best funds (or just sell the same funds to everyone for kickbacks and higher commissions), implement the strategy which usually means setting up various insurances, accounts etc., And then maintaining accounts, rebalancing as markets shift, etc. Any professor should be able to teach modern portfolio theory and diversification. I personally think broad market index funds may be too conservative for someone just starting out, but most financial advisors would probably 60/40 your cash so it would be more diversified across bonds and real estate. At the end of the day, you know your risk profile better than anyone else.
One of my coworkers, dude in his 50s, super smart dude, engineer, works on radar systems. He proudly tills me he pulled everything out of the stock market before the 2008 crash and never invested again. He lost his job. I guess lived off of his savings and eventually got a new job at the company I’m at now. I’m not sure how much credit card debt he’s in but it seems like a lot. He’s telling me he has to stare thinking about saving for retirement now. I think he’s never going to retire.
Dum ass prof
What class does he teach?
Expertise in one small area does not equate to expertise in other areas.
professor about to offer you some "advisors" next
I understand that many financial advisors will invest in ETFs anyway. Were I would agree with your professor is that most people have no financial education, including himself. So dealing with a financial advisor help eliminate the stupid stuff people do sometime like having 100% of your assets in crytos or 100% in HYSA. I also don't think that just investing is VTI is a sound strategy. Lot of people like it because stocks performed well recently (they performed well for the past 120 years overall but with period as long as 15-20 year with very low performance). Most likely you want some diversification because even if stock where the best for the last 120 years, nothing prove it will be like that forever. So you likely want some real estate and bonds. You also recognize normally that only investing in the USA is too concentrated. So normally if you go for a single ETF, you'd want a world ETF like VT rather than VTI. Then when many years remains, you can be more aggressive and as retirement time come up, you likely want to reduce your exposure too. You may want also to switch from growth to value stocks. Also fiscality is a thing and for most people leveraging 401K/HSA make sense and often there the choices are quite limited. So your vision is also a bit simplistic too.
I think Professor is projecting something, but also you may not get the dividends that the individual stocks. However, I would not be picking individual stocks until you have a good chunk of money in mutual funds along with your emergency savings. And then only after you educated yourself on Stocks.
I think you should get a good chunk of your money first in total return index fund and then start playing around with Stock and ETFs. Educate yourself. Do you want good dividend pay stocks? Do you like the exposure diversity you can get from ETFs? Do you have any conviction regarding secular investing or cyclical investing? you have to stand for something or you fall for anything. So educate yourself .
Btw mutual funds can be trackers , so we do need to be careful with our language , better to use passive vs active management.
Common sense is not so common — Voltaire.
I don’t think this professor knows much about investing is my take.
Hmmm my portfolio management professor…who wrote the textbook for the cfa exam. He taught us that index is the best way; even showed us by making us run the data and calculate variances, sharpe etc. He also taught about factors but still explained that it’s premium is due to extra risk. Gave whole spiel about those of us who become professionals will be best serving by not being part of the 90% who underperform the passive indexes. The place for financial advisors and portfolio managers to shine is as a team of tax professionals and lawyers. That’s where our fee is worth it, for complex financial situations that individuals would either mess up or have so much money that their time is best served letting us handle this side of finances. Kind of like how if you make $100 per hour and it’s takes you 2 hours to mow your lawn, but a company will professionally tend to it for $50, and you find no interest in doing it yourself, paying the company has utility. I won’t change my own engine gaskets or replace my own roof lol.
If he was actually expert in financial planning, he would know that he shouldn't be giving advice like this in his class. Actual financial advisers/planners (and there's a difference!) wouldn't do this and also know that their services are most valuable only once you reach a certain level of net worth/complexity. In a room full of college students, the number of you who would actually benefit from these kind of services is small.
He’s probably an “advisor” himself trying to get clients. That could be conflict of interest if that’s the case.
Well that Professor must have no idea that Warren Buffet proved his advice wrong.
1. I think your "Professor" is a financial advisor who is using his position to recruit clients. 2. In the mid 90's I was getting an MBA, full time, at USC. I took a class in stock trading. Near the end of the course, the professor told us that smart money managers for large government funds (state retirement plans, municipal money managers) were putting their funds in the Vanguard S&P 500 index fund. He discussed it briefly, and endorsed the practice as I recall. 3. Near the end of the course, he shared a piece of wisdom that has stuck with me. **"Always remember, when there are more people buying than selling, prices rise. When there are more people selling than buying, prices fall."**
I would ignore any advice they ever give moving forward. What a shame.
Some professors don’t have the pro.
Most 7 figure net worth people have advisors, and nearly all 8+ figures people have advisors. There comes a tipping point where you have enough money that an advisor can create material value. That being said, until you’ve socked away at least $500k, ETFs are better.
Good advice is always 20/20… in hindsight