Re: WHY DOES AARP GO OUT OF ITS WAY TO PROVIDE A D...

nctarheel · ‎03-18-2023

Just read an article on the web site, written by a supposed financial analyst, touting that people SHOULD NOT invest in individual stocks.

What a disservice to AARP members.

Investing in individual stocks, properly vetted, appropriately diversified, result in excellent returns over time.

Financial analyst are likened to vultures, feeding on the carrion of their clients, hunting the almighty dollar.

I have decided what individual stocks I choose to own making sure I was diversified by sectors, industry, products, and services and over time, those stocks have provided a 400% return.

DirkB349973 · ‎03-18-2023

@nctarheel

Most of us don't know enough to duplicate your success. My money is in index funds because I know from experience that I'm bad at picking stocks. Most of the people I've talked to don't know that much about it. I don't think becoming an expert investor is that easy.

nctarheel · ‎03-18-2023

@DirkB349973

@DirkB349973 wrote:

Most of us don't know enough to duplicate your success. My money is in index funds because I know from experience that I'm bad at picking stocks. Most of the people I've talked to don't know that much about it. I don't think becoming an expert investor is that easy.

One of my points is that there is NO SUCH THING as an expert investor. Let me give you two examples why I say that.

Bristol Myers, the drug company, at present, has 3 analysts giving it a strong buy recommendation while one analyst gives it a strong sell recommendation. Additionally, Caterpillar, the large equipment manufacturer, similarly has 7 analysts recommending buying the stock while 2 analysts say sell it if you got it. They all are looking at the same data in order to make their recommendations. If they were so called experts, looking at the same data, then they should all come to the same conclusion. My point is that several of those analysts above are DEAD WRONG since they have opposite conclusions.

I think the same thing can be said of the writer of the AARP article. AARP is doing a disservice printing that article because their members could be missing out on individual stocks that could be to their advantage to own.

One expert I do listen to, and emulate, is Warren Buffett. He, over the years, has accumulated a portfolio of excellent companies, held those stocks for decades, and has had a fortune result from holding those solid companies. He stays away from speculative stocks.

My 400% increase is not due to some special knowledge. It is due to selecting stocks of well known, solid organizations that, over a long time horizon, will increase in value.

Index funds, Mutual funds, and ETF's lets someone else, supposedly experts, make the choice for you and I already have made myself clear as to the subject of experts.

DirkB349973 · ‎03-19-2023

@nctarheel

If your investments returned 400% over a period of many years, An index fund might have similar returns.

https://www.investopedia.com/articles/personal-finance/022216/put-10000-sp-500-etf-and-wait-20-years...

Tonster521 · ‎03-20-2023

@DirkB349973 and @nctarheel Competitive measurement is a skill that some avoid for one reason or another. A mutual fund, EFT, or an individual investor may use a simple average or average return to measure results/performance over various periods of time. This approach, generally, provides a greater percentage (yield). If one is selling mutual funds or EFTs, the numbers look better. However, using the Compound Annual Growth Rate (CAGR) is, IMO, the better approach to measuring results/performance. Based on the math, it will always result in a smaller percentage (yield) than a simple average or average return. Considering other factors for risk (i.e., standard deviation, weighing the components of the portfolio, etc.) may add value especially when comparing multiple investments. In other words, are you receiving an appropriate return for the risk you accepted for your investment. Remember, in the very short run, returns may be negative. So, for folks investing for retirement, measuring over longer periods such as 20 to 30 years makes sense. Moreover, using a low cost index fund such as the S & P 500 (approximately 70% to 80% of the market) or a Total Market Index fund will outperform about 85% of investment managers over the long term. There are investment managers that have an outstanding performance over short periods of time. However, that requires over weighing a sector (i.e., tech, consumer discretionary, etc.) which increases portfolio risk; and, begs the question if the results are positive, did the returns compensate you for the amount of incurred risk. I am sure we all know that it is difficult to diversify risk with a small selection of individual stocks. This is probably why financial advisors steer folks into mutual funds and EFTs. The amount of concentration using 10 to 15 individual stocks may provide an outstanding return over short periods and will require changes every now and then. Most financial advisors do not spend the required amount of time to study and research individual stocks. IMO, folks should use the index approach for retirement accumulation. As I understand the index approach, it is weighted by market capitalization or equal weighted and managed by a computer program with very little human interaction.

DirkB349973 · ‎03-20-2023

@Tonster521

I agree with your post and especially your suggestion that an index fund is probably a better choice for most of us.

Tonster521 · ‎03-20-2023

@DirkB349973 Thanks for your positive comment. I am providing a link from slickcharts that indicate the current stocks that are included in the S & P 500 Index. https://www.slickcharts.com/sp500 Please note the applicable percentage for each company in the Index. So, if you invest with a S & P 500 Index mutual fund or Exchange Traded Fund (EFT), you are investing in at least 500 companies. I suspect that most folks are aware of the top 10 to 15 companies. However, not many folks will know all 500 companies. So, the Index approach provides diversification which eliminates concentrating in just a few companies. Moreover, it is easy to invest with a low cost S & P 500 Index Fund.

nctarheel · ‎03-19-2023

@DirkB349973 wrote:

If your investments returned 400% over a period of many years, An index fund might have similar returns.
https://www.investopedia.com/articles/personal-finance/022216/put-10000-sp-500-etf-and-wait-20-years...

@DirkB349973,

Again, I don't dispute your investment strategy as you seem to be comfortable with it.

I would not be comfortable entrusting the investment of my money to someone else for reasons I have already mentioned.

I will say that MY time line for MY returns on MY investments was only 13 years, not 21 as in your example.

JMD232194 · ‎03-18-2023

The article may not be fully balanced for sure. It is true that it is a bit more effort to properly research and monitor individual stocks initially and over time. But one should also properly research and monitor funds and fund management, too. Fund managers can change or even fund goals can shift over time, too. One should remain on top of those things for funds and make choices as to when to get out of a fund, too. There are risks and benefits to both. I would not want an entire portfolio to be based on a bunch of individual stocks, though. I find one advantage of having some individual stocks - at least in my taxable account - because they are more 'tax-efficient' - you don't incur surprise imbedded taxable capital gains each year like many mutual funds do. Also, there are no annual management fees or expense ratios to eat into the dividends earned each year. But, that said, I do not have to time or interest to try to self-manage more than 6-10 individual stocks. And since that is not enough to have a sufficiently diverse portfolio, it is good to also have funds for most people.

nctarheel · ‎03-19-2023

@JMD232194 wrote:

I do not have to time or interest to try to self-manage more than 6-10 individual stocks. And since that is not enough to have a sufficiently diverse portfolio, it is good to also have funds for most people.

@JMD232194,

I disagree with the basis of one of your points above.

In fact, many advisors also disagree with the same point.

You state that you don't have time to self manage a portfolio of more than 10 stocks AND that 10 stocks are not enough holdings to provide a sufficiently diverse portfolio.

Most advisors say that an individual should hold NO MORE than 10 stocks in a portfolio and that 10 stocks would be sufficient to create a diverse portfolio.

Again, funds are other people, supposedly experts, making choices for you and you know my opinion on experts.