In this thread you will hear the investment advice given to Google employees on the eve of its IPO.

yllus

Elite Member & Lifer
Aug 20, 2000
20,577
432
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Coles notes: Google panel of experts say buy index funds, not actively managed ones. The statistical improbability of outperforming the market is less than 100:1, and what bonus amount you would make gets eroded by the higher fees you'll be paying.

Other than that, I'd say there's a great link in the article to the Mutual Fund/ETF Expense Analyzer which lets you compare up to 3 funds for their performance upon an amount and term length you enter.

The best investment advice you'll never get

As Google?s historic August 2004 IPO approached, the company?s senior vice president, Jonathan Rosenberg, realized he was about to spawn hundreds of impetuous young multimillionaires. They would, he feared, become the prey of Wall Street brokers, financial advisers, and wealth managers, all offering their own get-even-richer investment schemes. Scores of them from firms like J.P. Morgan Chase, UBS, Morgan Stanley, and Presidio Financial Partners were already circling company headquarters in Mountain View with hopes of presenting their wares to some soon-to-be-very-wealthy new clients.

One by one, some of the most revered names in investment theory were brought in to school a class of brilliant engineers, programmers, and cybergeeks on the fine art of personal investing, something few of them had thought much about. First to arrive was Stanford University?s William (Bill) Sharpe, 1990 Nobel Laureate economist and professor emeritus of finance at the Graduate School of Business. Sharpe drew a large and enthusiastic audience, which he could have wowed with a PowerPoint presentation on his ?gradient method for asset allocation optimization? or his ?returns-based style analysis for evaluating the performance of investment funds.?

But he spared the young geniuses all that complexity and offered a simple formula instead. ?Don?t try to beat the market,? he said. Put your savings into some indexed mutual funds, which will make you just as much money (if not more) at much less cost by following the market?s natural ebb and flow, and get on with building Google.

The following week it was Burton Malkiel, formerly dean of the Yale School of Management and now a professor of economics at Princeton and author of the classic A Random Walk Down Wall Street. The book, which you?d be unlikely to find on any broker?s bookshelf, suggests that a ?blindfolded monkey? will, in the long run, have as much luck picking a winning investment portfolio as a professional money manager. Malkiel?s advice to the Google folks was in lockstep with Sharpe?s. Don?t try to beat the market, he said, and don?t believe anyone who tells you they can?not a stock broker, a friend with a hot stock tip, or a financial magazine article touting the latest mutual fund.

Seasoned investment professionals have been hearing this anti-industry advice, and the praises of indexing, for years. But to a class of 20-something quants who?d grown up listening to stories of tech stocks going through the roof and were eager to test their own ability to outpace the averages, the discouraging message came as a surprise. Still, they listened and pondered as they waited for the following week?s lesson from John Bogle.

?Saint Jack? is the living scourge of Wall Street. Though a self-described archcapitalist and lifelong Republican, on the subject of brokers and financial advisers he sounds more like a seasoned Marxist. ?The modern American financial system,? Bogle says in his book The Battle for the Soul of Capitalism, ?is undermining our highest social ideals, damaging investors? trust in the markets, and robbing them of trillions.? But most of his animus in Mountain View was reserved for mutual funds, his own field of business, which he described as an industry organized around ?salesmanship rather than stewardship,? which ?places the interests of managers ahead of the interests of shareholders,? and is ?the consummate example of capitalism gone awry.?

Bogle?s closing advice was as simple and direct as that of his predecessors: those brokers and financial advisers hovering at the door are there for one reason and one reason only?to take your money through exorbitant fees and transaction costs, many of which will be hidden from your view. They are, as New York attorney general Eliot Spitzer described them, nothing more than ?a giant fleecing machine.? Ignore them all and invest in an index fund. And it doesn?t have to be the Vanguard 500 Index, the indexed mutual fund that Bogle himself built into the largest in the world. Any passively managed index fund will do, because they?re all basically the same.

...

Financial management firm Aperio Group parner Paul Solli took one look at my unkempt collection of mut­ual funds and said, ?You?re being robbed here.? He pointed to funds I had purchased from or through Putnam, Merrill Lynch, Dreyfus, and?yes?Charles Schwab (which referred me to Aperio) and asked, ?Do you know that you?re paying these guys to do essentially nothing?? He carefully explained the many ingenious ways fund managers, brokers, and advisers had found to chip away at investors? returns.

Turns out that I, like more than 90 million other suckers who have put close to $9 trillion into mutual funds, was paying annual fees, commissions, and transaction costs well in excess of 2 percent a year on most of my mutual funds. ?Do you know what that adds up to?? Solli asked. ?At the end of every 36 years, you will only have made half of what you could have, through no fault of your own. And these are fees you needn?t pay, and won?t, if you switch to index funds.?

All indexing calls for, Solli explains, is the selection of a particular stock market index?the Dow Jones Industrial Average, Standard and Poor?s (S&P) 500, the Russell 1000, or the broader Wilshire 5000?and the purchase of all its stocks and bonds in the exact proportions in which they exist in that index. In an actively managed fund, managers pick stocks they think will outperform a particular index. But the premise of indexing is that stock prices are generally an accurate reflection of a company?s worth at any given time, so there?s no point in trying to beat that price. The worth of a client?s investment goes up or down with the ebb and flow of the market, but the idea is that the market naturally tends to increase over time.

Moreover, even if an index fund performed only as well as the expensively managed Merrill Lynch Large Cap mutual fund that was in my portfolio, I would earn more because of the lower fees. Stewarding this kind of investment does not require a staff of securities analysts working under a fund manager who makes $20 million a year. In fact, a desktop computer can do it while they sleep.

There are always exceptions, of course, Solli says, ?a few funds that at any given moment outperform the indexes.? But over the years, he explains, their performances invariably decline, and their highly paid cover-boy managers slide into early obscurity, to be replaced by a new hotshot managing a different fund.

If a mutual-fund investor is able to stay abreast of such changes, move their money around from fund to fund, and stay ahead of the averages (factoring in higher commissions and management fees) it will be by sheer luck, says Solli, who then offers me pretty much the same advice John Bogle and his colleagues offered Google. Sell the hyped but fee-laden funds in my portfolio and replace them with boring, low-cost funds like those offered by Bogle?s Vanguard.

What are the fees?

Every fee that a mutual fund charges should be outlined somewhere in its prospectus. But many people don?t even think to look for it, and you can?t necessarily trust your broker to bring it up. ?The first step is simply getting people to pay attention to fees,? says Patrick Geddes, chief investment officer of Aperio Group, in Sausalito. Hang tough in asking your broker for the full breakdown of what those fees will cost you each year.

If you need help, the National Association of Securities Dealers has a useful tool for computing fees, called the Mutual Fund Expense Analyzer, on its website. You put in the name of the fund, the amount invested, the rate of return, and the length of time you?ve had the fund, and it tells you exactly how much you?ve been charged.

You can also compare past fees for different funds before you invest. For example, if you had put $100,000 into Putnam?s Small Cap Growth Fund Class B Shares and held it for the past five years, you would find that Putnam would have charged you $13,809 in fees during that time. Vanguard?s Total Stock Market Index Fund, on the other hand, would have charged only $1,165 for the exact same investment.
 
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chorb

Golden Member
Oct 7, 2005
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In this reply you will hear me talk about how long the title of your post is
 

Reckoner

Lifer
Jun 11, 2004
10,851
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Since I'm nowhere near as rich as google employees (the only non-millionaire on AT, go figure!), this doesn't really help me. I'll stick to my Roth IRA and that's it.
 

Slew Foot

Lifer
Sep 22, 2005
12,381
95
86
Warren Buffet says the same thing, the time the regular person spends looking over investments, would yield a better return if they just concentrated on making themselves better at their job.

 

DaveSimmons

Elite Member
Aug 12, 2001
40,730
670
126
Nice to know they agree with me :) -- stock index mutual funds and ETFs, FTW! I :heart: Vanguard.

Since I'm nowhere near as rich as google employees (the only non-millionaire on AT, go figure!), this doesn't really help me. I'll stick to my Roth IRA and that's it.
Your IRa can (and IMHO should) be chock full o' index funds.
 

Special K

Diamond Member
Jun 18, 2000
7,098
0
76
Originally posted by: PaulNEPats
Since I'm nowhere near as rich as google employees (the only non-millionaire on AT, go figure!), this doesn't really help me. I'll stick to my Roth IRA and that's it.
So what are you holding in your Roth IRA?

I started reading diehards a few months back and like the approach of indexing/passive investing.

I don't know how much praise this article will get on AT, as it seems most here like to pick individual stocks, day trade, and try to beat the market.
 

Aikouka

Lifer
Nov 27, 2001
30,380
909
126
Originally posted by: DaveSimmons
Nice to know they agree with me :) -- stock index mutual funds and ETFs, FTW! I :heart: Vanguard.
What's a good resource to read (non-forums please or if on forums, condensed into a single thread) when it comes to learning more about these sort of things? I'm really not abreast on half the terms and throwing money blindly at a "retirement thing" isn't smart to do.
 

TruePaige

Diamond Member
Oct 22, 2006
9,878
2
0
Originally posted by: Special K
Originally posted by: PaulNEPats
Since I'm nowhere near as rich as google employees (the only non-millionaire on AT, go figure!), this doesn't really help me. I'll stick to my Roth IRA and that's it.
So what are you holding in your Roth IRA?

I started reading diehards a few months back and like the approach of indexing/passive investing.

I don't know how much praise this article will get on AT, as it seems most here like to pick individual stocks, day trade, and try to beat the market.
In day trading it's very possible to make a lot of cash, just following little spikes and drops.

I didn't mention it till I saw your post, cause this is really comparing index funds to managed funds, we all know day trading has a huge potential for profit.
 

Orsorum

Lifer
Dec 26, 2001
27,626
3
81
NAESX, VOT, and VIIIX for the win! Also have some money in an international growth fund and a domestic growth fund (RERFX and RGAFX, respectively).
 

clamum

Lifer
Feb 13, 2003
26,255
401
126
Can I get these indexed mutual funds through my 401k? I am eligible for it on March 1st (one year of steady employment). I was thinking of generally having a balanced set with a little lean on the aggressive side.
 

yllus

Elite Member & Lifer
Aug 20, 2000
20,577
432
126
Originally posted by: Aikouka
Originally posted by: DaveSimmons
Nice to know they agree with me :) -- stock index mutual funds and ETFs, FTW! I :heart: Vanguard.
What's a good resource to read (non-forums please or if on forums, condensed into a single thread) when it comes to learning more about these sort of things? I'm really not abreast on half the terms and throwing money blindly at a "retirement thing" isn't smart to do.
Motley Fool - Personal Finance area
 

Special K

Diamond Member
Jun 18, 2000
7,098
0
76
Originally posted by: TruePaige
Originally posted by: Special K
Originally posted by: PaulNEPats
Since I'm nowhere near as rich as google employees (the only non-millionaire on AT, go figure!), this doesn't really help me. I'll stick to my Roth IRA and that's it.
So what are you holding in your Roth IRA?

I started reading diehards a few months back and like the approach of indexing/passive investing.

I don't know how much praise this article will get on AT, as it seems most here like to pick individual stocks, day trade, and try to beat the market.
In day trading it's very possible to make a lot of cash, just following little spikes and drops.

I didn't mention it till I saw your post, cause this is really comparing index funds to managed funds, we all know day trading has a huge potential for profit.
So do people day trade as a side hobby to try and make extra money, or are they really treating it as their retirement savings? I guess I was operating under the assumption that people on here day trade and pick individual stocks instead of investing in mutual funds.
 

Reckoner

Lifer
Jun 11, 2004
10,851
1
81
Originally posted by: Special K
Originally posted by: PaulNEPats
Since I'm nowhere near as rich as google employees (the only non-millionaire on AT, go figure!), this doesn't really help me. I'll stick to my Roth IRA and that's it.
So what are you holding in your Roth IRA?

I started reading diehards a few months back and like the approach of indexing/passive investing.

I don't know how much praise this article will get on AT, as it seems most here like to pick individual stocks, day trade, and try to beat the market.
To be honest, I have no idea. I heard good things about Vanguard, so I invest $4,000 a year in their 2045 Target Retirement Fund.
 

DaveSimmons

Elite Member
Aug 12, 2001
40,730
670
126
Originally posted by: clamum
Can I get these indexed mutual funds through my 401k? I am eligible for it on March 1st (one year of steady employment). I was thinking of generally having a balanced set with a little lean on the aggressive side.
The funds in a 401k are different from employer to employer. Once you join, you'll be given a list of what funds are in your plan. You can post a thread here once that happens and ask for advice on what to pick.

 

DaveSimmons

Elite Member
Aug 12, 2001
40,730
670
126
Originally posted by: PaulNEPats
To be honest, I have no idea. I heard good things about Vanguard, so I invest $4,000 a year in their 2045 Target Retirement Fund.
That's a very good choice. It's made up of other Vanguard stock and bond index funds, both US and foreign. You're well "diversified" with just this fund.
 

TruePaige

Diamond Member
Oct 22, 2006
9,878
2
0
Originally posted by: Special K
Originally posted by: TruePaige
Originally posted by: Special K
Originally posted by: PaulNEPats
Since I'm nowhere near as rich as google employees (the only non-millionaire on AT, go figure!), this doesn't really help me. I'll stick to my Roth IRA and that's it.
So what are you holding in your Roth IRA?

I started reading diehards a few months back and like the approach of indexing/passive investing.

I don't know how much praise this article will get on AT, as it seems most here like to pick individual stocks, day trade, and try to beat the market.
In day trading it's very possible to make a lot of cash, just following little spikes and drops.

I didn't mention it till I saw your post, cause this is really comparing index funds to managed funds, we all know day trading has a huge potential for profit.
So do people day trade as a side hobby to try and make extra money, or are they really treating it as their retirement savings? I guess I was operating under the assumption that people on here day trade and pick individual stocks instead of investing in mutual funds.
I do it on the side to make some cash, have some short-term holdings instead right now though.
 

LS21

Banned
Nov 27, 2007
3,746
1
0
#1 rule of investing: dont listen to anybody

paradoxically yes this would mean ignore my rule above
 

sniperruff

Lifer
Apr 17, 2002
11,644
2
0
it is difficult to beat the market, but look at BRK and you see it's possible.

and a lot of private asset management portfolios have return-based commission, meaning you pay a fee proportion to your return, not on how many trades a manager makes.

if you have enough money to diversify and observe the trend in general, buying individual stocks will net you even more... nothing to pay except stock transaction fees.
 

imported_Lothar

Diamond Member
Aug 10, 2006
4,559
1
0
As a general rule, I ignore all domestic funds with an expense ratio of >1.00%.
As a general rule, I ignore all foreign funds with an expense ratio of >1.25%.

Everyone should follow that rule.
Expense ratios are generally the *MOST* reliable predictors of performance.



EDIT:
BTW...not all mutual funds are bad, you just have to pick the right manager and not succumb to rubbish.

I don't invest in any "domestic" stock index. I know many disciplined managers who outperform the market on a risk adjusted basis and will take them over an S&P 500//large cap//mid cap//small cap//Russell index fund any day of the week.

Give me Warren Buffett, Bruce Berkowitz, Tom Gayner and Ian Cumming or give me death.
You're much better off investing in BRK.B and FAIRX than in an S&P 500 index (or any of the other indexes I mentioned).

I have Vanguard European Stock Index because I don't know any European fund manager or much about some European businesses. Better to just track the index.
Same with PRLAX (I have more exposure here since I actually know the managers, met them twice and their office is just a 15mins drive from my house.)
 

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