The worst investment advice I ever received

[Toro]

Also, 7.25% may way over state actual returns given that the stocks in any index change; only for the better. A company going bankrupt or declining in importance will be removed from the index thus creating a 100% upward bias in the index that your personal portfolio will not have.

I understand that logic, but it is incorrect. Passive index funds have approximated the index return over time. The index represents all constituent parts. So when the constituent parts move in and out, the index return will be composed of the new constituents.

Here is the Vanguard 500 index, which mimics an index of the 500 largest companies in America. As you can see, the mutual fund is within a few basis points of the actual return of the index. The difference between the fund return and index return is due to trading and timing costs.

Vanguard - Vanguard 500 Index Fund Admiral Shares

 

[SteadyMercury]

Also, 7.25% may way over state actual returns given that the stocks in any index change; only for the better. A company going bankrupt or declining in importance will be removed from the index thus creating a 100% upward bias in the index that your personal portfolio will not have.

I understand that logic, but it is incorrect. Passive index funds have approximated the index return over time. The index represents all constituent parts. So when the constituent parts move in and out, the index return will be composed of the new constituents.

Here is the Vanguard 500 index, which mimics an index of the 500 largest companies in America. As you can see, the mutual fund is within a few basis points of the actual return of the index. The difference between the fund return and index return is due to trading and timing costs.

Vanguard - Vanguard 500 Index Fund Admiral Shares

Yes I tried twice to indicate same concept to Special Ed, but in great irony he sat there not grasping it while saying others have IQ problems.

 

[rightwinger]

The difference between your house and your 401K is that you get to live in your house

In comparing the "investment" you need to compare your housing costs to what it would have cost you to rent a similar property. In the long run, owning a house is almost always a better investment

 

[SteadyMercury]

It can be very difficult to say when buying a home that you'll come out ahead or behind versus investing because of so many variables. People move sooner than they think they would, some people outgrow the size of their home, different housing markets have different ratios of buy vs. rent cost advantage, etc.

I believe it is a lifestyle choice more than anything.

 

[EdwardBaiamonte]

I understand that logic, but it is incorrect. Passive index funds have approximated the index return over time. The index represents all constituent parts. So when the constituent parts move in and out, the index return will be composed of the new constituents.

you missed the point which was that the return from the index funds will be inflated relative to other classes of investments; in this case real estate.

 

[Toro]

Stocks have done much much better than residential real estate.

 

[EdwardBaiamonte]

Stocks have done much much better than residential real estate.

who knows what stocks have done given the way returns are distorted ?

 

[SteadyMercury]

They aren't distorted, they are exactly what they are reported by whichever barometer one chooses to use to measure the US stock market.

The returns of S&P 500 are a good representation of the US stock market, and if you invest in an S&P 500 index funds your returns will be almost identical to that measure. If you're worried that 80% of the US equity market not covering enough go invest in VTSMX, you get the whole shebang.

 

[Roadrunner]

The worst investment advice I ever received was "Your house is your biggest investment". I heard that some 20 years ago when I was buying my first house. I still live in that house by the way.
I heard it from my family. I heard it from my friends. I heard it from my real estate agent. I heard it from my banker. I heard it from my co-workers. I still hear it from all kinds of people.

I didn't follow their advice. Instead, I bought the cheapest house that I and my family could comfortably live in. The way I saw it, home ownership was my avoidance of housing cost inflation. And here it is, about 20 years later and my mortgage payment is $500 a month. The house next door to me is smaller than mine and currently rents for $1100 a month. I'd say I did a good job of avoiding housing cost inflation. Instead of having an $850 a month mortgage 20 years ago (which the bank said I could afford), I opted for $600 a month (re-fi a few years back reduced the monthly payment without extending the length of the mortgage) and I put the extra money aside towards my retirement. Over the past 20 years I've spent a heck of lot more on my house than I have invested for retirement.

Guess which is worth more, my house or my retirement portfolio? If you said my retirement portfolio, move to the head of the class. In fact, my combined 401(k) and IRA accounts are worth about 6 times the equity in my house. By the time I finish paying for my house, including interest I will have paid about about 2.4X the original house price and the house will be worth (my estimate) about 3X the original price. And my costs don't include maintenance and repairs. I'd hardly call that an investment. Like I said, a hedge against housing inflation.

If your home is your largest investment, chances are you will retire without enough money to live the rest of your life in a comfortable lifestyle. My advice to young people is to skip the conventional advice that a home is good investment and focus more on your retirement portfolio.

March, 2009, Bank of America, $2.60 a share.

I had a $60,000 line of credit with them, God was telling me to do a balance transfer and buy the stock.

I was driving to cancer treatment, and Dave Ramsey came on and said BoA would fail.

I didn't want to deal with debt and cancer, so I passed.

Got cured, but, God never gave me another hot stock tip.

 

[EdwardBaiamonte]

They aren't distorted, they are exactly what they are reported by whichever barometer one chooses to use to measure the US stock market.

The returns of S&P 500 are a good representation of the US stock market, and if you invest in an S&P 500 index funds your returns will be almost identical to that measure. If you're worried that 80% of the US equity market not covering enough go invest in VTSMX, you get the whole shebang.

dear this is over your liberal head as always. the issue is: what is stock return based on history.

 

[Toro]

Stocks have done much much better than residential real estate.

who knows what stocks have done given the way returns are distorted ?

It's been well documented how stocks have done. Since 1928, stocks have returned about 10% per year. Home prices in the US have risen about 3% a year.

 

[EdwardBaiamonte]

Stocks have done much much better than residential real estate.

who knows what stocks have done given the way returns are distorted ?

It's been well documented how stocks have done. Since 1928, stocks have returned about 10% per year. Home prices in the US have risen about 3% a year.

of course thats BS that does not take into account all the stocks that go bankrupt.

 

[EdwardBaiamonte]

It's been well documented how stocks have done. Since 1928, stocks have returned about 10% per year. Home prices in the US have risen about 3% a year.

if you wanted to be realistic you'd say the economy will grow at 2%, plus inflation of 2% giving you a return of 4% from stocks, minus expenses. So its probably better and safer to be in a big house rather than in the corrupt hands of Wall Street which is paying billions and billions in fines for corruption and stupidity in every single business they are in.

10% is pure BS

 

[SteadyMercury]

This is hilarious. Special Ed, you are a living example of why this country needs social security. People too retarded to have basic personal finance skills will need a social safety net to save them from their own stupidity.

An index fund matches the index, you get the same return the index gets. Here is one:

Vanguard - Vanguard 500 Index Fund Investor Shares

Note the average annual returns since inception in 1976 have been about 11%. If I had put money in that fund in 1976 my returns would have averaged 11%, minus some pretty low fees. It doesn't matter who went bankrupt and got removed from their index, the returns of that fund will mirror the S&P 500.

 

[rightwinger]

Overall, a house is a good investment over the long run....hey, you gotta live somewhere
Unless you plan on living with your parents for the rest of your life, buying beats renting

But there are still too many young couples who buy more house than they can afford because it is such a good "investment". You end up being a slave to the house. Working weekends to make the payments, not taking vacations because you have such a big mortgage payment, not enjoying life but hey....I got a big house

 

[TakeAStepBack]

My advice to young people is to skip the conventional advice that a home is good investment and focus more on your retirement portfolio.


There are many in my age group and those just hitting the workforce that will never retire. I fear I may be one of those. The entire plate full of conventional wisdom regarding the "American Dream" needs to be thrown out. It's rotten garbage.

 

[Skull Pilot]

Here's the thing about counting your home value in your net worth.

You will always need a place to live. So sure maybe you sold your home for a profit but you still need to buy/rent another. If your home went up in value chances are most others did as well even if you downsize.

It's best not to count on your home value and if you come out ahead treat it as a windfall.

 

[Toro]

It's been well documented how stocks have done. Since 1928, stocks have returned about 10% per year. Home prices in the US have risen about 3% a year.

if you wanted to be realistic you'd say the economy will grow at 2%, plus inflation of 2% giving you a return of 4% from stocks, minus expenses. So its probably better and safer to be in a big house rather than in the corrupt hands of Wall Street which is paying billions and billions in fines for corruption and stupidity in every single business they are in.

10% is pure BS

I didn't know you hated capitalism, freedom and Republicans so much.

 

[Iceweasel]

My mortgage payments were as cheap as renting so I don't see it as a bad investment. Putting money in someone else's pockets is a bad investment. I own the home now so I figure I invested in a place to live.

 

[SteadyMercury]

I'm not sure renting is an investment, so it can't be a bad one. It is like food, gas, etc. just another bill to provide a service, in this case a roof over your head.

Housing is an investment because you end up with a tangible asset that can increase in value and be sold for the gains. Sure it has utility (same = roof over your head) but it is still an investment.

Which is better financially has so too many variables to easily solve.