What They do With Your Money - retirement

Aug 10, 18 15:30

Post #1 of 15 (1460 views)

This is a tangential post to the thread about what is rich

The book is fascinating

It details in a fair amount of depth the problems with the financial system and some potential solutions

Some of the problems I'd genuinely never considered;

- purchasing a block of shares. Hedging them and then basically voting against the interest of other shareholders. There is no transparency requiring one to declare any related or conflicting interests
- that between your dollar earned and dollar reaching an investment in your 401k there may be up to 18 intermediaries
- the difference between a well managed plan and a poorly manged one is up to 2.4% per annum. A gap of 30% over 20 years
- that investors or members of defined contribution schemes are rarely well represented

Some of its broader themes are well recognised; short term ism, the lack of link between exec compensation and performance, performance over a three year horizon is more important for execs but horizon is longer for investors, that stock compensation is detrimental to execs performance and was only brought in to avoid taxes over a million

Certainly, it is not an anti capitalism book. It is far more about how the current system benefits those that work within the system rather than the end consumer.

I think its worth a read. It might provide a different perspective on where your retirement is heading and who is making money off of it

Re: What They do With Your Money - retirement [Andrewmc] [ In reply to ]

Aug 10, 18 16:00

Post #2 of 15 (1434 views)

Is this the book? https://www.amazon.com/...ancial/dp/0300194412

Looks interesting

Re: What They do With Your Money - retirement [Andrewmc] [ In reply to ]

Aug 10, 18 17:14

Post #3 of 15 (1381 views)

Andrewmc wrote:

This is a tangential post to the thread about what is rich

The book is fascinating

It details in a fair amount of depth the problems with the financial system and some potential solutions

Some of the problems I'd genuinely never considered;

- purchasing a block of shares. Hedging them and then basically voting against the interest of other shareholders. There is no transparency requiring one to declare any related or conflicting interests
- that between your dollar earned and dollar reaching an investment in your 401k there may be up to 18 intermediaries
- the difference between a well managed plan and a poorly manged one is up to 2.4% per annum. A gap of 30% over 20 years
- that investors or members of defined contribution schemes are rarely well represented

Some of its broader themes are well recognised; short term ism, the lack of link between exec compensation and performance, performance over a three year horizon is more important for execs but horizon is longer for investors, that stock compensation is detrimental to execs performance and was only brought in to avoid taxes over a million

Certainly, it is not an anti capitalism book. It is far more about how the current system benefits those that work within the system rather than the end consumer.

I think its worth a read. It might provide a different perspective on where your retirement is heading and who is making money off of it

Thanks for the info. I've always said the finacial industry is a weird one. What other occupation can you win, or lose, a large amount of money for your clients and still collect a percentage of the investment? Also, with only a few exceptions (Buffet for example), most people would do as well (or better) by letting their money sit ina variety of index funds rather than allow a financial advosor to direct their retirement accounts.

Re: What They do With Your Money - retirement [eye3md] [ In reply to ]

Aug 10, 18 17:47

Post #4 of 15 (1355 views)

eye3md wrote:

Also, with only a few exceptions (Buffet for example), most people would do as well (or better) by letting their money sit ina variety of index funds rather than allow a financial advosor to direct their retirement accounts.

This for the win. After fees, only 1 in 4 or so active managers can beat the S&P 500. Get some large cap, small cap, growth, value, international, etc (there's some obvious overlap there) for yourself and you're probably beating most of the managers when fees are factored in. Find a fee-for-service adviser if you want some help. The targeted funds that use your age and retirement goal to automatically tailor your investments are cheap and effective too (Vanguard, Fidelity, etc have these). With Vanguard, Fidelity, Blackrock and maybe another or two in a race to zero fees on index fund fees it makes those a really effective way to invest right now.

Re: What They do With Your Money - retirement [travelgirl] [ In reply to ]

Aug 10, 18 23:49

Post #5 of 15 (1210 views)

It is

Re: What They do With Your Money - retirement [Spiridon Louis] [ In reply to ]

Aug 10, 18 23:53

Post #6 of 15 (1209 views)

In the UK it is not possible to purchase any index other than vanvuard direct meaning even if one of the others tracked a market more effectively by a tiny margin that gain is wiped out through the necessary platform fees

Two of the problems; intermediaries being divorced from the outcome AND rent seeking by players in the market have a huge impact on personal returns

Re: What They do With Your Money - retirement [Andrewmc] [ In reply to ]

Aug 11, 18 6:46

Post #7 of 15 (1106 views)

Andrewmc wrote:

Two of the problems; intermediaries being divorced from the outcome

I'll read the book eventually. But posing the question: what intermediaries are we talking about?

Because I can think of intermediaries divorced from the outcome who, I'd argue, provide a tremendous service.

It used to be that only rich people, generally, could buy stocks. Because it look significant human labor - a broker. A lot of paperwork. It was for men in leather chairs with book-case lined offices.

Now intermediaries (with the help of technology) have commoditized ownership of stocks to the void where it can be cost-effective for minimum-wage workers.

E.g. Vanguard.

Now if there's some intermediary that provides no value-added and is just sneaking their party cup under the keg tap, that's another thing.

Re: What They do With Your Money - retirement [Andrewmc] [ In reply to ]

Aug 11, 18 6:55

Post #8 of 15 (1102 views)

You can definitely index your way to a nice portfolio with Vanguard alone. I have.

Re: What They do With Your Money - retirement [Spiridon Louis] [ In reply to ]

Aug 11, 18 9:41

Post #9 of 15 (1034 views)

I agree

To trail

I am specifically thinking of; financial advisors, platforms, pension funds

From paycheck there is an internal person / persons administrating who contracts it out to a management firm who undertake internal and external research all funded from your contributions. They contract with brokers to execute trades on the funds behalf. Brokers send trade to exchange.

Every step has a cost overt or hidden

Vanguard as an example removes much of this

Blackrock and fidelity in the UK do not

It's interesting stuff

Re: What They do With Your Money - retirement [Spiridon Louis] [ In reply to ]

blueraider_mike

Aug 11, 18 13:28

Post #10 of 15 (985 views)

I am a disciple of the 3 fund portfolio...I can't use the same 3 funds in all our investment vehicles, but close.

Re: What They do With Your Money - retirement [Andrewmc] [ In reply to ]

Aug 12, 18 7:28

Post #11 of 15 (885 views)

Andrewmc wrote:

It's interesting stuff

It is.

And I'm a boglehead/Vanguard/Random Walk guy, and have been for decades.

The thing that worries me, in a general sense, about that approach is it divorces an increasingly large # of people from any role in evaluating "market fundamentals."

If huge #'s of people just "buy the stock market" we are voluntarily relinquishing stock pricing decisions to a small # of professionals. We just reinforce those decisions (when a stock price goes up, we naturally buy more of it for a given dollar of investment into a the entire market). Maybe that's a good thing. They're professionals, and we're not.

But it's hard to whine about what "they" are doing with our money when "our" predominant investment strategy is almost totally passive. The only strategies being minimization of fees maybe re-balancing asset allocation between broad categories like stocks, bonds, real-estate, etc. (But even target-daters have relinquished re-balancing).

Re: What They do With Your Money - retirement [Andrewmc] [ In reply to ]

Aug 12, 18 7:41

Post #12 of 15 (879 views)

All anyone needs to know about the market are these things:

"Experts" consistently preach to the masses that investing is a long-term endeavor, but somehow the market moves 100's of points daily.
According to financial news, the US gets 95% of its oil from Mexico, 95% from Russia, 95% from Saudi Arabia, and produces 95% of it's own oil.

Re: What They do With Your Money - retirement [DJRed] [ In reply to ]

Aug 12, 18 8:01

Post #13 of 15 (870 views)

DJRed wrote:

"Experts" consistently preach to the masses that investing is a long-term endeavor, but somehow the market moves 100's of points daily.

Those things are not inconsistent with each other.

Re: What They do With Your Money - retirement [trail] [ In reply to ]

Aug 12, 18 8:33

Post #14 of 15 (855 views)

trail wrote:

DJRed wrote:

"Experts" consistently preach to the masses that investing is a long-term endeavor, but somehow the market moves 100's of points daily.

Those things are not inconsistent with each other.

I understand that, but it points to what is really going on in the market and the forces that could work for, or against, you.

Re: What They do With Your Money - retirement [trail] [ In reply to ]

Aug 12, 18 8:53

Post #15 of 15 (849 views)

100% they are not arguing against divorcing individuals from the fundamentals of the market

In fact they make the specific point that the people appointed for some funds are responsible for something like voting on up to 90 board members per day........

There is already a disconnect. Compounded by the use of derivatives or other hedges. Traders could have significant positions in a firm that are hedged with commensurate voting rights but their play as an owner of share be directly in opposition to other owners

I think the book is worth reading

Vanguard, Blackrock etc are not passive owners But the point the book makes is that the time they can commit or anyone can commit to corporate governance is finite

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