Hmong Young Professionals: Investing principles
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The 10 Principles of the Bogleheads are: 1. Develop a written investment plan with realistic assumptions and budget to live below your means. 2. Invest early and often in the market to benefit from compound returns. 3. Maintain a diversified portfolio with an appropriate level of risk for your situation by not taking on too much or too little risk.
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Hmong Young Professionals: Investing principles
- 1. 10 Principles of the Bogleheads® Investment philosophy • Hmong Young Professionals • February 1, 2018 Student Level Expertise Ages: All
- 2. 1. Develop a Plan • Live below your means o Have a budget o Save o Avoid excess debt • Put it in writing o Imagine a likely scenario, make assumptions o The enemy of a good plan is the search for a perfect plan o Write down your Investment Policy Statement (IPS) so you can reference it occasionally, discuss it with advisors and family members.
- 3. 2. Invest Early and Often
- 4. Invest Early and Often
- 5. Invest Early and Often
- 7. Invest Early and Often
- 8. 3. Never Bear Too Much or Too Little Risk • Too much risk will drive you to the wrong decisions during market downturns. • Too little risk will lower returns significantly and allow inflation to erode the value of your savings. • Try out a variety of tools to find the asset allocation that suits you best.
- 9. 4. Diversify
- 10. 5. Never try to time the market
- 12. Never try to time the market • Typical investors buy high and sell low. Don’t be typical. • Don’t be one of the “Smartest Guys in the Room” like Enron.
- 13. 6. Use Index Funds • Participate in the market’s growth and dividends • Avoid dumb investor tricks o Buying on old information that is new to you o Selling when the market dips to retreat to safety • After the cow has left the barn • Being out of the market for the recovery
- 14. 7. Keep Costs Low
- 16. 8. Minimize Taxes • Take advantage of tax-advantaged accounts: 401K, 403b, IRAs, etc. o Use it or lose it
- 17. 9. Invest with Simplicity • “When there are multiple solutions to a problem, choose the simplest one.” Occam's Razor explained John Bogle • 3 Fund Lazy Portfolio: o US Stocks o Bonds o International Stocks • Target Retirement or Life Strategy Fund • KISS
- 18. 10. Stay the Course • Essential to success o When the market drops, it can be difficult to follow your plan. Create an asset allocation that suits your appetite for risk. • Tune out the chatter o “Bad news sells papers.” o Have a place to go for advice and hand holding when the market is gyrating: Bogleheads.org
- 19. Where to Get More Information • Bogleheads.org • http://www.bogleheads.org/wiki/Investment_policy_statement • http://www.bogleheads.org/wiki/Video:Bogleheads®_investme nt_philosophy • https://www.fool.com/retirement/2017/04/25/can-you-actually- become-a-millionaire-on-an-averag.aspx
- 20. Where to Get More Information • https://www.schwab.com/resource- center/insights/content/5-investing-risks-worth-worrying- about • https://www.fool.com/retirement/2017/12/04/5-reasons- youll-never-be-rich.aspx • https://novelinvestor.com/asset-class-returns/ • Copy of this presentation: slideshare.net/HYP/
Editor's Notes
- Quicken Bankitivity MoneyDance Starting out, less than one page. Middle age, 2 pages. Getting ready for retirement, 4 pages. Newly retired, 2 pages. After age 70, 1 page.
- Investing $250/month for 40 years would earn nearly $375,000 in compound returns. Assumptions: No taxes or fees are included Annualized return of 6% with dividends and interest reinvested. Source: Schwab Center for Financial Research
- Leandra saves $2,000/year from age 25, and ends up with almost $400,000. Kevin saves $5,000/year from age 40, but ends up with less than $250,000.
- Tabitha saves $5,000/year for 10 years, stopped working to become a mother and did not add to her savings. But her initial investment had time to grow and compound, so she retired with almost $2,000,000. Tonya puts off saving until her career is stable, saving $10,000/year for 10 years starting at age 40. At 50, she stops saving because her parents need her help, so she takes a lower paying job to move close to them to help out. With only 15 years to grow and compound, her savings become $665,746. Early savings is key!
- Zoom in to see the numbers more clearly: By age 35, the percent of income that must be saved is starting to hurt. Waiting until after age 45 means you won’t be able to reach this milestone.
- EXERCISE Volunteer Here is $1.00 that could be yours if you guess correctly heads or tails. So, if you guess correctly, you get 1.00, but if you guess wrongly, you get nothing. Now, here’s another option. Let’s say I’ll give you 20 cents instead. Do you want to flip or take the sure thing? Let’s say I’ll give you 30 cents instead. Do you want to flip or take the sure thing? Let’s say I’ll give you 40 cents instead. Do you want to flip, or take the sure thing? Raise to $100 This is just like the stock market. In 1929, stocks lost 90 percent. In 2008, stocks lost 60 percent. And, in the last few years, stocks have been on a tear, hitting new highs each year. Two points: Each person needs to determine their own appetite for risk. Some can’t bear losing a set return, others have a higher appetite for risk. Your risk appetite will change over time, and depending on the amount at risk. When I was saving, I was almost entirely in stocks and ignored the market when it got volatile. There were several times that stocks dropped a lot, but I knew I didn’t need the money yet, so I ignored it and just kept saving. But I was planning to retire early in 2009. I moved more of my money to bonds, so when the rest of the market dropped by 60%, my own portfolio dropped 25%.
- Investors will control the risk by moving the lever between stocks, and bonds. Stocks make more money over the long term, but also can flucuate so much that you make mistakes by selling at the bottom. And diversify your holdings so you get a mix of the best stocks and the less favored stocks to buffer your returns.
- EXERCISE Everyone stand up. Thumbs up is heads, Thumbs down is tails. I flip, and if you lost, you sit down. But most investors say they can guess better than a coin flip. Bitcoin rose over 500% the last year: Should you buy? Should you buy? The market falls 40%: Should you sell? Should you sell?
- Typical investors buy high and sell low. Don’t be typical. Don’t be one of the “Smartest Guys in the Room” like Enron. When the shoe shine boy offered him stock advice, Joesph Kennedy knew the stock market was overblown and he got out. 1928. Young Bogleheads look for a bad market, new lows. Stocks are on sale! So they can buy stocks on sale! Older Bogleheads look for a market high. They can sell stocks at top prices to buy bonds to pay for retirement!
- Tell a story: “Baby Boomers will need more healthcare, so I’m buying Healthcare stocks!” The healthcare industry knew this 60 years ago and already built this increased demand into their stock prices. 2008 and stocks fall like a rock. Investors sell out, fearing their savings will be gone soon. 2016 and the stock market has risen every year since 2009, and investor rush to buy stocks. 2017 Bitcoin rises 500% and new investors rush to get bitcoin. Fidelity: best performing accounts had been abandoned for years. WSJ: dart portfolio vs Pro Stock Pickers Finally, we use Index Funds to save money.
- Someone who lowers costs by 1%, will have an extra $220k by retirement, which extends their retirement spending by over 10 years. US Stock Index Fund fees: John Bogle says, Investing is the only purchase where spending more gets you less.
- This is why John Bogle warned that only in Finance services do investors pay more to get less. US Stocks: Actively managed costs .80% every year in fees, but you can get an index fund for .11%
- KISS
- The media is in the business of “selling papers” not giving prudent investor advice. Tune out the chatter so you can stay the course.