Author Topic: Help needed from an investing newbie  (Read 13339 times)

HopetoFIRE

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Help needed from an investing newbie
« on: April 07, 2014, 08:39:10 PM »
I am sorry if I am using the wrong investment terms here.  I am just starting to learn more about investing in taxable accounts.  Our advisor (I know, I know) has recommended putting the money ($100k) in options.  I asked her about index funds and she said she is not a fan of them.  I have a meeting with her to discuss the pros and cons on Thursday and would like to know how you guys feel about them.  Thanks in advance!

Joel

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Re: Help needed from an investing newbie
« Reply #1 on: April 07, 2014, 08:40:53 PM »
I'm not a fan of advisors. Use index funds and save yourself the fees that the advisor is charging.

brewer12345

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Re: Help needed from an investing newbie
« Reply #2 on: April 07, 2014, 08:50:06 PM »
Fire your advisor and either learn to DIY or find one that isn't smoking crack. 

HopetoFIRE

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Re: Help needed from an investing newbie
« Reply #3 on: April 07, 2014, 08:53:00 PM »
I know that most are not fans of advisors here.  We started with her because we figure getting a start in investing is better than leaving money in the bank.  The trouble we have is asset allocation.  We never take the time to reallocate our investments.  Also I am just starting to learn about investing in a taxable account.  If it's just 401ks and IRAs, we probably don't need advisors, but trying to figure out what is most tax efficient is somewhat confusing for me.  I am hoping to learn more and be less reliant on our advisor. 

Will

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Re: Help needed from an investing newbie
« Reply #4 on: April 07, 2014, 08:55:32 PM »
Start here:  http://jlcollinsnh.com/

Read the Stock Series.

Fuck, read everything there (well, maybe skip the Chataqua stuff).  LOL

innerscorecard

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Re: Help needed from an investing newbie
« Reply #5 on: April 07, 2014, 09:07:36 PM »
You need to educate yourself more before dealing with the snakes out there. Have you seen Pinocchio? Advisors are the guys trying to sell you to Stromboli.

wtjbatman

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Re: Help needed from an investing newbie
« Reply #6 on: April 07, 2014, 09:31:47 PM »
Do some reading. The above links, as well as...

Bogleheads - Getting Started

Bogleheads Wiki

Three Fund Portfolio

Index investing is super super easy, even the Asset Allocation/Rebalancing part. But you will need to do some homework first, especially before you talk to any financial advisor (who you DO NOT need, no matter what she says).

Will

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Re: Help needed from an investing newbie
« Reply #7 on: April 07, 2014, 09:50:49 PM »
  I asked her about index funds and she said she is not a fan of them. 

Gee, I wonder why?

Abe

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Re: Help needed from an investing newbie
« Reply #8 on: April 07, 2014, 10:12:23 PM »
She is not a fan of index funds because you get to keep most of your money instead of her.  Unless you have "play money" you are willing to burn, don't get involved with options, etc. If you don't clearly understand what's going on, someone will pull wool over your eyes. That's kind of their job.

HopetoFIRE

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Re: Help needed from an investing newbie
« Reply #9 on: April 07, 2014, 10:59:31 PM »
She is not a fan of index funds because you get to keep most of your money instead of her.  Unless you have "play money" you are willing to burn, don't get involved with options, etc. If you don't clearly understand what's going on, someone will pull wool over your eyes. That's kind of their job.

Thanks.  This is the type of explanation I want.  I just want to know why she is telling me that she is not a fan of index funds, although every early retirement/Bogleheads forums/blogs are recommending them.  I am not familiar with options so I was wondering if anyone would recommend them. 

I am trying to learn about index investing right now.  Still a little confused as far as asset allocation.  Technically, since we are going to be using our taxable account first during retirement, wouldn't we want to be more conservative with those investments?  I understand the tax reasons, but what if it's a major down year for stocks?  Do you usually mix muni bonds in the taxable account as well.  Also, since we won't be touching our retirement accounts for years, wouldn't it be too conservative to just use it as a vehicle to hold bonds?  Like I said, I still have a lot to learn. 

ETA: thanks for all the suggestions.  Will check those sites out
« Last Edit: April 07, 2014, 11:02:44 PM by HopetoFIRE »

Abe

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Re: Help needed from an investing newbie
« Reply #10 on: April 07, 2014, 11:24:05 PM »
I'd advise each account to have some mix of stocks and bonds to decrease the volatility (variation in value over time), because bonds give lower returns in exchange for more stability.  The links provided go into this in detail. Basically, you need find a combination of stock and bond funds that balance the risk of losing money due to wild gyrations in a market with the risk of losing money from inflation. There's no specific answer since everyone has different situations that affect how they'll tolerate losses. That being said, being 100% in a regular bank account is a sure-fire way to lose money to inflation in the timeframes we are talking about. Regarding the taxable vs. non-tax accounts, I'd ask you "since we'll be using our taxable accounts in a time where we could more easily get jobs if needed, shouldn't we be less conservative; conversely we will be using retirement accounts when getting work will be harder, shouldn't they be more conservative?" Avoid the trap of thinking only in terms of returns and financial risk; life itself as risks and opportunities that change as we age. Good luck with your endeavors!
 

arebelspy

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Re: Help needed from an investing newbie
« Reply #11 on: April 07, 2014, 11:29:05 PM »
Our advisor (I know, I know) has recommended putting the money ($100k) in options.

lol what?  Options generally aren't an "investment."

They're best used as a hedge.

Many investors also use them for gambling; it's the step between day trading and FOREX.  ;)

I second Brewer's suggestion to fire them and find one that isn't smoking crack (or DIY if possible, but definitely find a new one if you have to have one).

She is a salesman.  Don't get snowballed into anything.
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Re: Help needed from an investing newbie
« Reply #12 on: April 08, 2014, 07:32:37 AM »
I'll just lob this out there since it's somewhat relevant to the discussion:

here's an article by Morgan Housel about why paying financial advisors as a % is a really dumb idea: http://www.fool.com/investing/general/2014/04/07/adv.aspx

and a second one by the same author: http://www.fool.com/investing/general/2014/03/17/fees.aspx?source=iaasitlnk0000003

It's bad enough paying someone 1% of a $100k portfolio ($1,000/yr).  It's downright ludicrious to pay them $6k or $10k/yr to do the exact same thing when your portfolio grows to retirement-size.

finally - a thread about my personal experience with a financial advisor.  Short version: I lost.  http://www.mrmoneymustache.com/forum/investor-alley/just-checked-my-ml-returns-facepunch-me-please!/

HopetoFIRE

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Re: Help needed from an investing newbie
« Reply #13 on: April 08, 2014, 09:57:15 PM »
I would like to thank everyone for replying.  I just want to make sure I am using the right terms.  The type of investment she is talking about sounds like options.  She explained it as I would buy a certain number of shares at a certain value.  The term would be 13 months.  If it goes up higher than the purchase price, I would get a certain percentage as agreed upon on the term (i.e if the market goes up 1%, I can get 7%).

I definitely know that it is not wise to pay someone to invest my money.  It has come down to time for us.  We can make money, but we have not had the time to deal with how to invest it.  DH has no interest it seems.  He's actually made two mistakes in two separate years when he invested in his IRA that had cost us money due to withdrawals.  I am trying to learn.  I am still a bit confused on how to deal with asset allocation, like I said before.  I am hoping to have enough knowledge and confidence to do it on my own soon. 


I'd advise each account to have some mix of stocks and bonds to decrease the volatility (variation in value over time), because bonds give lower returns in exchange for more stability.  The links provided go into this in detail. Basically, you need find a combination of stock and bond funds that balance the risk of losing money due to wild gyrations in a market with the risk of losing money from inflation. There's no specific answer since everyone has different situations that affect how they'll tolerate losses. That being said, being 100% in a regular bank account is a sure-fire way to lose money to inflation in the timeframes we are talking about. Regarding the taxable vs. non-tax accounts, I'd ask you "since we'll be using our taxable accounts in a time where we could more easily get jobs if needed, shouldn't we be less conservative; conversely we will be using retirement accounts when getting work will be harder, shouldn't they be more conservative?" Avoid the trap of thinking only in terms of returns and financial risk; life itself as risks and opportunities that change as we age. Good luck with your endeavors!

Thanks for your response.  I know that we can always go back to the workforce if needed early on, but I was hoping if I quit it would be for good :)  I do understand what you mean though.

arebelspy

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Re: Help needed from an investing newbie
« Reply #14 on: April 08, 2014, 10:38:48 PM »
The best investment is the least time intensive and most passive: index funds.

Hell, get a target retirement date fund and you don't even have to worry about rebalancing - just contribute regularly and let it do its thing.

The "I don't have time" is an excuse borne out of fear.

[Edit: Fixed autocorrect typo.]
« Last Edit: April 09, 2014, 07:21:18 AM by arebelspy »
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athomeintheworld

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Re: Help needed from an investing newbie
« Reply #15 on: April 08, 2014, 11:25:04 PM »
You can do this.  Seriously.  You do NOT need to pay someone to invest (any, but particularly 100k) your money.  She doesn't like index funds because she's not well compensated for selling them.  She makes bank for options.  Get it?? 

Invest in index funds, preferably Vanguard, or in a Target fund if you feel the need to diversify.

If you remain totally uncomfortable with investing on your own, at least consider something like Betterment rather than paying this slimy advisor.

Keep us updated about what you decide to do - I'm curious.

wtjbatman

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Re: Help needed from an investing newbie
« Reply #16 on: April 08, 2014, 11:31:47 PM »
The best investment is the least time intensive and most passive: index funds.

He'll get a target retirement date fund and you don't even have to worry about rebalancing - just contribute regularly and let it do its thing.

The "I don't have time" is an excuse borne out of fear.

arebelspy is spot on. I understand one of the issues is that you don't know WHY index funds are better than the vast majority of financial advisers, so you probably look at figuring out your asset allocation (AA) and investing in index funds as something that is just as scary/risky/dangerous as putting your money in some random persons hands. But the beauty of index investing is how simple it is. With an almost completely hands-off approach, you are guaranteeing yourself a return on your investment that is on par with the rest of the market. And in the end, that exactly what you should expect. And if you really don't want to fool around with figuring out an investment plan and AA that fits your situation, do what arebelspy says and pick a Target Date Fund and put money into that. It will automatically re-balance for you so you don't even have to worry about that.

ZsMom pointed out another great option with Betterment. Slightly higher fees than a regular Vanguard account, but just as easy, maybe even easier. They will guide your hand throughout the whole process. And you still come out paying far less fees than you would with your adviser.

arebelspy

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Re: Help needed from an investing newbie
« Reply #17 on: April 09, 2014, 07:23:37 AM »
The type of investment she is talking about sounds like options.  She explained it as I would buy a certain number of shares at a certain value.  The term would be 13 months.  If it goes up higher than the purchase price, I would get a certain percentage as agreed upon on the term (i.e if the market goes up 1%, I can get 7%).

Oh, and I have to repeat:
Quote
Options generally aren't an "investment."

They're best used as a hedge.

Many investors also use them for gambling; it's the step between day trading and FOREX.  ;)

They're an advanced strategy for very certain niche uses.  You shouldn't be investing in them, you should be contributing to stable, long term, diversified investments.  Not puts and calls hoping the market will go up or down a certain amount.  That's a good way to get wiped out with nothing.
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innerscorecard

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Re: Help needed from an investing newbie
« Reply #18 on: April 09, 2014, 07:44:12 AM »
Based on what we've seen here so far, I really think this (and many others cases) show why Betterment can make sense. We can talk all we want about expense ratios and the like, but simplicity and lack of friction are really underrated.

It's like how Linux users can't understand why Ubuntu hasn't taken over the world, or how many Android users literally are shocked that anyone would prefer Apple products when Android products provide more specs for the dollar.

Things need to be simple and grokkable. Saying - "read X books and then adjust your asset allocation accordingly" is really not that understandable, except for those who like optimizing things generally.

Vanguard would be best. Betterment would be my vote for not-that-much-worse second choice.

SpeedReader

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Re: Help needed from an investing newbie
« Reply #19 on: April 09, 2014, 08:33:27 AM »
Run, do not walk, away from this adviser.  Put the money in a target date fund to get started, as suggested by pretty much everyone here.  Then you have time to read up and educate yourself while your little green employees are working and being rebalanced for you.   


Frankies Girl

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Re: Help needed from an investing newbie
« Reply #20 on: April 09, 2014, 09:42:03 AM »
I just wanted to jump in here and tell you that I was in your situation just over a year ago... and I was nervous and confused about what all this stuff means and worried that I'd make a mistake and screw up if I fired my adviser and dropped the "professional management" part on my funds.

I read a whole lot here.

I read all of Jim Collins' stock series and most of his blog.

I now understand pretty well what I'm doing, and even if I did make a mistake in the early days (and frankly, everyone does), it's easy to correct because I know what I'm doing now. I'm not afraid of taking control of my investments in the least, and I understand how the stock market basically works. Education is power. Knowledge removes the fear. Read, ask questions (here and at the bogleheads forums and other like-minded sites) and take control of your money! It can be done. :)

And just to be clear - I still don't do any day trading or margin trading or any of that other stuff. I know it's not for me, so I found what spoke to me - passive investing in index funds (most exactly like Jim Collins has set up) - and it works for me. You don't have to do anything fancy with your investments if you don't want to.

Investment advisers that you pay are generally bad. Unless it's someone that is a fee only (not associated in any way with a specific investment group) then they'll steer you towards investments that will be more profitable for THEM and their company. And you don't need an adviser anyway EVER if you go with passive investing using index funds.

Do read all of the links everyone else has provided - it is mind-boggling to me that most of this stuff is easy to understand and implement on your own and yet so many people don't know this!


HopetoFIRE

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Re: Help needed from an investing newbie
« Reply #21 on: April 09, 2014, 05:34:00 PM »
Thanks for the replies.  I went through Jim Collins stuff last night.  I guess it is pretty simple.  Do most people just hold and take out what they need or do they ever sell when high and reinvest when price is lower?  I guess that's like timing the market, which is not what he recommends.  I am going to skim throu the Bogleheads book since I do have it.  I am hoping to figure this out soon. 

To those who mentioned Target date funds... I understand using those for the qualified accounts.  For taxable accounts, wouldn't the bonds be bad for tax purposes?  We are at the 35% bracket right now, so not sure if those are a good idea.  To me, it's not so much how much her fees are, but I want to be in control of our money and understand how to make it work for us.  Of course, having that extra amount per year from her fees to invest is good too.

To Frankie's girl, how long was it before letting your advisor go?  If you don't mind me asking, what types of mistakes did you make? 

Frankies Girl

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Re: Help needed from an investing newbie
« Reply #22 on: April 10, 2014, 05:31:25 AM »

To Frankie's girl, how long was it before letting your advisor go?  If you don't mind me asking, what types of mistakes did you make?

I inherited a lump sum and some accounts in February (I think) of 2013, including some that had professional management (i.e. paying them something like .60% to make all the decisions for me based off my risk profile form I filled out for them). They explained how the managing part worked, and while it made sense to me at the time, I also started wondering about how complicated it could be and started reading personal finance blogs, looking for something that made sense to me. At that point, I discovered MMM and JL Collins, did some reading and asked a bunch of questions and then did even more reading.

It took me a few months to really process how all of this worked (I'm an artist - the math/money side of my brain is soft and mushy with lack of use) but once I started making sense of it, I made the decision to fire the adviser and take my accounts out of professional management. I reallocated my own existing accounts as well. I had a 401k and a separate investment account pretty much running without knowing what the hell I was invested in. I asked a coworker friend what I should pick - and thank god they weren't horrible choices, but there were several in there that I wouldn't have picked at all now.

As far as mistakes - well, I counted on a friend to advise me on my own fund choices (and there were a few poor ones in there), I bought into a front loaded MM fund (something like 4% up front - ouch!) that also performed poorly considering the rest of the market, and the biggest one of all, I didn't take a real interest in my financials until I was in my late 30s. I was an excellent saver and have been very frugal since I was a kid, but I neglected my education when it came to investing because I thought that was stuff you did if you had millions of dollars to "play" with... and I robbed myself of an even earlier retirement by my lack of foresight. ;)



Oh and about the other stuff you were asking - most folks that do passive investing using index funds (like Collins) do buy and hold. They'll sell off funds when they need to get money for expenses, but it's not on any "market is up, so sell and then get back in if it drops" type of timing to the best of my knowledge - dancing in and out trying to time the market ups and downs is foolish and sounds exhausting to me personally, and I'll bet more people lose money than gain attempting that. If you have cash you were planning on putting in, and the market happens to be down, great! But holding off on investing because it's up and might drop tomorrow is market timing. Put in what you can when you can, and then leave it there to grow. Take out when you need it.

Joel

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Re: Help needed from an investing newbie
« Reply #23 on: April 10, 2014, 08:37:35 AM »
Three index funds:
1. Total stock market
2. Total international stock market
3. Total bond market

I keep bonds at half my age, and then split stocks 70% US / 30% international.

Keep the bonds in your tax deferred accounts (to avoid ordinary income). Keep the international stocks in your taxable account (to take advantage of the foreign tax credit). Let stocks fill out the rest of your profile.

Simple. You may decide you want more/less bonds and international exposure though.

rocksinmyhead

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Re: Help needed from an investing newbie
« Reply #24 on: April 10, 2014, 10:25:04 AM »
Three index funds:
1. Total stock market
2. Total international stock market
3. Total bond market

I keep bonds at half my age, and then split stocks 70% US / 30% international.

Keep the bonds in your tax deferred accounts (to avoid ordinary income). Keep the international stocks in your taxable account (to take advantage of the foreign tax credit). Let stocks fill out the rest of your profile.

Simple. You may decide you want more/less bonds and international exposure though.

I like this. simple, simple, simple plus it basically sounds like what I am already doing (minus the taxable accounts, my mustache isn't there yet!) which is reassuring :)

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Re: Help needed from an investing newbie
« Reply #25 on: April 10, 2014, 10:44:26 AM »
Our advisor (I know, I know) has recommended putting the money ($100k) in options.  I asked her about index funds and she said she is not a fan of them.


Not much information is given but this sounds like awful advice. If you're a new investor with not much experience then index funds are the way to go.  I'd suggest Vanguard's S&P 500 index fund (VFINX) or the SPDR S&P 500 Index ETF (ticker is SPY, even lower expenses than VFINX).

I've used options before but they are icing on the cake to an already advanced and knowledgeable investment process.  For example, I've sold puts on stocks at strike prices I would be happy to buy at, but this required research of the company, coming up with a value estimate for that company, establishing a price I'd be happy to buy that company at (usually at a 30% or more discount to my valuation estimate), and waiting  to see if the price on the puts gave me an acceptable rate of return for the money I was putting at risk.  If the stock never made it to the strike price I pocketed the premium. If the stock dropped below the strike price, I was required to buy the stock at a price I was happy to buy at.

When you sell options you're essentially selling insurance, taking on risk for a premium.  That's fine if you're well aware of the risk you're taking on.  When you buy options you're leveraging a small amount of money to the upside (in a call's case) or downside (in a put's case) of a stock.  You pay for that leverage by buying an asset that has a limited lifespan: options, unlike stocks or real estate, have expiration dates.  If the option isn't in the money at the time of expiration, it expires worthless.

If I were advising  a new investor on a great way to lose most of their money in a short span of time I'd suggest options. Starting a new investor off with options is like starting off a person who's interesting in flying lessons with the Blue Angels.


Mike


kyleaaa

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Re: Help needed from an investing newbie
« Reply #26 on: April 10, 2014, 10:50:29 AM »
In options? Please, please don't follow that advice. Holy crap, that's a dumb suggestion.

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Re: Help needed from an investing newbie
« Reply #27 on: April 10, 2014, 12:47:00 PM »
Like stock options? or like she was going to present you with some different options in which to invest your funds?

HopetoFIRE

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Re: Help needed from an investing newbie
« Reply #28 on: April 23, 2014, 11:36:52 PM »
Thanks so much for everyone's replies.  Just wanted to update on my situation.  I met with my advisor and yes, she was talking about options.  No, I did not fire her.  I told her that I was not comfortable investing in them at this time.  She was very responsive to that and we ended up agreeing on some ETFs and tax exempt bond funds.  I am not confident enough to entirely manage my investments on my own yet, but I have been trying to read up a lot.  I also opened up a Vanguard account and purchased $10k worth of VTSAX today.  I was thinking that I would like to have AA of 80/20 (I am 35 and hubby is 36).  So, I was thinking about balancing VTSAX with bonds, possibly VWITX.  Question about investing in bonds.  How much of short term vs intermediate vs long term does one need?  Also, my VTSAX account is set at having dividends automatically invested.  Is that the best way or is there a better way to do it?  Also, I know that most here invest in index funds but for early retirement purposes, should your AA change based on how close you are to retirement vs age?  For example, having your AA be at 80/20 when you are 5 years away, is that a wise choice? 

Just want to let everyone know how much I appreciate the advice.  Being on here has provided more knowledge than other sites I have read (or at least where I should find that knowledge).  I am hoping to post our budget soon so that I can get a few face punches to get me more motivated.  I have to say that since looking at this site more seriously in the past 2-3 months, I have found an extra $3-4k per month just by monitoring our budget closer.  We still have a lot of work to do to reduce our expenses, partially due to unavoidable costs and a DH who likes nice things.

Will

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Re: Help needed from an investing newbie
« Reply #29 on: April 24, 2014, 12:01:08 AM »
re: bonds

Have you considered buying I bonds?  Its a great way of buying bonds (instead of bond funds).  You should look into it.  http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

re: reinvestment of dividends in a taxable account

I think it is better to have the dividends paid directly to you.  But opinions vary widely on this.  Maybe check out the wiki and see what you think.
http://www.bogleheads.org/wiki/Reinvesting_dividends_in_a_taxable_account

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Re: Help needed from an investing newbie
« Reply #30 on: April 24, 2014, 06:03:47 AM »
Thanks so much for everyone's replies.  Just wanted to update on my situation.  I met with my advisor and yes, she was talking about options.  No, I did not fire her.  I told her that I was not comfortable investing in them at this time.  She was very responsive to that and we ended up agreeing on some ETFs and tax exempt bond funds.  I am not confident enough to entirely manage my investments on my own yet, but I have been trying to read up a lot.
Keep reading and learning.  I am big believer that anyone who can graduate from HS can manage their own money, especially with low-cost index funds widely available.  The financial industry exists in part to convince people that investing is too complicated to do alone.  I disagree.  Keep reading, keep learning, and keep taking control.

Quote
I also opened up a Vanguard account and purchased $10k worth of VTSAX today.  I was thinking that I would like to have AA of 80/20 (I am 35 and hubby is 36).  So, I was thinking about balancing VTSAX with bonds, possibly VWITX.  Question about investing in bonds.  How much of short term vs intermediate vs long term does one need?  Also, my VTSAX account is set at having dividends automatically invested.  Is that the best way or is there a better way to do it?  Also, I know that most here invest in index funds but for early retirement purposes, should your AA change based on how close you are to retirement vs age?  For example, having your AA be at 80/20 when you are 5 years away, is that a wise choice? 
Congrats on the vanguard account.  You are most of the way towards managing all of your own money.  Yes, having your dividends automatically reinvested is the best and simplest way of doing it.  While ~1.8% might seem insignificant, over the last 40 years about 70% of the returns came from the dividends. 
Regarding asset allocation (AA) - that's a highly personal choice.  One common piece of advice is to "invest your age in bonds (as a percentage)" or the more modern "invest half your age in bonds".  I even started a thread on it to get people's personal opinions/preferences. check it out here:
http://forum.mrmoneymustache.com/investor-alley/bonds-as-a-of-your-age/
 I should say I don't do this and I am about your age.  I have always been >90% stocks, and I plan on staying above 80% even when retired.  Historically, a portfolio of all stocks beats one that's a blend over 20 year time frames almost all of the time. 
That said, having some bonds will "smooth the ride" a bit.  If you can't stomach a 20-30% drop in your portfolio from time to time, mixing in some bonds might be a good thing for your piece of mind. 

others will certainly chime in about the short/med/long term, but my opinion is that bond yields are atrocious right now, near their historical low.  So I don't like holding long-term bonds until the yields go up.  But since I have a "keep it as simple as possible approach" I don't buy individual bonds at all -instead I've started holding a vanguard bond fund.  They do all the work for you ("the blending") and you just put money in when you want and can take it out if you need it.  There are certainly more sophisticated ways (like I bonds)

GoldenStache

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Re: Help needed from an investing newbie
« Reply #31 on: April 24, 2014, 07:00:29 PM »
I play in options a bit (play).  The reason she was advising them is that they are by far the highest fees for an advisor.  Not worth it. 

Many of my friends and relatives are advisors and after enough drinks they even start to admit they are not worth it.

I have become a huge fan of Vanguard's Dividend growth: VDIGX

I would put 50% VTSAX and 50% VDIGX..  Reinvest the dividends, and be prepared to pay a bit in taxes at the end of the year for the dividends, if you are finding a couple extra G's you will be able to afford it.. Kind of like an additional forced savings. 

I am close to your age range and I am 20 years from even thinking about bonds..  I have a job, make a decent salary, if the market goes down with my investments I will buy in a lot more.  If you are thinking about firing within the next 3 years, maybe bonds, but if not don't put your horses on a leash.  LET THEM RUN.

WillPen

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Re: Help needed from an investing newbie
« Reply #32 on: April 24, 2014, 07:29:36 PM »
There are plenty of great responses here, but I will go ahead and throw my hat into the ring.

The first chapter of The Intelligent Investor by Benjamin Graham spends some time differentiating the difference between a speculator and an investor.

To my pea-brain, that has about 1.5 to 2 years of actual experience and self learning stored, whenever you get into subjects like stock picking, options, commodities -- whatever it might be -- you're speculating that those investment vehicles will bring you a return. Hopefully one that will beat the market. To what degree, anyone could guess.

No one knows how to beat the market consistently, how to pick winning stocks consistently, or what the price of cattle will be in the future. If this happens to be your area of expertise then I say go for it. But at the end of the day, I'm sure you'll find more losers than winners. Maybe some do, but as your average guy I do not have those kinds of resources.

However, whenever you deal with known asset classes like the the stock market as a whole, or the return on a bond, or the even the return from a rental house, you deal with something that's more concrete. Instead of spending countless dollars and hours trying to beat the market, why not be happy with matching it? You're investing. If you read the jcollins stock series above or read any number of books (The Bogleheads Guide to Investing) you can find lots of evidence pointing to two things

1) You really can't beat the stock market consistently
2) The market will always go up

So in my head, I don't worry about picking a fund that will beat the market, or whether I should buy Amazon or Exxon to carry me to retirement. All I know is that I am 34, and I want to have a 75% equities, 25% Fixed Income allocation. Our retirement accounts consist of 3 Vanguard funds -- The total stock market index, the International Stock Market Index, and the Total US Bond Market Index. All I have to worry about is contributing to those three funds and making sure my assets are allocated. As I get older I will move more  money from equities into fixed income. That's it.

I know this can be an overly simplified view of things but that's kind of the framework for my investment philosophy. There are others that are successful doing other things, but this is what works for me right now. If you're not an expert like me, hopefully this can help.

Will

clifp

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Re: Help needed from an investing newbie
« Reply #33 on: April 25, 2014, 06:15:53 AM »
Thanks so much for everyone's replies.  Just wanted to update on my situation.  I met with my advisor and yes, she was talking about options.  No, I did not fire her.  I told her that I was not comfortable investing in them at this time.  She was very responsive to that and we ended up agreeing on some ETFs and tax exempt bond funds.  I am not confident enough to entirely manage my investments on my own yet, but I have been trying to read up a lot.  I also opened up a Vanguard account and purchased $10k worth of VTSAX today.  I was thinking that I would like to have AA of 80/20 (I am 35 and hubby is 36).  So, I was thinking about balancing VTSAX with bonds, possibly VWITX.  Question about investing in bonds.  How much of short term vs intermediate vs long term does one need?  Also, my VTSAX account is set at having dividends automatically invested.  Is that the best way or is there a better way to do it?  Also, I know that most here invest in index funds but for early retirement purposes, should your AA change based on how close you are to retirement vs age?  For example, having your AA be at 80/20 when you are 5 years away, is that a wise choice? 

Just want to let everyone know how much I appreciate the advice.  Being on here has provided more knowledge than other sites I have read (or at least where I should find that knowledge).  I am hoping to post our budget soon so that I can get a few face punches to get me more motivated.  I have to say that since looking at this site more seriously in the past 2-3 months, I have found an extra $3-4k per month just by monitoring our budget closer.  We still have a lot of work to do to reduce our expenses, partially due to unavoidable costs and a DH who likes nice things.

I just started reading the thread today.  What a difference 3 weeks and a bit of knowledge makes. You sound much more knowledgeable and are asking much more sophisticated questions.
That is great you opened up a Vanguard account, keep adding to it.

It is ok you are keeping your adviser for now, but plan on getting rid of her in the not too distant future.  Generally adviser charge a percentage of your total assets typically 1%so if she is managing $50,000 today that is $500.  $500 isn't the end of the world but in 15 or 20 years when have $500,000 in assets that 1% is $5,000 which is serious money  When you retire that 1% fee maybe the equivalent of 25% of your retirement income.

The most important thing to be doing is keep saving and keep learning.

You know the phrase "A little knowledge is a dangerous thing."  For the most part that doesn't apply to investing (especially for woman who tend not to be nearly as cocky as men about thinking they understand something and don't.) The first 10 hours you spend learning about investing is going to save you at least $1,000/hour.   Vanguard, Index funds, asset allocation, and avoiding advisers, you've already learned some of the most important concepts, congrats.

The next 100 hours you spend won't quite as valuable but still hundreds of dollars an hour.  It doesn't have to be all once.  A couple hours a month, reading this forum, some of the suggested books, over the next couple of years and you'll know more than 90%+ of the population.

workathomedad

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Re: Help needed from an investing newbie
« Reply #34 on: April 25, 2014, 06:56:40 AM »
WTF!

Did your *advisor* seriously tell you to put 100k in *options*? Isn't there some sort of clause when getting your advisor license (?! is there one) that would make that kind of advice illegal? That's insane. If you have even the vaguest notion of what options are, you would not let this woman near your money even with a 100-foot pole, the firestation on standby, and one hand tied behind her back.

Don't put money in ETFs with an advisor! That's the point of ETFs! To avoid stupid ridiculous "advisor" middle-man fees. Fire her now and call Vanguard today. Once you do, you'll start beating yourself up for not doing it sooner:

https://personal.vanguard.com/us/whatweoffer/advice/financialplanningservices
« Last Edit: April 25, 2014, 07:05:40 AM by workathomedad »

aj_yooper

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Re: Help needed from an investing newbie
« Reply #35 on: April 25, 2014, 07:20:36 AM »
IMO, you are working with an adviser who does not have your interests at heart!  This is serious.  If she starts out saying to put $100,000 into options for a new investor, she is dangerous.  Close the account.  Report her to her manager and the firm.   

athomeintheworld

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Re: Help needed from an investing newbie
« Reply #36 on: April 25, 2014, 12:15:45 PM »
Agree with the above points - this advisor in particular sounds particularly dangerous. 

Again - please look into Betterment if you are uncomfortable going alone with Vanguard.  They will charge a small fraction of what your "advisor" is doing and likely give you better results in addition.

clifp

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Re: Help needed from an investing newbie
« Reply #37 on: April 25, 2014, 04:28:07 PM »
Hold on folks lets not throw the adviser in jail yet.  There are many uses of options, many of them don't involve speculating on the price of Tesla or Netflix stock tomorrow.  The use of covered calls or cash secure puts actually reduces a portfolio volatility and makes it less risky not more. I recently met with an adviser who was advocating that strategy.  I rather doubt that OP was knowledgeable enough about investing to accurately tell us what her real strategy was.

That said, it is certainly true that plenty of advisers have done stupid and super risky things with their clients money. It is also worth noting that while some financial adviser, for instance Certified Financial Planners (CFP), have a fiduciary responsibility to act in  their clients best financial interest that is a minority.  Stock brokers, along with plenty of "advisers" at place like Amerprise only have to put clients money in investments that are suitable.  So speculating in options wouldn't be suitable for 85 year old woman with no income other than SS, but it would probably be suitable for a 35 year old couple with good income.

aj_yooper

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Re: Help needed from an investing newbie
« Reply #38 on: April 25, 2014, 07:29:17 PM »
clifp, you are definitely an outlier.  A newly minted investor asked to put $100,000 into options is cool with you? 

If the adviser is a CFP, for example, her recommendation is a professional ethics issue, IMO. 

arebelspy

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Re: Help needed from an investing newbie
« Reply #39 on: April 25, 2014, 09:29:27 PM »
If the advisor solely was advocating options as a primary investment method (which is a big assumption, but seems likely based on what OP has said), they aren't being used properly, IMO (as a hedge), but to speculate.

A financial advisor advising their client that is new to investing to speculate is someone I'd stay far away from.
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clifp

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Re: Help needed from an investing newbie
« Reply #40 on: April 25, 2014, 09:39:05 PM »
clifp, you are definitely an outlier.  A newly minted investor asked to put $100,000 into options is cool with you? 

If the adviser is a CFP, for example, her recommendation is a professional ethics issue, IMO.

As I said it depends entirely on how the options are being used. If for instance the the adviser was advocating writing covered calls on the OPs holding in SPY, in order to provide some downside protection and enhance returns because the adviser thinks we are in a sideways markets, than  I don't have a problem with it.  Of if the OP had large position in company stock due to ESOP purchase and the adviser was suggesting purchase some puts in order hedge their concentrated position in a company, I'd say that is prudent use of options.

The point being options are tool, they can be used to hedge or they can be used to speculate. Hedging often is perfectly fine strategy, speculating isn't.  But there was enough info in Hope post to know what the adviser was suggesting. People hear the word "options"and they immediately reach for the tar and feather and pitchforks.  Now I'll readily admit that odds are  higher that adviser isn't recommending something prudent, but we simply don't know.

arebelspy

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Re: Help needed from an investing newbie
« Reply #41 on: April 25, 2014, 10:09:30 PM »
clifp, you are definitely an outlier.  A newly minted investor asked to put $100,000 into options is cool with you? 

If the adviser is a CFP, for example, her recommendation is a professional ethics issue, IMO.

As I said it depends entirely on how the options are being used. If for instance the the adviser was advocating writing covered calls on the OPs holding in SPY, in order to provide some downside protection and enhance returns because the adviser thinks we are in a sideways markets, than  I don't have a problem with it.

Would you really?  I still feel like that's speculation based on what the advisor thinks the market will do.  I feel like an advisor should be investing a client into solid, long term investments, as well as explaining what they're doing, and why.

Even if that is what they were doing, I wouldn't be okay with it for a new investor.  A more sophisticated investor.. maybe.  (If they explained it to them, and asked what the investor thought - not just saying "let me do this with your money.")
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HopetoFIRE

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Re: Help needed from an investing newbie
« Reply #42 on: April 26, 2014, 01:58:07 AM »
Hold on folks lets not throw the adviser in jail yet.  There are many uses of options, many of them don't involve speculating on the price of Tesla or Netflix stock tomorrow.  The use of covered calls or cash secure puts actually reduces a portfolio volatility and makes it less risky not more. I recently met with an adviser who was advocating that strategy.  I rather doubt that OP was knowledgeable enough about investing to accurately tell us what her real strategy was.

That said, it is certainly true that plenty of advisers have done stupid and super risky things with their clients money. It is also worth noting that while some financial adviser, for instance Certified Financial Planners (CFP), have a fiduciary responsibility to act in  their clients best financial interest that is a minority.  Stock brokers, along with plenty of "advisers" at place like Amerprise only have to put clients money in investments that are suitable.  So speculating in options wouldn't be suitable for 85 year old woman with no income other than SS, but it would probably be suitable for a 35 year old couple with good income.

You are correct that I probably don't have the best knowledge in investing terminology.  I may be totally wrong in my understanding of her suggestions.  She also described them as futures?  It s pretty much buying a share at a certain price and if it goes up in 1-3 years depending on the term, I would get a certain percentage back. 

I don't think that my advisor is an evil person at heart, I really don't.  Believe me, i have met "advisors" who try to push silly products on you.  However, I do feel that the person with my best interest would be myself and that is why I wanted to learn more about my investment options.  Also, although I call myself a newbie, DH and I have been investing in our 401ks and IRAs for a long time prior to the advisor.  However, we just use target date funds or blue chip funds and have not   paid much attention to our allocations.  This is our first time investing in a taxable account and I truly feel like a newbie in trying to learn a more tax efficient way of investing and asset allocation.  So, I think part of her suggestion was due to the fact that it is something we have not invested in before and she thought it would be a good way to diversify our portfolio.  At this point, I don't feel I have enough money invested yet to feel comfortable with taking a risk on an investment I know so little about.

If anyone has any other suggestions on other investment options or index funds for me to read up on, I am very open to learning more about them. Someone mentioned I bonds.  Not sure what their advantages are?  Seems like they are inflation protected?  I would like to be as tax efficient as possible since our tax rate is in the 35 to possible 39% this year.
« Last Edit: April 26, 2014, 02:07:04 AM by HopetoFIRE »

HopetoFIRE

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Re: Help needed from an investing newbie
« Reply #43 on: April 26, 2014, 02:15:38 AM »
WTF!

Did your *advisor* seriously tell you to put 100k in *options*? Isn't there some sort of clause when getting your advisor license (?! is there one) that would make that kind of advice illegal? That's insane. If you have even the vaguest notion of what options are, you would not let this woman near your money even with a 100-foot pole, the firestation on standby, and one hand tied behind her back.

Don't put money in ETFs with an advisor! That's the point of ETFs! To avoid stupid ridiculous "advisor" middle-man fees. Fire her now and call Vanguard today. Once you do, you'll start beating yourself up for not doing it sooner:

https://personal.vanguard.com/us/whatweoffer/advice/financialplanningservices

I do want to try my hands on some investments by myself and learn more first prior to letting her go.  It's not just getting me comfortable, but also DH as well.  I will definitely have to look further in Vanguard financial planning services.  We definitely have enough to qualify for a free consultation with an advisor if we move all our investments over from our advisor.  Do you know if these advisors are available in person or just over the phone?

clifp

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Re: Help needed from an investing newbie
« Reply #44 on: April 26, 2014, 05:50:42 AM »
WTF!

Did your *advisor* seriously tell you to put 100k in *options*? Isn't there some sort of clause when getting your advisor license (?! is there one) that would make that kind of advice illegal? That's insane. If you have even the vaguest notion of what options are, you would not let this woman near your money even with a 100-foot pole, the firestation on standby, and one hand tied behind her back.

Don't put money in ETFs with an advisor! That's the point of ETFs! To avoid stupid ridiculous "advisor" middle-man fees. Fire her now and call Vanguard today. Once you do, you'll start beating yourself up for not doing it sooner:

https://personal.vanguard.com/us/whatweoffer/advice/financialplanningservices

I do want to try my hands on some investments by myself and learn more first prior to letting her go.  It's not just getting me comfortable, but also DH as well.  I will definitely have to look further in Vanguard financial planning services.  We definitely have enough to qualify for a free consultation with an advisor if we move all our investments over from our advisor.  Do you know if these advisors are available in person or just over the phone?

Futures really ?, well it is increasingly harder to defend an adviser who is discussing investing in futures. Futures trading is, with rare exceptions, highly speculative. 
What firm is your adviser with? There are some awful firms out there, who hire very friendly advisers who appear to be on your side but they aren't.

Consolidating your funds at one company, allows you to qualify for nice benefits like a free consulting at Vanguard if you have more than $500K.  Both Schwab and Fidelity have similar benefits.
It is has been a long time since I had Vanguard financial plan, but appears Vanguards are increasingly doing via video conferencing. Vanguard's plans tend to be pretty generic but in your case that is probably just what the you need.

arebelspy

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Re: Help needed from an investing newbie
« Reply #45 on: April 26, 2014, 08:26:27 AM »
You are correct that I probably don't have the best knowledge in investing terminology.  I may be totally wrong in my understanding of her suggestions.  She also described them as futures?  It s pretty much buying a share at a certain price and if it goes up in 1-3 years depending on the term, I would get a certain percentage back. 

And if it doesn't?

I'd suggest you attempt to fully understand what she wanted you to do.  Have her explain it to you.  If she's competent, she should be able to explain it to a layperson, or it's so complicated that she doesn't understand it.

Once you understand what she was interested in getting you invested in (including the full downsides - cause sales people only push the best case scenario - try talking to an EUIL life insurance salesman sometime), you can evaluate her advice.

If you're comfortable with, say, losing all your money...

Or you can skip that and keep going along learning on your own.  Bogleheads.com is a great resource.  :)
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DoubleDown

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Re: Help needed from an investing newbie
« Reply #46 on: April 26, 2014, 10:36:07 AM »

I do want to try my hands on some investments by myself and learn more first prior to letting her go.  It's not just getting me comfortable, but also DH as well.  I will definitely have to look further in Vanguard financial planning services.  We definitely have enough to qualify for a free consultation with an advisor if we move all our investments over from our advisor.  Do you know if these advisors are available in person or just over the phone?

Please do let her go immediately. She is not helping you, she is hurting you. I know it's uncomfortable to terminate your relationship with her, but it has to be done unless you like paying someone a lot of money for bad (even ruinous) advice. I'll be at least the 83rd person to say "WTF?!" at her suggestion to invest in options/futures. You do not need any more hands on experience before firing her. You simply deposit your money into some index funds, put your continuing contributions on autopilot, and forget about it except maybe once or twice a year when you rebalance your funds.

Since you're feeling unsure, you can put your money into 100% safe funds right now (for example, 100% guaranteed bonds or securities that cannot lose value), and you can take the next month or two to become more savvy and decide then how to allocate your money. Or you can take the old tried-and-true conservative route for your ages, and put about 65% of your funds in the S&P 500, and 35% in bonds, then figure out your long term plan.

I sympathize with your desire to have a financial planner take the reins (at Vanguard or elsewhere), but I really feel this is one area where you do not want to simply hand over management to someone else. You're talking about your entire wealth you will accumulate over your entire lifetime -- it's worthwhile to understand what's going on so you can make the decisions yourself, or evaluate advice a financial planner is giving you*. And fortunately, with investing in index funds, it's simple to learn and do.

* A year or two ago I met with a very well established financial planner at a firm where I have some (no fee) funds. I met with her to set up some accounts and sign paperwork for my wife, but she used the opportunity of the meeting to attempt to sell us all kinds of bullshit, and provided all kinds of exotic and bad advice (that would have only benefitted her in collecting fees and commissions, of course). One gem of her bad advice was that I shouldn't think about retiring for another 5-10+ years, when I'd have at least $25 million in assets. I'm already retired now (on far less). Of course she'd like to have a $25 MM+ client, at the expense of me working another 5-10 unnecessary years! Thankfully, having the knowledge to see through this nonsense allows you to avoid getting taken.

HopetoFIRE

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Re: Help needed from an investing newbie
« Reply #47 on: April 26, 2014, 02:29:55 PM »
Thanks again for all the advice.  I do agree with you all that we need to take the financial rein and be in charge of our investments.  I am not looking for someone to make all of our decisions for us.  It is nice to have the expertise and advice, but I do understand that I need to be knowledgeable in what we are investing in.  I am going to continue learning about different investment options and hopefully, in the near future, manage our own investments again (we actually just signed up with her in the past 6 months since we thought we needed some help with our taxable account).


And if it doesn't?

I'd suggest you attempt to fully understand what she wanted you to do.  Have her explain it to you.  If she's competent, she should be able to explain it to a layperson, or it's so complicated that she doesn't understand it.

Once you understand what she was interested in getting you invested in (including the full downsides - cause sales people only push the best case scenario - try talking to an EUIL life insurance salesman sometime), you can evaluate her advice.

If you're comfortable with, say, losing all your money...

Or you can skip that and keep going along learning on your own.  Bogleheads.com is a great resource.  :)

She did explain how it works to me.  I probably don't have the knowledge to use the proper terminology to explain what she explained to me.  I did tell her that I was not comfortable investing in that since I am just relying on the stock market performing a certain during a very limited timeframe. 

DoubleDown

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Re: Help needed from an investing newbie
« Reply #48 on: April 27, 2014, 10:01:05 AM »
If it helps, I saw this excellent article just today on "Lazy Portfolios For Your Retirement." But don't be fooled by the title -- even though they're "lazy" because they don't rely on a bunch of BS market-timing or speculation or get-rich-quick schemes, they are not sub-optimal. And they don't rely on a financial advisor. There are some excellent suggestions in here in how to construct a good portfolio from just a few Vanguard funds. You could just pick the one that matches your own temperament and goals. Honestly, I don't think you could likely go wrong with any of them.

http://money.msn.com/mutual-fund/lazy-portfolios-for-your-retirement

Good luck!