It’s been a really interesting week for reader questions. Below we cover everything from how to vet a financial planner to social pressure to dollar cost averaging. Hope you enjoy.
Choosing A Financial Planner
I want you to know how much you inspire me! Also, I’ve been reading the blog for a little while now and I’m really looking to invest more than what I am investing now (401k), however, I am not sure where to even begin. I have thought about going to a financial planner and getting some advice from them, but I was wondering if you have any advice that I could use to find one. I’m afraid that they’ll just be interested in a commission and not really in explaining all the right ways to invest and all the funds I could invest in.
Thank you for your note! How to select a financial planner is an interesting topic, and you may have inspired me to write a post on it. I will tell you unfortunately that my own experiences with planners have been lackluster – I’ve tried and found the knowledge provided disappointing. That’s not to say there aren’t some fantastic ones out there – just that I haven’t had the opportunity to meet one. If I could give you one piece of advice, it’s that the question “Why?” will give you the most valuable tool to determining how knowledgeable these guys are.
Many of them will do a free 30 min consultation. Take advantage of it and plan to ask them a few questions about what strategies they most like or what sorts of things they invest in. If you walk in and they say “for someone your age you should have an allocation of 50% bonds and 50% stocks,” you should ask why. If they tell you to get into precious metals right now, ask why.
You’re looking for a data-backed answer.
If they wave their hands or don’t have the data at their fingertips, that’s a bad sign. If their thesis sounds reasonable to you, you take that answer and when you go home research online how that compares to others’ opinions. You may find counterpoints. That’s great. Now you in a follow up email you say “Thank for the conversation. I was thinking about some of the topics we discussed and was curious if you could help me get my head around the following.” Then you drop a sentence or two summarizing the counterpoints you researched and see how knowledgeably they respond.
Hope that helps. There’s a lot more but I think that should get you pretty far in vetting your candidates.
Defending “Expensive” FIRE Choices
I have been looking for other people who are on FIRE in NYC. My husband and I moved to the city in the Fall. We discovered Mr. Money Mustache and so many wonderful blogs and podcasts regarding early retirement about a year ago. Moving from the west to east coast did increase our salaries, but in reality, our take home pay is about the same. Most people in the Financial Independence community would frown upon our decision. But we wanted to be closer to family and wanted to experience the city. Besides, we are still on track to FI! Maybe, better opportunities will open up. Anyhow, thank you so much for starting this blog.
It’s wonderful to hear from other city dwellers who are on the FIRE train. It’s absolutely doable, and I agree with you that it in some ways creates better opportunities to reach FIRE quickly. The point to me of financial independence is that it allows you the freedom to do what you want, and that includes moving to NYC to be closer to family. The FIRE movement would be no better than the “average spendy family” construct it’s constantly making fun of if it forces every person into a brand new mold that involves a certain geographic location, a certain spending pattern, and a certain set of homogeneous values. In short, you keep doing you, man. It seems to be working.
The Stock Market As a Casino and Dollar Cost Averaging
I find your success at early retirement to be really inspiring! And I want to start investing my money wisely, too. At the same time, my parents are extremely afraid of investing in the stock market, and prefer to put their savings to work in buying property.
However, property is so expensive, and I feel I could never own one of my own, based on my own meagre salary.
In the meantime, I just put my savings in my bank account. This is silly right? Are there safe ways for me to invest my savings, or are my parents correct that the stock market is just one big casino? And should I wait for the next big downturn before I do invest or maybe dollar cost average my way into a position?
I think any asset class – real estate, stocks, bonds – can be consistent money makers for folks who have invested the time to understand them. You’re right that if you leave all your savings in your bank account that it will be very difficult to grow your money to any meaningful figure and retire early. That stuff is supposed to be doing work for you!
As for whether the stock market is one big casino, my answer is an unequivocal no. But you have to get comfortable with that yourself. I recommend you do that by examining and leaning on hard data. For example, the S&P Index has returned over 8% annualized when looked at over the past 15-20 years. It was returning over 10% over 30+ years. There are many ways to invest in the stock market and some are riskier than others. Investing in a broad index fund meant to match the overall market vs picking an individual company’s stock to invest have very different risk profiles.
I actually have it on my list to write about dollar cost averaging. I think in the scheme of things, any sort of strategy on “timing” entry to the market should be separated as a completely different method of investing – you have become a speculator.
If you want to buy into low cost index funds and hold for years, the thesis you are betting on is that US companies as a group will continue to grow. You make no claims as to omniscience in the short-term about how they will perform, you just believe they will do well in the long-term.
Waiting “for the next crash” puts an investor firmly in the speculation category in my book. Folks who do this perhaps believe they can research and take a macro read on things. This is a legitimate form of investing, but I think that people get in trouble trying to dip a toe in the water here and make multi-thousand dollar decisions without actually planning to do much research and develop a thesis for why they think a crash is coming and more importantly when.
Quickly on dollar cost averaging: if you look at monthly/weekly average pricing data, you would see that from a probability perspective, you would have done better to have just put all your money in at the soonest possible date (this is because the trend has generally been prices going up). So at least based on my research, dollar cost averaging is not a strategy supported by long-term data but rather a tool for speculators who, again, have put in significant time and research into developing a position on the timing of increases and decreases in the market.
Readers, chime in with your thoughts. And I know there are definitely a few readers who are financial planners – help us figure out what questions we’re supposed to ask to find our way to you and the rest of the good ones!