Adams argues that the individual should not be buying individual stocks.
I tend to disagree for individuals willing to keep up with their stocks, and can read 10-Qs and other investment material. if you're doing the "buy and ignore" thing, however, it doesn't make much sense.
I've been guilty of not being as active as I should be, relying on meta information far too often. However, the vast majority of my investment is outside individual stocks and in indexes.
Right, he's saying don't trade individual stocks, buy indexes instead.
I fully subscribe to this view, unless the individual is trading for a living (putting in many hours), and has enough capital that they aren't wiping out their gains (relative to the index) with trading costs and the opportunity cost of their time.
IMO, you can read all the investment material that you like, but if you have access to the same information as the market then you wont outperform the market on a gross basis, and if you have lesser scale than professional traders then you will under-perform it on a net basis (after costs).
Sorry, but let me get this straight. There are people out there that buy stocks before contributing to their 401k's? Aren't 401's tax deferable? Aren't normal capital gains taxable?
This is about as dumb as putting money into your savings account before paying off your cc debt.
I should have qualified that - your company's 401k partner needs to support it. We use fidelity where I work, and you can sign up for a self directed brokerage link account. This is a relatively new option for us.
401(k)s can contain many types of assets, depending on the provider. For example, mine has stock-only indexes, bond indexes, mixed funds (stocks and bonds) but ALSO it has fixed income funds, which return ~4.8% pa. That's not going to make you salivate, but it's not a bad place to be if you believe the market is over priced.
401(k)s can (and should) be invested across a portfolio of different asset classes (and geos) according to your retirement needs. Asset allocations should be changed over time as retirement nears. this is my personal opinion, not financial advice :)
> Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker, and never touch it until retirement
The market has got everything on special - whatever you do, DON'T BUY!
...unless you want to end up like Warren Buffett - who loves downturns because that's when he can stock up on his favourites, at discount prices. He hates booms, because everything is overpriced, and there's nothing to buy. He folded his first partnership because of that.
Of course, the advice for the stocks is the same now as always: don't buy unless you understand what you're buying (although, you might buy a little, as an educational experience). If you can't place a rough value on it (so you know if it's overpriced or underpriced) and are confident it has an enduring competitive edge (so it will compound, buy an index instead. (Scott recommends index funds in:
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker, and never touch it until retirement.
I disagree with the disdain for stock picking. If you have a longer term outlook (5 years or more), you will kick yourself if you don't buy now. I'd stage my buys (since I can't call a bottom) in individual high quality stocks.
Feel free to buy individual stocks, but only with money you can afford to throw away. Picking stocks is gambling, pure and simple. Fun as it is, you should not expect to retire and live comfortably from your winnings. Study after study has shown, quite rigorously, that there exists no method at all for picking winning stocks. Feel free to read A Random Walk Down Wall Street for a more detailed analysis.
I've read that book, and a bunch of others. There is a method for picking winning stocks. Buy low, wait, sell higher. If you are disciplined, it is not gambling, unless you believe in the efficient market theory. Looking at how certain stocks are valued today, I don't see how anyone could believe that.
Of course, a stock that is valued below book could still drop further. And that is why you stage your buys, and must be ready to hold for the longer term.
Right now, we have a bunch of stocks with historic lows. I stand by my assertion that now is a great time to pick stocks if you meet the above provisions.
As with all things, there is no reward without risk - but you can manage your risk in various ways (staging buys is just one).
"Buy low and wait until you can sell high" is not a method for picking winning stocks. If you buy a stock, then wait until its increase has exceeded inflation, you may find yourself waiting forever.
How is this not buying stocks? Is he suggesting putting all this money in a savings account paying 3% interest?