Index Funds: Jack Bogle has convinced me.....sort of.

[smk]

when someone asks a question, i have a simple response. i try to answer it. i don't conceptualize them as a standardized average person and answer the question for that person. i try to answer the question for the person who asked it.

if i don't have enough information to answer the question, i tell them that. that way they have 2 choices: they can learn about what's involved in getting a real answer, or roll the dice with a random response. either way they know what they are getting - a more targeted response based on appropriate inputs, or a wild guess.

if you make the assumption that someone does not want to learn or get a good response, and without telling them that's where you are sending them, i don't think you are being fair to them...they will go off thinking they have a good strategy based on proper inputs when they are really just getting a wild guess...

[kv968]

when someone asks a question, i have a simple response. i try to answer it. i don't conceptualize them as a standardized average person and answer the question for that person. i try to answer the question for the person who asked it.

if i don't have enough information to answer the question, i tell them that. that way they have 2 choices: they can learn about what's involved in getting a real answer, or roll the dice with a random response. either way they know what they are getting - a more targeted response based on appropriate inputs, or a wild guess.

if you make the assumption that someone does not want to learn or get a good response, and without telling them that's where you are sending them, i don't think you are being fair to them...they will go off thinking they have a good strategy based on proper inputs when they are really just getting a wild guess...

I don't make the assumption that people don't want to learn and I agree that not telling someone that you're likely giving advice that may not fit their situation is a disservice to them. However I would imagine that most/all of the people who post on these boards realize that the advice given is usually just a "rule of thumb" since in most cases we don't know their particular situation and that they use the advice given as such.

I also agree that giving them a more precise answer that they could implement for themselves is helpful as long as you don't get too arcane with the explanation. I'm not saying that people are stupid and can't figure these things out. However if they're just learning about investing and are intimidated by the thought of it to begin with, throwing out seemingly complex financial advice may only serve to discourage them more from learning with them possibly thinking "I'll never be able to grasp this stuff" and just giving up and actually just using those simple rules of thumb instead of searching for the right solution for them.

Not that that means to just give them "rules of thumb" and let them think they know everything they need to know and go along their merry way. However give them some basics to work off of, get their bearings and then hopefully they'll come back and ask more detailed questions as they become more familiar with the subject.

[smk]

I don't make the assumption that people don't want to learn and I agree that not telling someone that you're likely giving advice that may not fit their situation is a disservice to them. However I would imagine that most/all of the people who post on these boards realize that the advice given is usually just a "rule of thumb" since in most cases we don't know their particular situation and that they use the advice given as such.

I also agree that giving them a more precise answer that they could implement for themselves is helpful as long as you don't get too arcane with the explanation. I'm not saying that people are stupid and can't figure these things out. However if they're just learning about investing and are intimidated by the thought of it to begin with, throwing out seemingly complex financial advice may only serve to discourage them more from learning with them possibly thinking "I'll never be able to grasp this stuff" and just giving up and actually just using those simple rules of thumb instead of searching for the right solution for them.

Not that that means to just give them "rules of thumb" and let them think they know everything they need to know and go along their merry way. However give them some basics to work off of, get their bearings and then hopefully they'll come back and ask more detailed questions as they become more familiar with the subject.

i would agree with the general process you are outlining. however, there are 2 problems with its application here. first is that many of the newbies who come on here actually don't seem to know the difference between a rule of thumb and something that actually applies to their situation. the second is that many of the "experts" here don't really know much beyond the rules of thumb.

the entire process becomes one of worshiping the rules of thumb without any understanding of the rationale behind them (and some actually don't have any rationale). for example, how many here have actually applied the math formulas to determine whether someone should invest in a roth or trad ira? if they haven't done it themselves, they can't guide other people to learn it and they will never really understand the reasons for any financial decision related to this...and a number of newbies here listen to this advice.

(also, for the didactic function you describe for rules of thumb, expectations about your future tax rates are probably a better rule of thumb for the choice between roth vs trad ira than "experts say use up roth capacity first)

[Petunia 100]

i would agree with the general process you are outlining. however, there are 2 problems with its application here. first is that many of the newbies who come on here actually don't seem to know the difference between a rule of thumb and something that actually applies to their situation. the second is that many of the "experts" here don't really know much beyond the rules of thumb.

the entire process becomes one of worshiping the rules of thumb without any understanding of the rationale behind them (and some actually don't have any rationale). for example, how many here have actually applied the math formulas to determine whether someone should invest in a roth or trad ira? if they haven't done it themselves, they can't guide other people to learn it and they will never really understand the reasons for any financial decision related to this...and a number of newbies here listen to this advice.

(also, for the didactic function you describe for rules of thumb, expectations about your future tax rates are probably a better rule of thumb for the choice between roth vs trad ira than "experts say use up roth capacity first)

How were you able to apply math formulas to Beegee's situation without knowing it? Do you have a crystal ball? You certainly did not ask a single question before insisting the standard expert advice did not apply to him. And, you insisted it before Beegee posted that he was a he, that he is married, has 3 young children, and shared his gross income. To date, that is still ALL we know. Still not enough to provide more than general information.

You continue to argue as though someone had said "Beegee, here is a customized plan, tailored just for you, based on your unique circumstances". No one said anything of the kind.

However, you have quite successfully completely derailed the thread. I do sincerely hope Beegee has not thrown up his hands in disgust and departed.

[smk]

How were you able to apply math formulas to Beegee's situation without knowing it? Do you have a crystal ball? You certainly did not ask a single question before insisting the standard expert advice did not apply to him. And, you insisted it before Beegee posted that he was a he, that he is married, has 3 young children, and shared his gross income. To date, that is still ALL we know. Still not enough to provide more than general information.

You continue to argue as though someone had said "Beegee, here is a customized plan, tailored just for you, based on your unique circumstances". No one said anything of the kind.

However, you have quite successfully completely derailed the thread. I do sincerely hope Beegee has not thrown up his hands in disgust and departed.

kv was so much more reasonable. you could actually discuss things with kv and make progress...maybe you should re-read that discussion...

[disneysteve]

jIM_Ohio, a former regular here, use to say, "General questions get general answers." I think that's really the bottom line here. The vast majority of the time, when someone poses a question, they give very limited information. I don't think anyone comes here expecting a detailed, personalized financial plan. They typically come looking for general advice and information, and that's what we do. Is the advice perfect? No, but neither is the advice that comes from paid certified financial planners and other financial professionals.

People need to at least be smart enough to understand that the advice they are getting is coming from a bunch of strangers on an internet discussion forum and take it for what it's worth. I've been around here for a long time and I think this site generally gives good solid financial information that helps a lot of people - and yes, much of it is based on commonly accepted rules of thumb. If everyone followed them, this country would be in far better shape.

[Petunia 100]

kv was so much more reasonable. you could actually discuss things with kv and make progress...maybe you should re-read that discussion...

You dodged my question. How were you able to determine that Beegee should be maxing his tax-deferred accounts?

[smk]

jIM_Ohio, a former regular here, use to say, "General questions get general answers." I think that's really the bottom line here. The vast majority of the time, when someone poses a question, they give very limited information. I don't think anyone comes here expecting a detailed, personalized financial plan. They typically come looking for general advice and information, and that's what we do. Is the advice perfect? No, but neither is the advice that comes from paid certified financial planners and other financial professionals.

People need to at least be smart enough to understand that the advice they are getting is coming from a bunch of strangers on an internet discussion forum and take it for what it's worth. I've been around here for a long time and I think this site generally gives good solid financial information that helps a lot of people - and yes, much of it is based on commonly accepted rules of thumb. If everyone followed them, this country would be in far better shape.

.

to keep this discussion professional...there is no such thing as a general answer. there is only a specific answer for a certain situation that is given to people irrespective of whether that is their situation or not.

as for how everyone would be better off if they followed the "general advice" given here, from what i have seem everyone did follow it. i am referring to the defined benefit pension industry, which essentially no longer exists because they all followed this "general advice." zvi bodie railed against the industry as early as the 1990's because of their practices, and history proven him right. now we have all of america either ignoring their finances entirely or aspiring to be like a failed industry...and there is no one to bail them out...

now kv outlined a very good solution. begin to educate people iteratively with successively more detail as they apply it to their circumstances. taking the roth vs trad ira question, that would suggest a simplified approach of looking at your current vs future tax rates to make the determination. then you may add factors such as the degree of change in tax rates and timing of those changes when people ask more. in order to use this approach, you would need to know how to apply the formulas yourself and then guide people through it. this would push you to learn more as well as people here ask more and more questions. everyone benefits. but the "just max roth" answer teaches nothing. it also can cost people 20% of the savings applied to ira's in some situations. that's a pretty significant loss...i vote for the didactic/iterative process noted above...

[smk]

You dodged my question. How were you able to determine that Beegee should be maxing his tax-deferred accounts?

i dodged it because it was argumentative and irrelevant. i did not assume he should max the trad iras. if i remember correctly, i just gave him the formulas so he could figure it out himself...i am not here to argue simply to argue...sorry...

[Petunia 100]

.

to keep this discussion professional...there is no such thing as a general answer. there is only a specific answer for a certain situation that is given to people irrespective of whether that is their situation or not.
...

And yet, standard rules of thumb exist. Financial media dispenses general advice every day.

[smk]

And yet, standard rules of thumb exist. Financial media dispenses general advice every day.

the statement should not be taken that literally. if a rule of thumb is created for people in the 28% tax bracket and quoted by the financial media as a general rule for every tax bracket, i am saying this is really specific advice being promoted for both proper and improper circumstances.

[Petunia 100]

i dodged it because it was argumentative and irrelevant. i did not assume he should max the trad iras. if i remember correctly, i just gave him the formulas so he could figure it out himself...i am not here to argue simply to argue...sorry...

No, my question is not at all argumentative or irrelevant. Perhaps you should refresh your memory by going back and reading the thread. You were able to determine the standard rule of thumb is a bad fit for Beegee, based only on his first post. You were so convinced of its bad fit, you called it "irresponsible", said it could cause great harm, and likened it to dying in a car crash. I would like to know how you were able to make that determination.

If you are either unable or unwilling to answer that question, I will conclude that you are the sort of person who talks out both sides of their mouth.

[Petunia 100]

the statement should not be taken that literally. if a rule of thumb is created for people in the 28% tax bracket and quoted by the financial media as a general rule for every tax bracket, i am saying this is really specific advice being promoted for both proper and improper circumstances.

So if I understand you correctly, there should be no standard rules of thumb ever?

The logical extension of that is that no one can learn about personal finance, and should instead rely solely on paid professional advice. Is this an accurate summary of your point of view?

[smk]

No, my question is not at all argumentative or irrelevant. Perhaps you should refresh your memory by going back and reading the thread. You were able to determine the standard rule of thumb is a bad fit for Beegee, based only on his first post. You were so convinced of its bad fit, you called it "irresponsible", said it could cause great harm, and likened it to dying in a car crash. I would like to know how you were able to make that determination.

If you are either unable or unwilling to answer that question, I will conclude that you are the sort of person who talks out both sides of their mouth.

it seems you wish to make accusatory statements. i am not going to play that game with you. i know what i said and i know my intentions. at no point did i make a definitive statement that in beegee's case he absolutely should use a trad ira due to an analysis of his tax status. the point i was making is that you were being irresponsible by quoting "expert advice" indicating he should max his roth first when you had no knowledge to support this point. IF the opposite were true and he listened to you, you could have cost him a good deal of money...

my previous comments stand on their own for anyone to read...

[smk]

So if I understand you correctly, there should be no standard rules of thumb ever?

The logical extension of that is that no one can learn about personal finance, and should instead rely solely on paid professional advice. Is this an accurate summary of your point of view?

that is not what i said at all...i would suggest you re-read the text.