Lena wrote:Wow, thanks to everyone who has responded. John and Hocus, your posts were very helpful, and, Petey, I especially appreciate your tutorial. I've already read it a couple of times, and I will certainly be doing so many more times.
I do understand so much more now, and I'm in the process of digesting all this and determining how to apply it to our particular situation. I've already gotten answers to several of my followup questions just by reading all of this thread.
My husband and I are working on our asset allocations right now in preparation for his probable retirement later this year. We want to get it as right as we can, and the information I'm getting here has been a huge step in the right direction, even if the only result is that we start asking questions that make us really think about what we're doing.
Thank you, Lena. I did put a great deal of time in on your behalf.
Investing is not all that complicated. You just need to get a few basic concepts that very few people ever learn and then you are streaks ahead of 99% of the rest of investors out there.
I am going to recommend some books for you:
I would suggest that you read Gillette Edmunds How to Retire and Live Well. This is a book from a guy who has lived off his investments for over 20 years and talks honestly about what he discovered through trial and error worked and didn't work. He could not find any good advice at the time and so worked his way through his options. It has no difficult math or anything to trip over. He runs thru the different types of investments and how they work. As with all books, he has his own opinions on what works and what doesn't. You will likely find that if you read a selection of books, you will come to form your own independent opinions of what works for you.
http://www.amazon.com/exec/obidos/ASIN/1580622011/
A book, Irrational Exuberance by Robert Shiller is a great follow up. He details the different eras that markets have gone thru. He shows with press articles from that time how the markets repeat themselves with the euphoria in 1901 with electricity & automobiles and later in 1920s with radio and 1950s with TV and 1995 with the internet. Investors believing returns will be amazing, bidding up prices to incredible levels and few people valuing the market in traditional ways. Playing a game of musicial chairs, hoping they can sell before the music stops (few ever do as they have no way to judge the timing!) Shiller also alludes to prices of markets, what is expensive, what is not and why this makes a difference to the future returns one can expect. From this book, one can begin to understand why investors did poorly in the internet boom (it has happened before) and why investor typically buy what has gone up and not what is likely to go up because it is cheap relative to the price that asset usually commands.
http://www.amazon.com/exec/obidos/ASIN/0767907183/
I would then recommend reading Common Sense on Mutual Funds by John Bogle. The information I provided to you comes from what I learned from Mr Bogle. John Bogle breaks down returns like I showed you and make it clear how things really work. This is a great practical follow-on to Shiller as it gives a little more information to chew over. He is also very pro-indexing, but hopefully you can see past that. This is more detail oriented, providing dividend yields and earnings for different times, the message is incredibly clear. Bogle is very good at writing books for the small investor. He thrives on communicating the benefits and pitfalls of the markets. Bogle is the founder of the Vanguard Index funds.
http://www.amazon.com/exec/obidos/ASIN/0471392286/
William Bernstein's Four Pillars of Investing is a more complex read and the earlier books will help you be able to understand it. His is the kind of book where if you tried to read it first, you'd completely give up. Can't recommend his highly enough but his 2nd chapter is a ***** to read. He should have put it later in the book as getting through it is tough and I think many readers never make it to shore!
http://www.amazon.com/exec/obidos/ASIN/0071385290/
Lastly, I would read David Swensen's book, Pioneering Portfolio Management. Easy book! This details the original perspective the Yale Endowment Fund use in investing for the long-term. Whilst some of the techniques are beyond private investors, most are not and his take on a variety of subjects are original, thoughtful and important. He also gives a far more balanced view to the subject of active vs index investing, with a nod to indexing but hiring managers to actively manage the equity portfolio to considerable success. This same outlook is detailed in shorter space in the Yale Endowment Annual Reports each year which explain their thinking on what they own and why. Each year they focus on different aspects and these reports are gems. You can also get a good flavor of what his book would be like. I would recommend a sneak peak. Start with 2000 and work thru. Easy read. BTW, Yale are in the top 1% of investment returns for the past decade which speaks volumes for the value of their investment message.
www.yale.edu/investments/
http://www.amazon.com/exec/obidos/ASIN/0684864436/
I would strongly suggest that any plans be put on hold and you & your partner work through these books one at a time, taking your time. Any plans you make now are likely to be far inferior to any new plans you make once you have done your homework. The difference in your understanding and ability to both manage & plan for your future will be night & day. Most of the people here have at least read several of the books and benefited. I would stress reading them in this order even if you have to buy them to do so and cannot rent them from your local library. I found that I could only get so much benefit from the boards here because there was so much to appreciate. These books helped me take this information in a bit at a time and then I was up to speed. I thought of it like my own private investing course. I hope you have not found all the recommendations too much, I am just trying to be as helpful as I can.
Take your time and soak it in slowly. Allow several months and treat it like night school. It is an investment in your future prosperity and security, and so I feel is well worth the personal investment.
Petey