Dumb Money’s Overconfidence in Stock Picks

Yesterday was the last trading day of 2016 which makes it time for the annual ritual of comparing portfolio sizes! One redditor, karan goel, put together this research into what Dumb Money Clickbait articles of 2016 had suggested to buy in January 2016. He then plugged in the numbers from yesterday’s close to get the results:

“Experts” Name Returns
Kiplinger 1.47%
Jim Cramer 0.43%
Forbes 8.58%
TIME 6.53%
Crossing Wall Street 2%

There are some criticisms out there regarding lack of compensating for dividends or splits on reddit r/investing. Even compensating for that, I don’t think it would come close to the returns listed by the index funds. You can see if you listened to any of these guys you would of made some money, but keep in mind if you didn’t make 2% you would be losing value in terms of inflation. Now lets look at the three major ETFs out there that follow the indexes:

ETF Ticker Index 2016 returns (excluding dividends)
SPY S&P 500 14.01%
QQQ NASDAQ 100 10.55%
DIA Dow 30 18.50%

These suggested expert picks had all underperformed compared to the index funds of S&P 500, DOW 30, and NASDAQ 100. Now I bet your managed funds are doing worse, go ahead and check….

Did you get at least 14%? paying only 0.029% in fees in the C Fund Via TSP?
… yup I thought so!  ask yourself why are you paying these “EXPERT” fuckers to manage your money? You are simply paying for their retirement in terms of inflated fees and commissions. You need be a cheap ass and do a DIY retirement via TSP where fees are hilariously low of just $29 per $100,000. You can take your additional money and put it into a Vanguard Roth IRA with a indirect rollover focusing on similar low fee broad market index funds.

You are a military member trusted with flying a multimillion dollar plane or working on a nuclear reactor, I think you have the confidence to invest your money without paying these leaches with the management of your wealth. Keep in mind that almost all of managed funds consistently do worse index funds. There is a good NPR article on 3 investment strategies you can implement yourself. The advice is free, its all index based ETFs since you are in no business picking stocks yourself. Remember you are a service member, not Gordon Gekko!

Now I love to gamble, but not with my retirement. Go ahead and bet on horses, write some options, and buy some individual companies, but be able to afford losing all that money. You would not spend time at the roulette table with $18,000 a year betting on a single number for that sweet 35 to 1 payout. Are you good at picking numbers in roulette with a 2% chance of picking the right one? This is your skill level in picking stocks, don’t let your unverified confidence in picking companies get the best of you.

So, as the year ends here are my tips to start 2018 right:

  1. Plan to max out your Roth TSP for next year (yes, all $18,000), I keep very little in an actual savings account since it returns only 0.05%)
  2. Think about switching to the Blended Retirement System if eligible, to get your sweet 5% TSP match, make sure you do step one first
  3. Any excess money that you would of put into a savings account, instead put into a Vanguard Roth IRA and into the Vanguard 500 Index Fund Admiral Shares (VFIAX)
  4. If you love to gamble use a commission free service like Robin Hood for your individual stock and ETF buys, but be prepared to lose all of the money like its a virtual casino
  5. Stay away from Financial Advisors, Personal Banking Officer, and Wealth Management firms. This includes robo investing as you have a much better and cheaper options to invest your money such as TSP, Vanguard, and Robin Hood
  6. Never ever go to r/wallstreetbets
  7. Make an appointment with the military one source counseling if you have questions about managing money, do not confuse this with retail investment advisors like Edward Jones where you risk being suckered into buying some shit mutual fund
  8. Accept that you will probably never be rich enough to use this or this, or commute like this with your current military job and this investing method

My wife and I had our annual shareholders meeting yesterday, and this has been our best year yet. We have been down the road buying and selling individual stocks picked based mostly on hype. We also had with Fidelity and USAA some terribly managed mutual funds that ate up my gains in fees. That was my previous life, we cashed all of that out and put down for a house when interest rates hit 3.1% for a 15 year Fixed Mortgage. This year has been so smooth and stable simply by indexing. It is the set it and forget it method of investing, and I will take 14% any day over agonizing buys and sells on a daily basis.

If you disagree with the non sexy way of index investing, and honestly have out preformed me I would love to know your strategies in the comments below.

Happy New Year,


5 thoughts on “Dumb Money’s Overconfidence in Stock Picks

  1. Novelman says:

    Hi, can you go over Roth and traditional tsp. I’ve heard that investing in Roth would be better in the beginning of your military career since you want to put more money in. At what point would you switch over to the traditional? Thanks!

    • uiucderp2011 says:

      It really depends on if you are planning to be making money at the age of 59.5 when you would be taking payments from tshp as regular income. Also depends on the tax rate whenever that will be. Roth earning will not be taxed as you pay taxes now, traditional earnings will be taxed as income in the future.

      I’m planning to do all Roth for the rest of my time in the navy.

      • Novelman says:

        If you want to stop working after 20 years in the military, would Roth be better?

        • uiucderp2011 says:

          Yes the tax advantage for Roth is much better, because all earnings are tax free. So if you double or tripled the money, you already paid taxes on the $18k you put in!

          With traditional you could deduct $18k from your income that year, but Uncle Sam will tax it and the earnings as regular income when you get the money out.

          Now my O-5 reader says I am wrong about my tax treatment. Since my earnings push into the higher tax bracket, I should take advantage of the deferred pay offered by Trad TSP. As I should deduct $36,000 in Trad TSP each year and then pay taxes on the money when I take it out when I am old and not making as much. good commentary here: http://www.trainwrecktrader.com/#!/2016/09/more-on-roth-v-traditional.html

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