On a lark, I signed up for a presentation by our deferred compensation plan sponsor on "Basic Investing Skills". I'll keep the names anonymous to protect the guilty. The woman presenting the seminar was speaking to a cross section of municipal employees from street maintenance workers, to policemen, to office workers. Her presentation began by describing three kinds of investments:
- cash equivalents
- bonds
- stocks
Although she said she could not provide investment advice, she stated the following as facts:
- cash equivalents provide no interest, don't bother
- bonds are bad investments because interest rates WILL be going up any time now
- stocks are the best investment and provide the highest returns, although with higher risk
She defined higher risk as the "price fluctuates more". She broke the stock category down into large cap, mid cap, small cap, and international with higher returns and higher risk down the scale. She provided Starbucks as an example of a mid cap stock back in the 1990s that has exploded higher and is now a large cap. She explained how people who bought mid caps in the 1990s are rich now. She stated that although international stocks were down about 15% over the last couple of years, everyone should own international stocks for the high returns. Finally, she explained that the plan sponsor had a "managed" investment plan and that one of their advisers would create a custom portfolio tailor made for you, at a modest cost of 1.5% per year of your total assets. She said "you'll see that as a minus on your statement", and winked. Your investments will be managed right up into the stratosphere. OK, she didn't say that last part, which is good, because I remember how people were fully invested in their "managed" portfolios in 2008 and how their losses were magnified beyond the 30% thrashing that stocks took that year. In all, it was about the worst possible advice beginning investors could have received.
I bit my tongue and did not ask how interest rates had done in Japan after their housing bust and how did that compare with US interest rates since 2008?
I didn't ask if international stocks were a good investment when the dollar was rising against foreign currencies.
I didn't ask how their mutual fund expense ratios affected total return over time.
I didn't ask how she slept at night because I don't think she knew any better.
Mainly what I took away from the presentation was "We have a running wood chipper, put your hands in as far as you can."
