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bam thwok posted:This is right. Though be careful; the follow-up question to the account type will ask you to select what type of investments you are going to put in the account. If you select mutual funds, you will not be able to use that account to buy other asset types like stocks, ETFs, etc. I found this out the hard way, and have been too lazy to deal with it. You just open up a brokerage account if you want to trade ETFs/etc. Having multiple accounts is perfectly painless. I have a taxable mutual fund account, a taxable brokerage account, a roth IRA and a traditional IRA, all with Vanguard. It's perfectly easy to manage them all from the single portfolio view.
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Jul 19, 2012 20:14
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Unormal posted:You just open up a brokerage account if you want to trade ETFs/etc. Having multiple accounts is perfectly painless. I have a taxable mutual fund account, a taxable brokerage account, a roth IRA and a traditional IRA, all with Vanguard. It's perfectly easy to manage them all from the single portfolio view. I figured it wouldn't be a big deal. Thanks.
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Jul 19, 2012 20:31
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Let's say you came into $150,000 as a low wage earner. What would you guys recommend as far as retirement planning? Just make a long-term portfolio consisting of a basket of vanguard ETFs with a % into bonds ? Full disclosure: All the money I managed to save so far, due to a low cost lifestyle, was invested in the stock market. I was really just gambling, put all my money into single stocks and ended up losing some capital (still own about 9000 shares of LYG as my only 'investment' right now). As far as retirement and the future goes, not sure I really care about where I'm at in 30 years or whether I'll even be alive. Paying it forward and leaving money to someone else is not something I want to do. On the other hand, if there's one thing I learned about spending money, it's that it doesn't make me happy, just more comfortable.. I don't know what to do. I've been thinking about a career change, maybe I could use this money to get an education.
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Jul 22, 2012 12:31
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what son what posted:Let's say you came into $150,000 as a low wage earner. What would you guys recommend as far as retirement planning? Just make a long-term portfolio consisting of a basket of vanguard ETFs with a % into bonds ? I'd put it in a money market account and spend $3 on a used Four Pillars of investing, then read it! http://www.amazon.com/Four-Pillars-Investing-Building-Portfolio/dp/0071385290 (Then I'd split it into a liquid emergency fund of 6ish months expenses and a target retirement fund, unless I had a drat good reason to do otherwise; or use it to invest in my own education/career)
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Jul 22, 2012 16:03
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what son what posted:I've been thinking about a career change, maybe I could use this money to get an education. I would spend some of it on an education, if that's what you really want, and save the rest.
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Jul 22, 2012 17:14
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I've got a plan, and I wanted to get some second-sighting to make sure I'm not missing anything. I'm currently 27, single, and living a low-expense lifestyle. I started the first job I've had that offered benefits this March, beginning my retirement savings at that time. I make $36k/year and I'm currently putting 6% into the company 401k to max out the match (discretionary, typically 25% up to 6%), and 4% into the company-offered Roth IRA. However, the company plan is through Principal Financial Group, and all of the available funds have excessive expense ratios. I'm currently sitting at an average expense ratio of .84%, after dropping the funds that were more expensive than others or with lower ratings. My goal right now is to catch up on retirement savings, particularly via a Roth IRA as my taxes will probably never be this low again during my working life. My plan is: 1. Stop the deductions for the Principal Roth IRA and open a Roth IRA with Vanguard, with the money in the Target 2050 fund. Aside from the initial deposit, I plan to fund this with $200/month, $100 from each paycheck. Extra money I have at the end of the month will be divided between savings and this Roth IRA appropriate. 2. After my first paycheck without a deduction, transfer the contents of the Principal Roth IRA to the Vanguard account. 3. My Principal 401k is and will be focused on more aggressive growth, both to balance out my Target fund with Vanguard to suit my higher risk tolerance, and to lower the sting of the higher expense ratios. My questions: 1. I'm probably not going to run into any issues/complications transferring the Roth IRA balance from Principal to Vanguard, right? According to my research this should be pretty straightforward. 2. There's no way to move money from the Principal 401k to the Vanguard Roth while I'm still employed, right? My research said that the plan had to allow this, and there was basically no chance of that. 3. Does anyone have any tips or advice on how to try to convince my company to move to a less lovely 401k vendor? This is a longshot, but I figure I should try. 4. Is there anything else I'm missing, or other options I should consider?
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Jul 22, 2012 20:49
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How much of a lag should I allow between my 401.k deductions until they show up in my account? We recently changed providers and the first couple contributions were showing up within the next week after my paycheck, same as the previous provider. However, I haven't seen a transaction since 6/20, for the 6/15 paycheck. I've had money consistently taken out of my check since then, so I have a few hundred dollars sitting in limbo. Also, my employer only offers a discretionary match, and the fund choices aren't that great. Should I just turn off the 401k contribution and fund my own IRA, just for my own sanity?
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Jul 22, 2012 23:19
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Alereon posted:I've got a plan, and I wanted to get some second-sighting to make sure I'm not missing anything. I'm currently 27, single, and living a low-expense lifestyle. I started the first job I've had that offered benefits this March, beginning my retirement savings at that time. I make $36k/year and I'm currently putting 6% into the company 401k to max out the match (discretionary, typically 25% up to 6%), and 4% into the company-offered Roth IRA. However, the company plan is through Principal Financial Group, and all of the available funds have excessive expense ratios. I'm currently sitting at an average expense ratio of .84%, after dropping the funds that were more expensive than others or with lower ratings. My goal right now is to catch up on retirement savings, particularly via a Roth IRA as my taxes will probably never be this low again during my working life. 1. Not likely. I'm surprised your Roth IRA through them doesn't act exactly like a brokerage account. They make you choose from the same 401k plans? 2. I believe you can rollover the employer matching part, but I don't really see the point in this. 3. Near 0% chance of this happening, and you might be looked on as a whiner complaining about the 401k plan this early into the position. Realistically, .84% isn't just horrific as far as 401k funds tend to go. Guy Axlerod posted:How much of a lag should I allow between my 401.k deductions until they show up in my account? Do the IRA first if the 401k matching is truly discretionary (as in not often).
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Jul 22, 2012 23:36
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I'm a federal government employee currently contributing my 5% to my TSP 401(k) (with agency match of 5%). A Roth investment was recently introduced (https://www.tsp.gov/whatsnew/roth/compareRoth.shtml). If I am to begin investing in both my 401(k) and a Roth, is it advised that I go with Vanguard for the Roth or should I keep investing through the TSP? I'm quite the newbie so I'm not sure what to look for.
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Jul 23, 2012 12:40
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Tortilla Maker posted:I'm a federal government employee currently contributing my 5% to my TSP 401(k) (with agency match of 5%). A Roth investment was recently introduced (https://www.tsp.gov/whatsnew/roth/compareRoth.shtml). Keep investing through the TSP for the match (you lucky bastard, some of us have it without the match). Above that invest in an IRA outside of the TSP that provides you with better investment options. If you're maxing your IRA after getting the max match on your TSP and still want to save more for retirement bump your TSP contributions up then.
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Jul 23, 2012 20:23
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For those of you who are skeptical of the "buy and hold ETFs and regularly contribute to your 401k" investment strategy, I thought I'd offer up these two books: http://www.amazon.com/Jackass-Investing-Dont-Profit/dp/0983504016 http://www.amazon.com/Millionaire-Fastlane-Crack-Wealth-Lifetime/dp/0984358102/ref=sr_1_1?s=books&ie=UTF8&qid=1343505395&sr=1-1 Both of these are worth reading if for no other reason than giving you perspective that there are other ways to invest and/or become wealthy.
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Jul 28, 2012 20:57
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It's about time I posted in this thread to make sure I'm (somewhat) on the right track. I'm 30 years old, employed full-time and my 401(k) is set to deposit 5% of my earnings with the added 25 cents for every dollar up to that 5%. I also have a 401(k) from my previous employer that I haven't rolled over. This is through Principal and I haven't contributed to it since December 2010. My electives for the Principal account are as follows:  This is how it's broken down as of right now:  And here is the history of those numbers:  As you can see, it hasn't really done a lot but sit there. I haven't rolled it into my current 401(k) since apart from my contributions I don't think it's done particularly well either. My current plan is through Fidelity and I have everything in FID FREEDOM K 2045 which is supposed to be a fairly conservative choice:  But here is the history of that elective:  My overall progress in my Fidelity 401(k) is as follows:  So it seems to me that it's only increasing because of my contributions and otherwise would be just as flat as my Principal account. Seems to verify that there isn't much point in rolling the Principal money into my Fidelity account. Regardless, adding my progress in both accounts, I am here:  I have $17,066.36 total invested, split 61.25%/38.75% between Principal and Fidelity. Thoughts? Should I make any changes? Am I going to retire penniless and alone?
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Jul 31, 2012 14:59
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1. The fees on that principal fund are probably too high. Roll it over to a Vanguard account. The account type will be "Rollover IRA" and will not incur any taxes. Vanguard will basically take care of this all for you and tell you exactly what you need to do if you call them. 2. Invest the vanguard money in whatever combination of the "total stock market" and "total bond index" makes you comfortable. 3. You don't have enough money saved. Double your 401k contribution rate. 4. Whenever you leave a job, roll over the 401k as soon as possible into your vanguard account. Financially you would be better off funding a separate Roth IRA account that you also open at Vanguard, but since this isn't a car I assume you won't think about it for more than 20 minutes a year and just increasing your 401k rate is simpler.
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Jul 31, 2012 15:33
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Droo posted:1. The fees on that principal fund are probably too high. Roll it over to a Vanguard account. The account type will be "Rollover IRA" and will not incur any taxes. Vanguard will basically take care of this all for you and tell you exactly what you need to do if you call them. Is there an assumption inherent in this statement? I'm looking on Vanguard's website and I don't see where their fees are so I can't compare them to my Principal fees, but don't fees only matter when you're actively contributing? quote:
Why is this? I assume there is a reason but is Vanguard some kind of safe haven for money or something? quote:
I'm not sure I follow this. I'm not financing a car using 401(k) monies? In fact why would anybody do that? CornHolio fucked around with this message at 15:47 on Jul 31, 2012 |
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Jul 31, 2012 15:42
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CornHolio posted:Is there an assumption inherent in this statement? I'm looking on Vanguard's website and I don't see where their fees are so I can't compare them to my Principal fees, but don't fees only matter when you're actively contributing? Expense ratios apply to the total amount you have invested in a given fund every year. Vanguard has the lowest expense ratios around and great investment options, and they also don't charge initial fees to invest in their funds. He's suggesting that you are more interested in cars than finances, and should take the easier route of saving more in your 401k rather than putting money into a Roth IRA since you likely don't care to think about finances all that much. I'm not sure what prompted that, but I have to strongly suggest you go the Roth IRA route for additional retirement savings. Here is a listing of all Vanguard mutual funds along with their expense ratios: https://personal.vanguard.com/us/funds/vanguard/all?reset=true&sort=name&sortorder=asc Compare the funds to equivalents of the ones you are in and you should see that the expense ratios are much lower. evilalien fucked around with this message at 15:52 on Jul 31, 2012 |
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Jul 31, 2012 15:49
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evilalien posted:Expense ratios apply to the total amount you have invested in a given fund every year. Vanguard has the lowest expense ratios around and great investment options, and they also don't charge initial fees to invest in their funds. Got it. Starting the process now. quote:
Ah, I am more likely to pick up a Motor Trend than the Wall Street Journal, so I suppose that's an accurate statement. To be fair I'm more interested in a lot of things than finances, but it doesn't mean I don't understand their importance. edit: Rollover of the Principal money into a Vanguard account is pending. The money I have in my Fidelity account (ie my current employer 401(k) account) I'm not to touch, right? CornHolio fucked around with this message at 16:37 on Jul 31, 2012 |
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Jul 31, 2012 15:54
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Yeah, you should continue to make your 401(k) contributions to your employer's account, to get the matching money. That 25% guaranteed "return" (the employer match) is better than anything you can get elsewhere, even if it's got stupid high expense ratios. To increase your retirement savings rate, you should open a Roth IRA at Vanguard, and contribute additional money there, up to the annual maximum allowed. The reason Droo suggested you just increase your contribution with your employer is because that's easy and comes straight out of your paycheck, whereas you'll have to manually contribute to your Vanguard Roth. Unless you can do some kind of direct deposit thing, I dunno if that's available. You can put money in monthly, quarterly, annually, whatever. Note that the Vanguard Roth IRA is different from the (traditional) IRA at Vanguard that you're going to roll your old 401(k) account in to; it's OK though, you'll have two accounts at Vanguard and they're both very easy to manage.
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Jul 31, 2012 18:02
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Leperflesh posted:
That isn't a problem. As it is I log in about twice a week to see how my 401(k)s are doing (secret: I just like making excel charts). I don't think I'll get much in there this year but next year I can try to get the full $5k in.
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Jul 31, 2012 18:09
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Leperflesh posted:Yeah, you should continue to make your 401(k) contributions to your employer's account, to get the matching money. That 25% guaranteed "return" (the employer match) is better than anything you can get elsewhere, even if it's got stupid high expense ratios. You can set up Vanguard to automatically withdraw from a checking account, so if it has a better expense ratio it might be better to contribute to past the employer match.
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Jul 31, 2012 18:36
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SlightlyMadman posted:You can set up Vanguard to automatically withdraw from a checking account, so if it has a better expense ratio it might be better to contribute to past the employer match.
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Jul 31, 2012 19:23
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Droo posted:2. Invest the vanguard money in whatever combination of the "total stock market" and "total bond index" makes you comfortable. quote:3. You don't have enough money saved. Double your 401k contribution rate. This, a hundred times. CH, you are not out of the woods yet. You've been working how many years, supporting how many family members, but I have more saved up for retirement, a single guy in his mid-20s volunteering in a third world country who's never had a real job? 
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Jul 31, 2012 20:35
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Should go without saying, but make sure you confirm that the expense ratios are actually lower at Vanguard before rolling over. Some employer plans actually give you access to index funds that have lower expense ratios than the Vanguard entry-level funds.
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Aug 1, 2012 02:13
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OK, not quite a 1%er dilemma but probably sounds close to a lot of people. (To my mind, I'm effectively as far away from a 1%er as most people.) Sorry, but it's a bit lengthy. Background:
I have two-and-a-half questions: 1) I need to get a holistic strategy ready and want to get some professional consultation. What sort of financial advisor should I see and how should find this rara avis? I don't want some guy who will push his special whole life product or whatever, just someone who can give me some solid advice about how to think about these things and doesn't have an angle. In most cases, a personal recommendation seems to work well. However, most people recommended to me are by coworkers who want to seem like financial hotshots and (to my limited viewpoint) have "social" advisors rather than practical advisors (networking associates, advisors who are perceived to be high-status, advisors who advise aggressive turnover strategies because that's what their clients want -- for action!). The professionals in my wife's circle are generally even worse, because her field is higher-income than mine and also more socially-conscious (and not in the "go green!" way), making these tendencies worse. 1a) Exception: our tax accountant, who is also a financial advisor, is a genius and has saved us (and me, before we were married) more money than I thought I could realize on taxes. However, as he services my wife's professional circle, he's pricy. In lieu of a better option coming along, I think my best bet to bite the bullet and pay his very high consultation fee for the (I'm guessing) 1-3 hours of time this should take over 2-3 meetings/calls. However, 1 hour of his time is close to 1 day of pre-tax income for me. 2) In the meantime, what should I do with my non-advantaged investments and surplus money to try to maximize long-term returns (i.e., reduce drag)? Diversified Vanguard ETFs? TIPS? Honestly, it'll be at least a couple of months before I can get everything in order, find/meet with an advisor, and get a solid strategy down, so is there something I'm missing to at least park my additional investments in something low-drag, or preferably some tax-advantaged/deferred arrangement? I am reading the Four Pillars of Investing. I think I am handling the basics well (avoiding timing the market, maximizing free money, Roth backdoor, diversifying vulnerable assets like my company's stock, etc.), but I need to step it up to get the maximum advantage. Opinions? Thoughts? Catwoman-like rants about wondering how I thought I could live the high life so long without it crashing down around me?
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Aug 1, 2012 14:28
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I know this thread seems to love the four pillars of investing, but its "buy and hold index funds" philosophy is far from a panacea and would have resulted in having most of your wealth wiped out in 2008. Generally speaking even long term investing now is agreed upon to require more active management and continual due diligence if you expect to be successful should a correction like 2008 happen again. The truth is, investing in the markets right now is scary. Bond yields are historically low, the dollar is close to deflation, equity markets are incredibly volatile, most leading countries are saddled with debt, the Fed is having an undue amount of influence on prices, and capitalism itself is going through some very turbulent waters. If you want to truly diversify your holdings, you should be doing it across return drivers as well as asset classes. Some of your money should be getting allocated according to momentum/trend following, some via spread/arbitrage, and some via fundamental analysis of its assets. This is a tall order for an individual investor without lots of money to invest. The bottom line is if you are simply buying that Vanguard equity index fund or treasury bills (particularly long-term treasuries) you are probably being exposed to much more short term and long term risk than you think. edit: the usual disclaimer, this is not financial advice and anything you do shouldn't be done without consulting your financial advisor nebby fucked around with this message at 16:42 on Aug 1, 2012 |
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Aug 1, 2012 16:35
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nebby posted:I know this thread seems to love the four pillars of investing, but its "buy and hold index funds" philosophy is far from a panacea and would have resulted in having most of your wealth wiped out in 2008. Generally speaking even long term investing now is agreed upon to require more active management and continual due diligence if you expect to be successful should a correction like 2008 happen again. Even if you put all of your money into a stock index fund when the market was at it's peak in 2007 and never bothered to invest any more money into the market, you'd only be down around 10% right now (and that is completely ignoring dividend payments that you would be getting). If you were actually doing what you should and invest money regularly into the index fund, you'd be doing pretty well right now since all of the money invested post crash would have great returns that more than offset whatever you put in during the 1.5 years when the market was slightly higher than what it is at now. The only way 2008 would have wiped out most of your wealth is if you were a moron and sold while the market was depressed which goes against everything the four pillars of investing teaches. evilalien fucked around with this message at 16:56 on Aug 1, 2012 |
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Aug 1, 2012 16:54
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evilalien posted:Even if you put all of your money into a stock index fund when the market was at it's peak in 2007 and never bothered to invest any more money into the market, you'd only be down around 10% right now (and that is completely ignoring dividend payments that you would be getting). If you were actually doing what you should and invest money regularly into the index fund, you'd be doing pretty well right now since all of the money invested post crash would have great returns that more than offset whatever you put in during the 1.5 years when the market was slightly higher than what it is at now. The point is if you started this plan say 30 years ago and were planning to retire in 2008-2012, you would be pretty hosed and would not be able to retire or would do so with a lifestyle worse than you expected. The point is the buy-and-hold-index-funds strategy is still *incredibly risky* since it is subject to near-term equity market conditions at the time of retirement (acceptable P/E ratios) and for bonds, interest rate risk, that could wipe out your holdings at just the time you need them. Not only is it not a silver bullet but it's actually a fairly risky way to play, since it presumes you don't use your brain, you just pile more money into investments you don't really understand.
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Aug 1, 2012 17:13
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I'm guessing you've done this, but have you asked your accountant for a referral?
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Aug 1, 2012 17:18
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nebby posted:Yeah I never said anything about how much you'd have now. As you said, four years later you would still have lost money, nevermind the fact that inflation would have eaten into your principal as well. That was a hypothetical situation to show the worst case and does nothing to prove your point, so I'm not sure why you see it that way. Nobody puts a huge chunk of money into the market at one time and then never invests again unless they are an idiot. Why are you making up these incredibly situations. No sane person should have had that much stock exposure in 2008 in their retirement accounts if they were planning to retire in between 2008-2012. Also if you look at a 30 year graph of the S&P 500, you would see that they would have a ridiculous return on their investments over that period even if they never bothered to reallocate into a more conservative portfolio over that time.
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Aug 1, 2012 17:19
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evilalien posted:Why are you making up these incredibly situations. No sane person should have had that much stock exposure in 2008 in their retirement accounts if they were planning to retire in between 2008-2012. Also if you look at a 30 year graph of the S&P 500, you would see that they would have a ridiculous return on their investments over that period even if they never bothered to reallocate into a more conservative portfolio over that time. I get nervous when I see people discussing passive, mindless investing as if it is a sure thing, even over a long time window. 30 years from now, the U.S. dollar may be worth a lot less, inflation may be rampant, the Chinese economy may be the largest in the world, and along the way many "safe" countries may have defaulted on their debt. You just don't know. poo poo happens. I think any formulaic approach to investing is a dangerous path. You need to be aware of the conditions in which you are investing, you need to understand the securities you are purchasing, and you need to understand that diversification does *not* mean "X% U.S. large-cap stocks and (100-X)% U.S. bonds." I don't know what the future holds but I do know that there will be many surprises.
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Aug 1, 2012 17:43
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Yeah it would really suck if we were wandering the wasteland in search of a precious gallon of gasoline, and I found out my retirement portfolio wasn't keeping up with inflation.
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Aug 1, 2012 17:52
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Great, you've gone from saying that the four pillars of investment strategy would have lost you most of your wealth in 2008 (which as we have gone over is completely false) to something else entirely. Good luck with whatever you choose to do.
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Aug 1, 2012 17:55
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SlightlyMadman posted:Yeah it would really suck if we were wandering the wasteland in search of a precious gallon of gasoline, and I found out my retirement portfolio wasn't keeping up with inflation.
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Aug 1, 2012 17:57
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evilalien posted:Great, you've gone from saying that the four pillars of investment strategy would have lost you most of your wealth in 2008 (which as we have gone over is completely false) to something else entirely. Good luck with whatever you choose to do. edit: again. I have two points to make. First, understand the markets and what you are investing in before you invest. Do not just mindlessly plough your hard earned money into index funds regardless of market conditions. This should be common sense. If U.S. stocks are overvalued, maybe you should avoid buying them. Being lazy, passive, and uneducated about your investments and making decisions based upon faith in the future being like the past is a bad idea. Second, understand that diversification does not mean a split between large cap U.S. stocks and U.S. bonds but many asset classes *and* return drivers of those asset classes. If you are buying-and-holding you are betting on certain return drivers being the dominant source of returns over the life of your portfolio, and betting *against* others. You should at the very least be aware that this is the case. For a more detailed treatment of this see: http://www.amazon.com/Expected-Returns-Investors-Harvesting-Rewards/dp/1119990726 nebby fucked around with this message at 18:19 on Aug 1, 2012 |
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Aug 1, 2012 18:10
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nebby posted:You would have taken a major haircut on whatever part of your portfolio was in U.S. equities. You keep saying this and it isn't true. Sure you would have been negative in 2008 when the market hit bottom, but as of right now you would be much better off since you would have gotten a lot of money in when the prices were low. nebby posted:edit: again. I have two points to make. First, understand the markets and what you are investing in before you invest. Do not just mindlessly plough your hard earned money into index funds regardless of market conditions. This should be common sense, but being lazy, passive, and uneducated about your investments and making decisions based upon faith in the future being like the past is a bad idea. Second, understand that diversification does not mean a split between large cap U.S. stocks and U.S. bonds but many asset classes *and* return drivers of those asset classes. If you are buying-and-holding you are betting on certain return drivers being the dominant source of returns over the life of your portfolio, and betting *against* others. You should at the very least be aware that this is the case. For a more detailed treatment of this see: http://www.amazon.com/Expected-Returns-Investors-Harvesting-Rewards/dp/1119990726 Valid points, but please stop making up poo poo to back them up.
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Aug 1, 2012 18:18
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nebby posted:Some of your money should be getting allocated according to momentum/trend following, some via spread/arbitrage, and some via fundamental analysis of its assets. This is a tall order for an individual investor without lots of money to invest. quote:If you managed to move over a majority of your portfolio to fixed income strictly based upon your age, good for you, you managed to "outsmart" most investors and avoid the crash based upon luck since it happened to be an equities crash not a bond crash. First you say that you need to be more cognizant of market forces and try to time the market, but go on to say that if someone hypothetically did exactly that then they were just lucky? What exactly is it that you think is the "right" strategy, then? Trusting your money to an actively managed fund that's less likely to outperform its benchmark than if you had allocated your portfolio using a dart board? edit: quote:First, understand the markets and what you are investing in before you invest. Do not just mindlessly plough your hard earned money into index funds regardless of market conditions. This should be common sense. If U.S. stocks are overvalued, maybe you should avoid buying them. Being lazy, passive, and uneducated about your investments and making decisions based upon faith in the future being like the past is a bad idea Anyone who tells you they know what the market is going to do is a liar. How do you know that US equities are overvalued? On whose advice are you making that call? Analysts of the market get poo poo wrong just of often sportscasters. It's utter guesswork. If you're more comfortable with it because it makes you feel empowered, then go right ahead and allocate your retirement portfolio based on hot tips and whatever Baird's research department has to say. I'll stick to the strategy that involves no gambling masquerading as "diversification". bam thwok fucked around with this message at 18:29 on Aug 1, 2012 |
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Aug 1, 2012 18:21
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evilalien posted:You keep saying this and it isn't true. Sure you would have been negative in 2008 when the market hit bottom, but as of right now you would be much better off since you would have gotten a lot of money in when the prices were low. The entire premise of the four pillars of investing (when I read it 10 years ago, i might be wrong on this) is that steady buy-and-hold investing into indexed U.S. stocks and bonds with periodic rebalancing based upon time-to-retirement is the sanest strategy towards realizing the miracle of compounding interest. It has two flaws: first, it uses a flawed understanding of diversification. Buy-and-hold only "diversifies" your portfolio across two sources of returns: fundamentals and market sentiment. This is why in 2008 *many* markets dropped, not just U.S. equities. Second, and this is subjective, it makes the mistake of telling investors that they should not actively be engaged in their investments, that they can't outsmart the market, and they should just trust to blind faith the strategy of buying the market and holding onto it. This is a *horrible* attitude to have when it comes to something as important as managing your net worth in my opinion. You should not be making investment decisions based upon blind faith in the particular markets and time periods that one particular author chose to prescribe as the ones to be investing in. You should be aware of current events, basic macroeconomics, finance, and valuation of securities, and invest accordingly over time subject to market conditions.
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Aug 1, 2012 18:28
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The main issue is that there's a false parity here about investing in your own business [whether it's running a subway or actively investing in companies (a business)], and passive investing when you have a pile of cash that you don't have time, desire or ability to tend. When your cash needs to be passively invested, the most statistically successful way is broadly diversified indexing. If you want to invest in your own active business, and you can make money that way, good on you, you're typically going to make much more than passive returns if you're successful. That doesn't mean active investment > passive, indexed investment. It means they're entirely different things. Passively investing in someone else's active fund (business) is a pretty good way to make *them* money. 
Unormal fucked around with this message at 18:33 on Aug 1, 2012 |
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Aug 1, 2012 18:31
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bam thwok posted:It's utter guesswork. What matters is that you should be *conscious* of these things so that if something really plainly obviously bad is happening with regards to your investments, you can react in an intelligent way. What matters is you understand that unless you are diversifying across many asset classes and return drivers, your entire portfolio is going to head in the same direction in certain conditions. Both of these assumptions go directly against the "I don't understand basic economics so I am going to just buy and hold the entire U.S. market" strategy of investing that is common these days.
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Aug 1, 2012 18:37
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nebby posted:I claimed you would have taken a haircut in 2008. This is a fact. Yes, if you kept working and ploughing more money in, you would have earned a positive return on that portion of your income. The part of your savings you earned up to 2008 and left in U.S. equities, as you mentioned, would still be down by some %. Depending on your timing, goals, and overall expectations this could be horrible performance. No, only the money you put in during 2007 and the short period of time in 2008 when the market was barely higher than it is now would be negative (also possibly in 2000 if you want to go that far back judging by the S&P/Nasdaq). This means very little once you factor in dividends and all the money that was put in over that time when the market was far lower than it is now. There is no starting point pre crash that would leave you negative now if you kept investing regularly. evilalien fucked around with this message at 18:42 on Aug 1, 2012 |
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Aug 1, 2012 18:39
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nebby posted:This, to me, is a myth. You can look at the fundamentals of companies to decide if, on par, they are *probably* reasonably priced. You can look at the yield curves, macroeconomic trends, and fed minutes to decide if there is a better than even chance interest rates are due to go up. If your plumber is buying ZNGA, maybe it's time to pull back a bit on stocks. If things are looking particularly optimistic and you're sitting on 1.5% yielding 30-year treasuries, maybe you should move into shorter-term bonds. It's not that you can't make money this way, people do. Many fund managers can beat the market consistently; but not by more than their fees, on average. If you can do it with your own money, great; but it's not passive investing. It's a job, you're spending hours to earn additional money. It's not better than passive investing, it's a way to spend hours for money. If someone has comparative advantage in their own non-financial career vs how much they could net over the market with hours put into it, they're better off just picking a risk on their passive investments and spending 0 hours on it, and earning money with their hours in at a higher rate.
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Aug 1, 2012 18:44
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