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I've just discovered this thread; it's been incredibly informative. However, there are a couple questions I haven't seen answers to. Is anyone familiar with Ian Ayres' and Barry Nalebuff's Lifecycle investing strategy? The short version is that you should diversify your exposure over time as well as investments, by leveraging (or buying options) when young and rebalancing to insure you don't go over your head. They lay out a pretty compelling case for it. Any opinions on it? What would be a good brokerage with low fees where I could mostly handle my own investing but still get sanity checks/a sounding board? I'm a reasonable savvy investor but I don't want to make any expensive mistakes because I haven't studied U.S. tax laws 
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Aug 8, 2012 23:16
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Xand_Man posted:I've just discovered this thread; it's been incredibly informative. However, there are a couple questions I haven't seen answers to. If you haven't already read it, this is an epic thread on this topic: http://www.bogleheads.org/forum/viewtopic.php?t=5934 I've strongly considered this approach but so far have been settling for ignoring 'age in bonds' advice and just going 100% equities. Part of the problem is what is an efficient approach to add leverage. Any true margin borrowing is usually not possible as you tie up capital to maintain a margin. Leveraged ETFs have their own disadvantage. Fidelity has some leverage funds, but my IRA is with Vanguard and my Fidelity 401k doesn't offer the leveraged funds.
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Aug 9, 2012 05:28
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Here's my take on this, and bear in mind I'm not in any sense an experienced investor. You've got income, right? You want to retire some day, and so you want to save up some money so you'll be secure in retirement. The trouble is, what to do with that money? If you just stuff it in a matress, you'll lose some to inflation over time. That's no good, if you can find something just as safe that will get you a return at least sufficient to counterbalance inflation. So you put it in a bank, maybe stuff it into CDs or money markets or even US treasuries. But now you realize, hey, I'm actually undertaking risk. Maybe the US government will go bankrupt, or a comet will strike down the FDIC, or something. The risk is tiny, but it's there. And what's more, I'm thinking I can tolerate a bit more risk anyway. I'm young! If I lose everything I saved from the age of 20 through the age of 30, well, that would suck really really badly, but I'd still have maybe 35 years before retirement in which to start over and build up a new nest egg. So I can handle some risk in order to get a better return. Okay. In general over long periods I know the market usually goes up. So I can diversify across the whole market and thereby keep risk low while hopefully getting a net return that is justified by the risk. Mutual funds and bond funds, domestic and international, index funds to avoid fees, good. But wait! It sucks that while I'm 20 to 30 and can tolerate the most risk, I have the least amount of money to invest and thus get the smallest returns during the period of highest return-type investments! What if I increase risk by borrowing? I could invest a bunch more money, and thus have more earnings during my years of most-tolerance to risk! Awesome, right? Well, hold on a loving second there. First, investing my actually-earned income has an opportunity cost (I can't blow it all on loose cars and fast women) but borrowing money has the same opportunity cost (I could borrow a bunch of money to buy vacations & blow, or alternatively, student loans and property and starting a small business or something) plus the cost of borrowing! I have to pay interest on the debt. Plus, borrowing has its own inherent risk. If I lose every dollar I earned and invested, I'm out all that money. If I lose every dollar I borrowed, I'm out all that money plus interest (I have to pay it back), but I also have the risk that I ruin my credit and/or wind up bankrupt. I could really gently caress up my quality of life and standard of living if things go bad. But then there's the other possibility: instead of (or in addition to) borrowing money to invest, I'll just invest in leveraged instruments! That way I can go for higher risk, higher potential earnings, but not have to borrow. Right? Well no. Margin investing requires deposits, and you may get margin calls in the short term due to volatility, nevermind the longer-term risk that you get margin calls due to your entire account imploding into a vacuum. And unlike a loan, you don't get a structured, fixed payback schedule, you have to cover your margin calls immediately as and when they occur. You can either keep cash on hand to cover them (another opportunity cost!) or you can sell investments to cover (which means you've lost the advantage of long-term investments, which is that over the long term history suggests that they will probably go up. In the short term, though, volatility happens and you are quite likely to have to sell an investment while it's down, so you lose more money that you can't get back). Basically, either strategy involves taking on a lot more risk, both financially and in terms of your credit/standard of living. And it seems unnecessary to me. If you really want to you can take on risk without borrowing or leveraging. Buy junk! Buy penny stocks! Play the lottery! Go to Vegas! There's all kinds of stupid-bad super-high-risk gambling opportunities out there that don't involve borrowing, or leveraging your nest egg. Sure, you'll probably lose it all, but you could maybe win the lottery and be set for life! Most people who are serious about investing for retirement would find that last paragraph to be pretty stupid. You're not going to find serious financial advisors suggesting going to Vegas or buying lottery tickets. In my view, however, doing so is significantly better than taking out a huge loan or putting all your retirement investments into leveraged vehicles. That's not to say there's no place for borrowing or leverage! There absolutely is. If you're 25 and have a good income and feel like 100% exposure to stocks isn't enough risk, you could I suppose put 10% of your investment into options or something. And if you've got tons of credit, I guess you could borrow a modest amount of money that you can easily afford to lose and put it into a well-performing stock fund. I wouldn't, but I wouldn't call someone insane if they did. But if you figure that at 28 you'd have $30k in your retirement portfolio, and you want to double your exposure because you read about Lifecycle and think borrowing another $30k to dump in there or leveraging your $30k at 2-to-1 is a great idea, I'd say maybe you'd be better off buying some riskier investments. You could diversify by playing with commodities, perhaps, or buy a collection of poo poo off the pink sheets. Or even pull out some money and invest in fine artwork. Buy a Picasso! It should be possible to put together a higher risk/reward prospect with some percentage of your money, without carrying the additional risk of borrowing or a margin call. Avoid transaction costs, avoid the opportunity cost that comes with running up your debt-to-income ratio, avoid (especially) paying interest on your investments. Of course I could just be talking out of my rear end. Leperflesh fucked around with this message at 20:16 on Aug 9, 2012 |
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Aug 9, 2012 20:11
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I thought options didn't have the possibility of margin calls?
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Aug 10, 2012 05:39
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Leperflesh posted:Of course I could just be talking out of my rear end. Unfortunately you are entirely missing the point. You conflate the idea to increase equity exposure at the beginning of a long time frame to instead mean take on as much risk as possible. In investing there are smart risks (systemic) and dumb risks (non-systemic).
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Aug 10, 2012 15:34
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Xand_Man posted:I thought options didn't have the possibility of margin calls?
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Aug 11, 2012 00:07
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I'm coming into a modest inheritance I and want to make sure it goes to good use. I figure a simple allocation can serve me until I understand portfolio theory well enough to put it to use. 80k, thanks for giving out so many reading recommendations over the years. Six-month emergency fund: Done. Fixed income ~50%: 401k - HIABX (Not the best, but I'm restricted to what I can get through my lovely work plan. .5% expenses, could be worse) Roth IRA - BND 5-year CD ladder The plan here is to let each CD expire, then move each year's redeemed CD into BND with my IRA contribution. Equities: VTWSX 15% VGSLX 10% FAIRX 25% All taxable for the foreseeable, unfortunately. In addition to this, I've got capital set aside for active management. I don't really consider this part of my portfolio, and will be funding it outside of savings.
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Aug 11, 2012 05:23
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G-Funk All-Star posted:Okay, I recently read the Four Pillars and I get it. Individual stocks are bad, active funds are bad, pick an asset mix somewhere along the efficient frontier according to your risk tolerance and invest in a mix of low-cost index funds. Rebalance occasionally (Bernstein suggests every 2-3 years, though you can adjust how new deposits are distributed). Maybe slightly overweight those asset classes which have underperformed recently. Great. Trying again because I got no answers the first time: does anyone know how to actually apply post-modern portfolio theory to pick an asset mix?
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Aug 16, 2012 03:26
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Not sure where the best place to put this is but it might as well be here. I have approximately 150k in federal student loans at approximately 6.8%. I'm currently in my first year of residency and earning 53k/year. Residency will be 5 years, although it's possible but unlikely I'll do an extra year or two. I applied for and got approved for IBR using my 53k/year income that I started earning at the end of June, however I've heard that I can appeal and provide documentation that I'm only earning half of that for the 2012 tax year (since I only began working in June) which would decrease/eliminate my payments for a year. Would it be a silly idea to do that and use the extra ~500/month to repay the other ~50k or so of debt I have, between 1%-5%? The other bright side of this would be to delay my debt repayment for another year under IBR, potentially allowing more debt to be forgiven if I end up doing PSLF.
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Aug 16, 2012 22:31
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Is there anything I need to keep in mind when I set up my SEP IRA as a self-employed individual? I don't anticipate ever having any employees, and if I did, I would set up a company. Also, can I do both an individual 401(k) and a SEP IRA?
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Aug 16, 2012 23:40
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My money's in Vanguard now, and all is well except for one thing: Being new to Vanguard, I can't figure out how to change my portfolio. This is how it's set up right now, and what my 'target' allocation is after taking a quick quiz by them: I did that a few days ago. How do I change my portfolio to match that (or any other distribution, if that one is stupid)?
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Aug 17, 2012 14:04
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CornHolio posted:My money's in Vanguard now, and all is well except for one thing: Being new to Vanguard, I can't figure out how to change my portfolio. This is how it's set up right now, and what my 'target' allocation is after taking a quick quiz by them: It looks like you have everything in a money-market fund. You have to buy other stock and bond funds to get to your target allocation. Click "accounts and activity" under "my portfolio", and there will be a box like "portfolio of cornholio" which will only have money in a money market fund (by the looks of it). You'll need to exchange from the money market fund into other stock and bond funds to meet whatever asset allocation you want to achieve. From that screen you can exchange into funds to meet your needs, or you can go to the "Buy and Sell" tab along the top. Do you have an idea what funds you're trying to buy? Just the target retirement 2025 fund is about 80/30 at this point...
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Aug 17, 2012 14:21
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Unormal posted:It looks like you have everything in a money-market fund. Aah, I found it. Any recommendations based on my above 'target' distribution? CornHolio fucked around with this message at 14:58 on Aug 17, 2012 |
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Aug 17, 2012 14:52
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CornHolio posted:Aah, I found it. 100% target retirement 2025 would pretty much meet your distribution, assuming that's the distribution you want. I'm going to say that sounds like a pretty big assumption. If you wanted to do it with individual funds, you'd want something like: 70% Total World (VTWSX) 30% Total Bond Market (VBTLX) If this is a taxable account, though, just holding total bond market or a TR account (because it has taxable bond funds) can be fairly tax inefficient.
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Aug 17, 2012 15:22
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Unormal posted:100% target retirement 2025 would pretty much meet your distribution, assuming that's the distribution you want. I'm going to say that sounds like a pretty big assumption. I'll do that for now and see if I'm OK with it after a couple of weeks. I really don't want to micromanage it but I don't want to make any bonehead mistakes either.
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Aug 17, 2012 16:12
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CornHolio posted:I'll do that for now and see if I'm OK with it after a couple of weeks. I really don't want to micromanage it but I don't want to make any bonehead mistakes either. I mean if you're not sure what you want to do, just leave it in a money market and keep reading till you feel comfortable. There's no rush to get it all invested.
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Aug 17, 2012 16:14
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I finally have enough saved to create and max out my Roth IRA. I'd like to open a Vanguard account. Can I just open the account and transfer the money from my bank account or do I setup some payment to come from my pay check? I've already been taxed on this money so I'm kind of confused where the tax savings comes from. Someone please set me straight
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Aug 18, 2012 01:36
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FlyWhiteBoy posted:I finally have enough saved to create and max out my Roth IRA. I'd like to open a Vanguard account. Can I just open the account and transfer the money from my bank account or do I setup some payment to come from my pay check? I've already been taxed on this money so I'm kind of confused where the tax savings comes from. Someone please set me straight You can create a Vanguard account and transfer the money directly from a checking account. The tax savings comes from the fact that you will never pay capital gains/dividends tax on the earnings in your Roth IRA and won't pay any taxes on the money you withdraw in retirement. Compared to not having the money in a IRA, this is significant.
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Aug 18, 2012 01:40
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evilalien posted:You can create a Vanguard account and transfer the money directly from a checking account. The tax savings comes from the fact that you will never pay capital gains/dividends tax on the earnings in your Roth IRA and won't pay any taxes on the money you withdraw in retirement. Compared to not having the money in a IRA, this is significant. Buy a high dividend stock, set it to reinvest dividends, and watch it go, tax free. Personally, I've got 16% leveraged reits, although that might be pushing it for risk more than a bit. You're rewarded massively for being risky in your ira (especially roth) accounts though, counter intuitively.
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Aug 18, 2012 13:37
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Residency Evil posted:Not sure where the best place to put this is but it might as well be here. I have approximately 150k in federal student loans at approximately 6.8%. I'm currently in my first year of residency and earning 53k/year. Residency will be 5 years, although it's possible but unlikely I'll do an extra year or two. I applied for and got approved for IBR using my 53k/year income that I started earning at the end of June, however I've heard that I can appeal and provide documentation that I'm only earning half of that for the 2012 tax year (since I only began working in June) which would decrease/eliminate my payments for a year. Would it be a silly idea to do that and use the extra ~500/month to repay the other ~50k or so of debt I have, between 1%-5%? The other bright side of this would be to delay my debt repayment for another year under IBR, potentially allowing more debt to be forgiven if I end up doing PSLF. Wrong place to ask this?
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Aug 18, 2012 17:45
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Residency Evil posted:Wrong place to ask this? You'd probably get better answers in the personal finance thread as you are asking a debt question, not really an investing/retirement question.
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Aug 18, 2012 17:55
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Residency Evil posted:Wrong place to ask this?
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Aug 18, 2012 18:05
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Baddog posted:Buy a high dividend stock, set it to reinvest dividends, and watch it go, tax free. Personally, I've got 16% leveraged reits, although that might be pushing it for risk more than a bit. You're rewarded massively for being risky in your ira (especially roth) accounts though, counter intuitively. I'm curious about this. So if I understand correctly:
Now, obviously, this is still your retirement account. How much of your portfolio is high-risk/high-dividend stocks, vs more stable stocks/funds? The downside is that the REITs could pop at some point and you lose all your money, right?
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Aug 19, 2012 14:44
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Xand_Man posted:Is anyone familiar with Ian Ayres' and Barry Nalebuff's Lifecycle investing strategy? The short version is that you should diversify your exposure over time as well as investments, by leveraging (or buying options) when young and rebalancing to insure you don't go over your head. They lay out a pretty compelling case for it. Any opinions on it? The main problem I had with the book is that it assumes a life-worth of investing that I'm just not comfortable assuming. I mean, in one of the first chapters they're talking about a guy who is getting into banking and they say something like "he can expect to be making 50k+ a year over the course of the next 40 years, so assume a life worth of 2 million" and I was all like: WHAT. Perhaps I am too conservative, but it seems to me that assuming you're going to have the same amount of money to invest in the future is a loving stupid thing to do. Also if you plan on retiring early (a big, big goal of mine), that kind of precludes you from making lifecycle plans of that nature. Hope this helps at all!
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Aug 19, 2012 21:00
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Thanks for the responses. This definitely gives me things to think about; didn't think about using Amazon as a source of rebuttals. A lot of the responses seem like knee-jerk reactions (OMG Leverage will make you lose everything!!!!) but there are enough valid points that I am cautious. I think I will concentrate on asset diversification for now and perhaps have a more modest continually leveraged option.
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Aug 20, 2012 04:48
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Someone tried to employ this strategy (or a similar one) on the Boglehead forum and he happened to start in 2007. You can go find the thread there and read through it still - he provided net worth updates during the crash. I think it eventually got so bad he was margin called out of everything and he was forced to realize a ~200k loss, and didn't get any of the upside he should have in 2009 because he didn't have the capital to stay invested.
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Aug 20, 2012 14:52
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Droo posted:Someone tried to employ this strategy (or a similar one) on the Boglehead forum and he happened to start in 2007. You can go find the thread there and read through it still - he provided net worth updates during the crash. Yeah, it was "market timer", here's his somewhat goony megathread: http://www.bogleheads.org/forum/viewtopic.php?t=5934
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Aug 20, 2012 14:58
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The whole thing boils down to 'market returns outpace the cost of leverage, so leverage to the hilt and invest in the market'. As long as you can assume cheap leverage and good returns it's a pretty solid strategy. I don't think either of those assumptions is fair in the current climate though -- in Market Timer's thread he talks about getting a couple hundred k of leverage at like 2%, which I can't imagine banks going for nowadays, while my personal belief is that historic 10%ish returns on the market will be a thing of the past once issues such as global warming kick in and fundamentally change the playing field in an unprecedented fashion. For market timer in that thread it was a risky strategy that failed to pay off due to market fluctuations, but that was okay because he was earning >$100k/year. For people without incomes on that order I believe it's far too risky when the chance of being wiped out on margin calls is just too high in the current climate.
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Aug 20, 2012 18:47
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As usual, nowhere near an expert, but wouldn't the advice from the Lifecycle investment folks not to leverage beyond 2:1 and not to resort to risky borrowing have prevented that market timer guy from losing everything? I didn't read the whole thread but it seems that he was funding his investments with credit cards and other consumer debt and buying on margin, rather than using an option account that would have avoided the risk of a margin call. It also seems that he was much more heavily leveraged than recommended, starting from 2:1 and going up from there rather than treating it as a ceiling. Skipping directly to the part of their interview that talks about this stuff: https://www.youtube.com/watch?v=-fyjqNIArI0&t=103s Not that I'm convinced or anything, but what are thoughts on a more conservative implementation of this idea, using option accounts and lower leverage ratios?
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Aug 20, 2012 20:04
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Where are they getting a 1% borrowing cost from?
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Aug 20, 2012 20:30
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Alereon posted:As usual, nowhere near an expert, but wouldn't the advice from the Lifecycle investment folks not to leverage beyond 2:1 and not to resort to risky borrowing have prevented that market timer guy from losing everything? I didn't read the whole thread but it seems that he was funding his investments with credit cards and other consumer debt and buying on margin, rather than using an option account that would have avoided the risk of a margin call. It also seems that he was much more heavily leveraged than recommended, starting from 2:1 and going up from there rather than treating it as a ceiling. Skipping directly to the part of their interview that talks about this stuff: I just don't pay off my low-rate mortgage and invest what I would otherwise spend paying off the mortgage in the stock market. Seems like that provides enough leverage for most youngsters without getting fancy and risking any sort of margin call.
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Aug 20, 2012 20:38
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Unormal posted:I just don't pay off my low-rate mortgage and invest what I would otherwise spend paying off the mortgage in the stock market. Seems like that provides enough leverage for most youngsters without getting fancy and risking any sort of margin call.
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Aug 20, 2012 21:23
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Suppose you were considering going to get an MBA, estimated cost $200K. Your current retirement savings is $120K you contribute at least $25K per year (more depending on bonus, but zero employer matching). Would you: A) Continue saving then take everything out of retirement savings to fund the MBA, because it's a regular investment account (e.g. not IRA) and there are no penalties for early withdrawal B) Keep your retirement money and go into debt for the $200K, under the assumption that whatever job you get after the MBA will enable you to pay down the debt fairly quickly C) Do neither because why the hell get an MBA when you can already contribute +$25K/year to retirement I can get into more specifics about my situation if required but figured it's a fairly broad question anyway. Does this just boil down to what returns I can expect on my current savings vs. what rate I can get a student loan at? I feel like I'm missing something. zmcnulty fucked around with this message at 06:08 on Aug 21, 2012 |
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Aug 21, 2012 06:06
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zmcnulty posted:Suppose you were considering going to get an MBA, estimated cost $200K. I'd question why your MBA would cost $200K. That's incredibly expensive, even by today's standards. At that high of a cost, you'd have to get quite the income boost to break even over the course of your career.
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Aug 21, 2012 16:01
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I think your age is important too. Pretend like you blow the $200k but something mysterious happens and you cannot get the job you wanted (or you can't graduate or something). If you are still quite young, you have more time to rebuild that retirement savings than if you are already middle-aged or older. But yeah are you going to an ivy league school or something? And do you already have a bachelors degree? Because $200k just for a two-year masters degree is an awful lot of money.
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Aug 21, 2012 19:26
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I am 27. I just figured $200k would cover tuition, books, living expenses, etc. over the course of the 2 years. Depending on what school I goto, cost of living won't be cheap either. Columbia for example estimates $90K per year. Yes I am planning on shooting for a top 5 school. Not sure what my chances are (besides "low") but just applying won't hurt. My undergrad was also business. zmcnulty fucked around with this message at 23:50 on Aug 21, 2012 |
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Aug 21, 2012 23:47
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polyfractal posted:I'm curious about this. So if I understand correctly: Thats the process. The downside of high dividend stocks is that the gains are usually taxed relatively highly, but you are dodging that, and never have to worry about tax at all in a roth. You definitely need to compensate in your regular accounts for the extra risk you are taking on in your retirement account. And this obviously doesnt work so well for someone close to retirement with almost all their assets in an IRA. I wish I'd figured this out when I was 20. I might have gotten wiped out in 2000 and 2008 though!
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Aug 22, 2012 15:48
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I just got my first job that has any benefits at all and found out they 100% match 401k contributions up to 6%. Feels like winning the lottery. Thanks thread for helping me explain to the 20 other new hires why this is awesome.
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Aug 24, 2012 22:38
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I am Canadian. As of January 1, 2013, I will have $25,000 in cash; $25,000 in laddered 5yr GICs; and $5,000 in a single dividend paying stock: dfn.to. $25,000 in cash sitting in a 2% account seems to be a good amount for short term expenses. The $25,000 in GICs is in a tax free savings account (TFSA) and will increase in value each year by $5,000. Most pay around 3.5%. Now that my cash reserves are full I'm thinking I should open a TD investment account and buy some e-series funds. Keep putting the $5,000 a year in to the TFSA but put the remainder that I would put in my cash account in to the funds. I currently have a MD Financial brokerage account but it doesn't give me access to e-series funds. I like the couchpotato fund guide here and the difference between e-series MER (0.44%) and others (0.75%) is not much. Should I just stick with the current brokerage and suck it up? I'm also thinking of selling the dfn.to shares because they've been pretty bad and don't seem to be going anywhere but down. They pay $0.10 per share monthly dividend, but their value has decreased from $18.70 purchase price to the current $9.99. 52 week spread is $9-$12. I'm thinking I'll probably wait until they get above $11 and then turf them for a capital loss. I'm not a fan of holding single stocks and only own these because my mother traded them for cash in my inheritance when I was too young to care. Seems like a plan? cowofwar fucked around with this message at 23:40 on Aug 30, 2012 |
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Aug 30, 2012 23:35
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I hope hypothetical questions are cool here. How much money would it take to have it earn you $100K a year in relative security? Into retirement age, sure, but lets say you won the lottery at 35, how large would the winnings have to be to make that $100K for the next 60 years?
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Sep 5, 2012 20:45
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