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How well does the value averaging approach hold up to mistakes in your assumption about the expected average return, I wonder?
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Jan 16, 2013 19:20
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I'm giving my sister some portfolio advice, and while I have a fair bit of knowledge, there's something I'm not quite sure about: My sister is very unsure as to whether she's going to buy a house any time soon, which makes setting the time horizon pretty difficult. The way I've decided to think about it, is that if there's a 50% chance she needs the money at 5 years out, and a 50% chance she needs the money 40 years out, her time horizon is .5(5)+.5(40) or 22.5 years. Is this a good way to think about it or could there be a better approach in the face of uncertainty.
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Jan 16, 2013 20:23
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slap me silly posted:How well does the value averaging approach hold up to mistakes in your assumption about the expected average return, I wonder? edit: confused, I don't think I made any assumptions about an expected average return, although I may just be misunderstanding you. Care to elaborate? I don't mind being wrong. Sephiroth_IRA fucked around with this message at 00:41 on Jan 17, 2013 |
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Jan 16, 2013 20:30
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Welp, just opened a Vanguard Roth IRA account. My first big step into a larger world! I have just began a 'real' job after grad school. They deposit 8% into a 401K (w/o matching) in a low-risk/low-growth fund so I figured I could max out a Roth IRA each year and start building additional retirement savings. Vanguard needs a 3k minimum for each account, so I just put 3.5k into Vanguard 500 Index Fund Investor Shares (VFINX) for now, but under last year's limit. I hope. All of this is very new to me and I have a lot to learn. Picking up change in the school parking lot in hopes of finding enough for food (no food stamps for students! grr) is actually easier and less worrisome than this  Is it pretty common to setup direct deposit with Vanguard? It would be handy to have ~$215 each paycheck drop into the account so I hit my yearly contribution limit without effort. Delta-Wye fucked around with this message at 00:02 on Jan 17, 2013 |
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Jan 16, 2013 23:58
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slap me silly posted:How well does the value averaging approach hold up to mistakes in your assumption about the expected average return, I wonder? I have value averaged for about 6-7 years. Up to year 3, actual return clearly was lower than expected return due to the financial crisis in '08. But it was not a big deal... I just started lagging in my ability to pad the account to make up for the losses. The subsequent 3+ years went up drastically more than expected average return... which now leaves me with a huge cash pile. Someday it will be put to work, but it could take a year, 2, or 10... time will tell if the cash drag will be detrimental to my longterm returns. Basically if longterm, you underestimate the return, you will have an ever growing pile of cash. the nice thing is that this also means you are exceeding your goals.. You pretty much have to turn off your brain and do it.
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Jan 17, 2013 00:30
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Yeah, the scary thing about value averaging (based on what I've read) is that keeping it up during a prolonged bear market goes against every natural protectionist instinct you have but you tend to be rewarded for it if/when the market recovers.Delta-Wye posted:Welp, just opened a Vanguard Roth IRA account. My first big step into a larger world! I have just began a 'real' job after grad school. They deposit 8% into a 401K (w/o matching) in a low-risk/low-growth fund so I figured I could max out a Roth IRA each year and start building additional retirement savings. Vanguard needs a 3k minimum for each account, so I just put 3.5k into Vanguard 500 Index Fund Investor Shares (VFINX) for now, but under last year's limit. I hope. All of this is very new to me and I have a lot to learn. Picking up change in the school parking lot in hopes of finding enough for food (no food stamps for students! grr) is actually easier and less worrisome than this I'm guessing you don't have any choice in where your 401k funds are invested?
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Jan 17, 2013 00:43
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Delta-Wye posted:Is it pretty common to setup direct deposit with Vanguard? It would be handy to have ~$215 each paycheck drop into the account so I hit my yearly contribution limit without effort. That's exactly how I have it set up. My IRA funds never hit my bank account, they go straight to vanguard. It's great that way because I never miss it cause it's never really mine to spend.
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Jan 17, 2013 00:45
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Orange_Lazarus posted:^Thanks. Quoting this because it makes so much sense. I've been simply dropping the maximum allowed amount every year for the past 4 years. But wouldn't Value Averaging mean you have to actively maintain your account to see what you need to contribute in terms of +/- on your investment? obi_ant fucked around with this message at 01:14 on Jan 17, 2013 |
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Jan 17, 2013 01:11
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Daremyth posted:That's exactly how I have it set up. My IRA funds never hit my bank account, they go straight to vanguard. It's great that way because I never miss it cause it's never really mine to spend. There was a small upwards COL adjustment for the new year, so I will really not notice that my paychecks are a bit smaller. Orange_Lazarus posted:I'm guessing you don't have any choice in where your 401k funds are invested? It is currently going into Janus Balanced N (JABNX) with Fidelity. I could look into moving it to another fund, but wouldn't know where to move it to. EDIT: Looks like I have about a dozen different choices at Fidelity.  I guess I'm going to need to do some research to figure out if there is a better distribution for my money.
Delta-Wye fucked around with this message at 01:31 on Jan 17, 2013 |
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Jan 17, 2013 01:14
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Copy/Paste the list of options you have available to you. I'm sure more experienced people would be happier to look over it for you.obi_ant posted:Quoting this because it makes so much sense. I've been simply dropping the maximum allowed amount every year for the past 4 years. But wouldn't Value Averaging mean you have to actively maintain your account to see what you need to contribute in terms of +/- on your investment? I'm really new to investing and like you for the last two years I just dumped 5k in at the beginning of each year so I haven't yet put value averaging into practice. That said, yes I'm fairly sure that you will have to actively manage your account more often in order to distribute funds. The biggest challenge (or so I've read, it makes sense) is to continue with the strategy during a prolonged bear market, because when everyone else is panicking your supposed to stay cool and collected and continue to invest in funds that people are calling losers and invest less in funds that people are calling winners. I mean imagine applying the value averaging strategy when a fund you've been investing in for years has just lost almost 50% of it's value over the course of a few months, like the Vanguard 500 index did during the financial crisis. https://personal.vanguard.com/us/FundsSnapshot?FundId=0040&FundIntExt=INT This article does a better job explaining it: http://www.valueline.com/Tools/Educ...ent_Target.aspx Sephiroth_IRA fucked around with this message at 02:52 on Jan 17, 2013 |
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Jan 17, 2013 01:45
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Orange_Lazarus posted:Copy/Paste the list of options you have available to you. I'm sure more experienced people would be happier to look over it for you. Bond/Managed Income | Intermed Government | SPTN INT TR IDX ADV Bond/Managed Income | Intermediate-Term | NT AGGREG BOND INDEX Bond/Managed Income | Intermediate-Term | PIM TOTAL RT INST Bond/Managed Income | Stable Value | FIXED INCOME FUND Short-Term Investments | -- | FIMM MONEY MKT INST Stock Investments | Company Stock | COMPANY STOCK FUND Stock Investments | Large Cap Blend | NT S&P 500 INDEX Stock Investments | Large Cap Blend | VANG IS TL STK MK IP Stock Investments | Small Cap Growth | TRP INST SM CAP STK Stock Investments | Small Cap Blend | NT RUSSELL 2000 INDX Stock Investments | World | HARRIS OAKMRK GLOBAL Stock Investments | Foreign | NT ACWI EX-US IDX DC Stock Investments | Diversfd Emerging Mkts | OPP DEVELOPING MKT I Stock Investments | Asset Allocation | JANUS BALANCED N 100% The company stock is something I will put some in for shits and giggles. The estimated fee is several orders of magnitude lower than some of the others and really, why not? VANG IS TL STK MK IP (VITPX) also looks promising.
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Jan 17, 2013 01:57
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DuckConference posted:My sister is very unsure as to whether she's going to buy a house any time soon, which makes setting the time horizon pretty difficult. The way I've decided to think about it, is that if there's a 50% chance she needs the money at 5 years out, and a 50% chance she needs the money 40 years out, her time horizon is .5(5)+.5(40) or 22.5 years. Is this a good way to think about it or could there be a better approach in the face of uncertainty. Looking at the need for the money from a human perspective, in my opinion one may want to give more than 50% to the option of needing the money in 5 years. You may give up return to some extent, but it seems prudent to err on the side of caution (meaning needing it sooner) in cases such as these.
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Jan 17, 2013 02:49
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Orange_Lazarus posted:Essentially DCA (Dollar Cost Averaging) is a strategy where you invest a set amount each month. So instead of tossing $5.5k into your desired funds at the beginning of each year you instead invest a set amount (Say $100) into the fund at set intervals (let's say weekly). This increases the chance that you will spend less on average throughout the year. By spend less on average do you mean like a forced savings plan? It sounds like a great method of reducing the variance associated with selecting an entry point, but it'll mean both smaller gains and smaller losses.
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Jan 17, 2013 03:33
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Pieces posted:By spend less on average do you mean like a forced savings plan? It sounds like a great method of reducing the variance associated with selecting an entry point, but it'll mean both smaller gains and smaller losses. Sure, you'd have smaller gains than if you happened to make your entire investment at a low point, but usually if you're investing with a long time frame you're not trying to time the market. Spending less on average just means that you end up buying more shares when the security is cheap and less when it's expensive. If you spend $1000 on January 1st when the thing you're buying costs $100/share and another $1000 in July when it costs $200/share, you end up with 15 shares (10 from January and 5 from July) with an average cost per share of $133.33. The idea is you generally don't know which way a stock is heading, but spacing your buys out are going to let you grab more shares when it's relatively cheap. ----------- Question of my own, how would one use value averaging in the context of something like a tax-advantaged IRA where the amount you can invest is capped on a dollar basis? Value averaging calls for spending more cash if the investment value didn't increase as quickly as expected, but the only way you'd have room to contribute more to your IRA in this way is if your expected investment growth calls for leaving IRA contributions on the table, right? Is the idea that you max out tax-advantaged contributions anyway, but make up the extra value somewhere else like a taxable account?
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Jan 17, 2013 09:02
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Shear Modulus posted:
In my case, taxable accounts represent about 2/3 of my investments, so it is a non-issue for me. However, always max out yur IRA and just leave a money market account in the IRA as a cash bucket that is NOT considered invested money for VA purposes.
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Jan 17, 2013 09:43
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Shear Modulus posted:Sure, you'd have smaller gains than if you happened to make your entire investment at a low point, but usually if you're investing with a long time frame you're not trying to time the market. You will have smaller gains because you haven't been in the market with as much money for as long as if you dump it all at once. If you believe that investing has a positive expectation, you should be in it as long as possible. If you don't, don't get in it. All any of the cost averaging stuff is is a expectation/risk tradeoff like any other. For Dollar Cost Averaging, you can get the same thing by just having a less risky portfolio. For Value Cost Averaging, you can get the same thing by rebalancing. There is no magic.
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Jan 17, 2013 12:44
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Delta-Wye posted:There was a small upwards COL adjustment for the new year, so I will really not notice that my paychecks are a bit smaller.
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Jan 17, 2013 14:55
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Shear Modulus posted:Sure, you'd have smaller gains than if you happened to make your entire investment at a low point, but usually if you're investing with a long time frame you're not trying to time the market. Wouldn't dollar cost averaging have a neutral EV since you're just as likely to pay more for less shares as you are likely to grab more shares for cheap? As I said above, it just seems like a method to reduce variance, but since the market SHOULD/will increase over the long term, doesn't the single large investment benefit a young investor (looking at a 30-40 year horizon). I see no benefit aside from a budgetary perspective where one could have an automated contribution on a weekly basis which may be easier for some people than saving up a lump sum.
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Jan 17, 2013 16:34
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I haven't done the math on this, but I think it has to do with when there's a selloff it's quick (1-2 months) but when there's growth it's generally over a longer period of time. So by spreading out the investments, you're less hurt by sharp drops and don't lose out on much gain.
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Jan 17, 2013 16:49
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Yeah honestly I really wasn't impressed much by DCA and just paraphrased what I think Berenstein wrote in The Four Pillars, so I could have gotten the "benefits" wrong, I'll double check when I get home. Value Averaging seemed way more beneficial so I focused on that instead. Kinda sucks for me though because I still haven't met the minimums for a lot of the funds I want, so basically I'm just funding a Target Retirement until I can reach 3k minimums.
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Jan 17, 2013 17:30
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If I opened a Roth IRA over five years ago and made regular monthly contributions, and then withdraw the full amount before age 59.5, do I just owe 10% of the earnings for the whole amount since the account is over five years old? If there's not a rollover, just contributions, does the five year rule apply to the Roth itself and not for each individual contribution?
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Jan 18, 2013 03:00
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I'm currently contributing to a 401k and a roth 401k but not a roth ira. I do plan to make a house purchase and may end up waiting 5 years to do so. I understand the roth ira could help with that but are there other reasons I should have a roth ira when I already have a roth 401k?
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Jan 21, 2013 15:43
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Reading up on IRAs, I see Vanguard thrown around a lot in these forums. What makes them better than TDAmeritrade, Scotttrade or one of the many others?
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Jan 21, 2013 16:14
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Lysandus posted:Reading up on IRAs, I see Vanguard thrown around a lot in these forums. What makes them better than TDAmeritrade, Scotttrade or one of the many others?
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Jan 21, 2013 16:16
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Vanguard is structurally a coop. The central organization is owned by the funds, which are owned by the fund investors. Thus Vanguard's obligation is ultimately to its customers, leading to them charging at-cost of providing the service. The others are typically publicly traded companies which are obligated to maximize profits for their shareholders, whose interests can sometimes conflict with those of the investors. But that said, the non-Vanguards can have better prices and tools for things that Vanguard doesn't specialize in, or in things that the other companies are treating as loss-leaders in hopes of roping people into other more lucrative products. So it's still worth shopping around, but Vanguard is usually a very good bet.
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Jan 21, 2013 17:27
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Yeah, I just read what Progressive said about Vanguard being owned by its customers in The Four Pillars. The lower fees are actually the result of their business model and I think they're actually the reason why the other companies significantly lowered their fees. I'm really happy I'm with them.
Sephiroth_IRA fucked around with this message at 18:12 on Jan 21, 2013 |
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Jan 21, 2013 17:41
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Any comments on using fidelity? My employer offers a 401k through fidelity. I was considering moving my usaa ira to them mostly so I can view assets on one account. Is vanguard so much better to justify the relative inconvenience? Velochis fucked around with this message at 20:37 on Jan 21, 2013 |
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Jan 21, 2013 20:25
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Progressive JPEG posted:But that said, the non-Vanguards can have better prices and tools for things that Vanguard doesn't specialize in, or in things that the other companies are treating as loss-leaders in hopes of roping people into other more lucrative products. So it's still worth shopping around, but Vanguard is usually a very good bet. Yep, also unlike a checking account, an investment account is something you would hope to keep for the rest of your life. Moving IRA's is not exactly difficult but it can mean being out of the market for a week, and/or getting signature guarantees or notarized forms (depending on the custodian or the amount being transferred). Shopping for the very lowest fees is a good idea, but once you are at the rock bottom prices of Vanguard, it is not worth worrying about tiny differences in ER's and rather focus on who you want to do business with for the long foreseeable future.
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Jan 21, 2013 20:32
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Velochis posted:Any comments on using fidelity? I don't know anything about Fidelity, but - I use USAA and Vanguard, and USAA will dial up Vanguard secretly in the night so they can show you your Vanguard balances on your USAA accounts page. Maybe they can do it for Fidelity too.
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Jan 21, 2013 20:49
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Fidelities fees were slashed a month ago and they're a lot more in line with the standard vanguard funds. A lot of big companies have followed Vanguards lead with the low ER.
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Jan 21, 2013 21:02
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I just found twenty one ounce silver coins in the closet that I was given years ago as a kid. What should I do with them other than wait for the Ron Paul revolution? edit: Just tried to do some research on Google. Silver investors are loving nuts holy poo poo. How do I trade my silver to someone for "worthless US dollars"? IAMKOREA fucked around with this message at 21:15 on Jan 21, 2013 |
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Jan 21, 2013 21:08
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IAMKOREA posted:I just found twenty one ounce silver coins in the closet that I was given years ago as a kid. What should I do with them other than wait for the Ron Paul revolution? Look for a local dealer or ship to a reputable one like Apmex.
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Jan 21, 2013 21:17
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80k posted:Look for a local dealer or ship to a reputable one like Apmex. Would it be better to sell now and put the money in an IRA or wait?
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Jan 21, 2013 21:22
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I'm in a similar position and I'm just doing nothing with them.
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Jan 21, 2013 21:39
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IAMKOREA posted:Would it be better to sell now and put the money in an IRA or wait?
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Jan 21, 2013 22:20
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Sell them fast. Everyone I know who has precious metals within easy reach at all times is a crazy nut. Therefore, I have determined that the metals themselves are turning them into crazy nuts. Limit your exposure, friend, before you too are writing geocities-esque 200-page long single-page websites consisting mostly of conspiracy theories, bad economic arguments, and backlinks to infowars.
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Jan 21, 2013 22:24
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Delta-Wye posted:Everyone I know who has precious metals within easy reach at all times is a crazy nut. This is why I keep my precious metals in a safety deposit box at my CU far away from reach. 
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Jan 21, 2013 22:50
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disheveled posted:I have now become aware that I am ineligible for IRAs for the next 8-ish years because I do not have earned income, and thus I need to move money out of my Roth IRA and into a taxable account. I'm currently just holding VFIFX. I've learned the basics of investing for retirement, but I've never considered the implications of investing long-term (that is, at least 8 years) in anything but a tax-advantaged account. Any primers? I see you mention that you are going for a PhD. I'm considering opening a Roth IRA. (two jobs; self employed contractor and corporate employee) But next fall I will be attending graduate school for the foreseeable future. If I'm going to spend the next 5-6 years making money from fellowships, stipends, and TAing, is it a bad idea to open a Roth? Can I not put this money into an IRA? If so, that is a bummer. I was really hoping to just stash away monthly cash in a Roth IRA and let compound interest do it's work until I'm old enough to use it and use a taxable account as away to cover myself if I end up retiring earlier.
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Jan 22, 2013 19:15
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dudemanbudguy posted:I see you mention that you are going for a PhD. I'm considering opening a Roth IRA. (two jobs; self employed contractor and corporate employee) But next fall I will be attending graduate school for the foreseeable future. If I'm going to spend the next 5-6 years Fixed this for you.
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Jan 22, 2013 20:28
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| # ? May 26, 2024 00:13 |
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dudemanbudguy posted:I see you mention that you are going for a PhD. I'm considering opening a Roth IRA. (two jobs; self employed contractor and corporate employee) But next fall I will be attending graduate school for the foreseeable future. If I'm going to spend the next 5-6 years making money from fellowships, stipends, and TAing, is it a bad idea to open a Roth? Can I not put this money into an IRA? As far as I am aware, you can only put money into an IRA if you have taxable income, which I guess you won't while you're a graduate student? So you can contribute money into an IRA with the income you have now from your two jobs, but once you quit those you'd only be able to contribute to taxable accounts I guess.
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Jan 22, 2013 20:48
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