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LTIaRS: Anything you do might (probably will) be worse than 100% VTSAX
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Feb 26, 2017 02:53
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monster on a stick posted:Vanguard World has US and International; the Lifecycle and Target Date funds also has US and International (both bonds and stocks); why not just stick with a TD fund? Makes sense. I guess I was mentally stuck on the idea that it was "eggs in a basket" when it's not really, right? The one thing I may have to do in this year and forward is use my Roth IRA contributions to balance out whatever I'm able to access via the new company's 401K. The current company's 401K match is a joke. The new one's is very generous.
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Feb 26, 2017 06:52
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Murgos posted:LTIaRS: Anything you do might (probably will) be worse than 100% VTSAX Yes. But it might be nice to have a percentage of Total Bond in there as well.
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Feb 26, 2017 14:51
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WarMECH posted:Yes. But it might be nice to have a percentage of Total Bond in there as well. That's an advanced topic and can lead to confusion and allocations to all sorts of questionable things. I'm serious. It's hard enough to get people to accept that the idea that 'beating the market' is not a reasonable goal.
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Feb 26, 2017 15:13
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Blinkman987 posted:Makes sense. I guess I was mentally stuck on the idea that it was "eggs in a basket" when it's not really, right? Right, the diversification (or "eggs in more than one basket") is already there because Total US Stock (one of the components of the Target Date, Lifecycle, and World funds) holds 3500 companies and Total International Stock (also a component of those three funds) holds 6000 companies. VFIAX is the S&P 500 which is most of the Total US Stock fund already. You're making it more complex than it needs to be. Congrats on the generous 401K match! Murgos posted:That's an advanced topic and can lead to confusion and allocations to all sorts of questionable things. I'm serious. Counterpoint: owning bonds as part of deciding your overall risk profile is not an advanced topic, it's actually one of the most important things to do. Otherwise just tell people to buy VBINX or the Target Date fund that corresponds to their retirement age.
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Feb 26, 2017 17:50
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monster on a stick posted:Counterpoint: owning bonds as part of deciding your overall risk profile is not an advanced topic, it's actually one of the most important things to do. Otherwise just tell people to buy VBINX or the Target Date fund that corresponds to their retirement age. Yeah, actually it is. Firstly, you just spent a lot of time convincing someone that market average is the only reasonable goal for a private investor. Now you are saying well, market average plus this other even harder to understand investment vehicle with all kinds of variables can sometimes be better than market average. Oh, btw, any bond allocation means that most years you will under perform market average but you can be saved by the magic of rebalancing also your risk adjusted return will be higher. Good luck with Efficient Frontier and std deviation! Second, there is a lot of FUD about bonds you will have to overcome, especially from the partially initiated whose heard something about interest rates and current historic lows that counter intuitively drive up prices. Third you are probably introducing an active element to their portfolio, time adjusted risk allocation. Your age in bonds? 70/30, 60/40, 30/70? Yeah, compared to "100% VTSMX and you'll do all right" it's advanced.
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Feb 27, 2017 14:55
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This is why we recommend Target Date funds for people who have no idea what they are doing. That way once they learn more about stocks/bonds and everything else you said, they can change to something else if they want no harm done. And if they do nothing, they are all into a Target Date fund and will be just fine. Full disclosure: I've read many books and articles about this topic, and enjoy providing advice to my younger coworkers on how to save for retirement, and I am fully invested in Target Date funds in both my Roth IRA with Vanguard as well as my TSP account with work. My total portfolio numbers are close enough to my desired asset allocation that I find it easier to just set it and forget it than to rebalance on my own every so often. But that's just me.
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Feb 27, 2017 16:06
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Murgos posted:especially from the partially initiated whose heard something about interest rates and current historic lows that counter intuitively drive up prices. This is kind of the reason I haven't put a lot (other than what's in my target life holdings, which is actually now about 20% of my overall holdings, which makes my bonds holdings pretty much negligible. I'm 31 so I've still got at least 20+ years to retirement, which is why I feel comfortable buying up all stocks (index funds). But with bond prices so high, I feel like it's further justification for having a higher risk portfolio. I guess the flip side of the coin is that when bond prices are low, it's actually just because bonds are riskier at that time, so in terms of reducing risk, waiting for bond prices to go down to buy them doesn't make sense, buuuuuuu... I dunno, do you feel like going into more details? Especially because you mention it's "a lot of FUD" so it makes me think I'm wrong, which is fine, but then I'd like to fix it.
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Feb 27, 2017 16:17
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totalnewbie posted:I dunno, do you feel like going into more details? Especially because you mention it's "a lot of FUD" so it makes me think I'm wrong, which is fine, but then I'd like to fix it. http://www.investopedia.com/university/advancedbond/advancedbond2.asp The short of it is that if you always hold your bonds to maturity there is no price risk. They are worth what you thought they were when you bought them. If you want to sell your bonds early, then you may get eaten by sharks. This is transparent (opaque?) to you in a bond fund but when the interest rates go up, the fund price MUST drop and vice-versa when the interest rates go down.
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Feb 27, 2017 17:28
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So then assuming I'm not buying a bunch of Trump Casino bonds, there's no "additional risk" to buying when interest rates are higher? I guess what I'm getting at is that waiting for high interest rates to rebalance into bonds is not necessarily "riskier" (other than not holding bonds until such time...) But then the stock prices will also be going up faster so I'm still getting less returns, which is what I'd expect from bonds anyway, so REALLY, there's no point in waiting to buy bonds. ...this is stupid, I should just spend it all on blow and hookers.
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Feb 27, 2017 18:02
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I recently converted my old paper savings bonds (I-Bonds) to electronic bonds via TreasuryDirect Is there any way to name beneficiaries for the electronic bonds? The TreasuryDirect website is straight out of 1999 and is no help.
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Feb 27, 2017 21:39
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totalnewbie posted:I should just spend it all on blow and hookers. "Investing in yourself."
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Feb 27, 2017 21:49
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WarMECH posted:This is why we recommend Target Date funds for people who have no idea what they are doing. That way once they learn more about stocks/bonds and everything else you said, they can change to something else if they want no harm done. And if they do nothing, they are all into a Target Date fund and will be just fine. I'd love to hear a little more about how these conversations arise. I bring them up with our interns whenever they leave us for full time employment, but I've never had a talk about retirement savings with a peer.
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Feb 28, 2017 05:39
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Friend of mine does something similar, even runs what he calls "financial basics classes" with interns and the like.
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Feb 28, 2017 13:08
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What's the history on the back-door Roth IRA? It seems like such an easy loophole to use once you hit the limit.
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Feb 28, 2017 13:42
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pig slut lisa posted:I'd love to hear a little more about how these conversations arise. I bring them up with our interns whenever they leave us for full time employment, but I've never had a talk about retirement savings with a peer. "I'm going to spend my $2000 tax return on clothes" "Wouldn't you rather have that money throughout the year instead...fix your W4" And then it spirals
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Feb 28, 2017 15:57
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smackfu posted:What's the history on the back-door Roth IRA? It seems like such an easy loophole to use once you hit the limit. Well it's only easy if you don't have existing traditional IRA(s) or your overall balance in those are low. It's probably more of a loophole nowadays because people can plan to take advantage of it from the beginning and not keep traditional IRA balances, if possible.
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Feb 28, 2017 16:44
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Nail Rat posted:Well it's only easy if you don't have existing traditional IRA(s) or your overall balance in those are low. It's probably more of a loophole nowadays because people can plan to take advantage of it from the beginning and not keep traditional IRA balances, if possible. It may also be more common for 401k plans to allow rollovers from IRAs; I did that recently in anticipation of potentially doing a backdoor Roth.
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Feb 28, 2017 20:03
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totalnewbie posted:so REALLY, there's no point in waiting to buy bonds. Right. Just don't buy them, wait for the rates to go up/price to go down and then sell them.
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Feb 28, 2017 20:54
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pig slut lisa posted:I'd love to hear a little more about how these conversations arise. I bring them up with our interns whenever they leave us for full time employment, but I've never had a talk about retirement savings with a peer. I work for the Federal government, and we get a lot of interns and new hires that are fresh out of college every year that pass through our office. They typically have questions about the health insurance and Thrift Savings Plan (the Fed's 401k) because it's all new to them. I will usually tell them a little about the importance of long-term saving/investing because they are young enough that every little bit helps and makes a big difference over their 40-year working life. Sometimes the older workers are within earshot and ask questions but it's usually the younger crowd that is seeking the advice, obviously. The discussions usually consist of the basics like putting at least the match of 5% into the TSP no matter what (It's free money!!!) and starting with a Lifecycle fund (basically Target Date funds) to set it and forget it. If they seem interested I will send them the "If You Can" PDF because it's short enough they are more likely to actually read it, and come back to me with more questions as they learn more. The biggest thing I stress to them is to increase their contributions to the TSP each time they get a grade/step increase or COLA raise before they get used to that extra money and find a way to spend it. That is something I wish someone had recommended to 23 year old me so I didn't have to play catch-up when I hit 30.
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Feb 28, 2017 21:13
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Murgos posted:Bond pricing in detail (bonds are simple, see?): There's so much push recently to go full equities, which the bull market certainly galvanizes people towards. In what cases do we end up with a value in some bond holdings from a financial value standpoint that doesn't just relate back to minimizing the psychological torture of watching a ravenous bear market take 50% of our equity holdings back? Edit: Thread at large. I'm being super conservative and holding 15% bonds right now. Is there actually a possible world where that makes sense? Regardless of whether or not we're headed for such a world, is there any possible justification for pushing for higher bonds other than calming of the nerves in a downturn? I wrote up myself an IPS last year and promised myself I'd stick with my initial allocation for 3 years to see how it worked out but there's a lot of pressure to straight up pull away from bonds entirely. I'm doing as much research as I can specifically to avoid a rash decision. Hoodwinker fucked around with this message at 21:37 on Feb 28, 2017 |
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Feb 28, 2017 21:22
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Hoodwinker posted:I'm being super conservative and holding 15% bonds right now. Man, I remember 5 years ago when 15% bonds would've been considered high risk.
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Feb 28, 2017 22:06
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GoGoGadgetChris posted:Man, I remember 5 years ago when 15% bonds would've been considered high risk. Let me ask another thing: if going 100% equities is such a mathematically sure shot, why has none of the material in the past suggested it? I read "If You Can" and each of the seven books it suggests. I would have figured that something in "Common Sense on Mutual Funds" or "All About Asset Allocation" would have pointed strongly towards avoiding bonds except closer to retirement in order to preserve capital during a possible post-retirement downturn. It's entirely possible that it's my further entrenching into the long-term investing world that opened this up as an option, and that it's just not something we want to expose newbies to, but if that's the case it's not obvious. Hoodwinker fucked around with this message at 22:25 on Feb 28, 2017 |
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Feb 28, 2017 22:19
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Murgos posted:don't buy..., sell This is an investment plan I can get behind. I don't know where I'll get the bonds to sell, but if I don't have to buy them, can't possibly lose!
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Feb 28, 2017 22:34
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A small bond allocation significantly reduces volatility while minorly reducing gains. Panic selling is usually caused by extreme volatility, therefore a small bond allocation reduces panic selling. Reduced panic selling increases long-term gains significantly. A small bond allocation increases long-term gains significantly. That's the mental gymnastics.
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Feb 28, 2017 23:07
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EugeneJ posted:"I'm going to spend my $2000 tax return on clothes" ... into me slamming my face into a wall over and over
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Feb 28, 2017 23:38
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The point of bonds isn't their price. It's the interest. If you buy a bond that pays 4% then it pays 4%. It pays 4% when the market goes up and it pays 4% when the market goes down. That's why they reduce volatility, if 20% of your portfolio is a fixed return then it's going to damp down any oscillation. As DNK points out, the theory for a bond allocation during the accumulation phase is to act as a safety blanket to the holder and to provide a source of money to buy low after the market tanks via rebalancing. Whatever keeps you from selling low and buying high. A bond fund reduces the risks of holding individual bonds. That the issuer will default, that you aren't getting a good rate and a whole host of other esoteric risks. If you can stay the course when the market tanks and obliterates 1/2 your worth and may take a decade to recover then I don't think you need to hold bonds. As long as your investment horizon is longer than the downturn then your return will likely be higher. Typically most people can't do this mentally and they sell at the wrong time and lock in losses. Also, if you are retired losing half your worth while actively drawing down could lead to eating cat food while living in a slum. If you are really risk adverse and don't mind lagging during a bull market by a significant amount you should look onto a 30/70 split, that is 30 percent stocks and 70 percent bonds. Interestingly, over time, the total return over reasonable time frames is only a little bit behind way more aggressive allocations. See Vanguards Wellesley fund for an example.
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Mar 1, 2017 02:04
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So, maybe I'm feeling pessimistic because I'm reading The Big Short for the first time (Spoiler:  ) but now I'm wondering: if you have all your money in a single target date fund, how confident can a financially ignorant pleb like me be that a catastrophe won't erase it's value in a way that might have been prevented by spreading it out among multiple funds? Like, a recession hits everything, so that's not what I mean. I mean a particular mutual fund somehow getting devalued. I get that the mutual fund is itself composed of a diverse collection of stocks and bonds or whatever but my shares are all of that singular fund. If it somehow craters and others don't, I would regret not spreading it out. But is that possible?I'm sure the simple answer is 'it's not" but I still have apprehensions. Not because I think I'm smarter and can beat its performance, but because I'm stupid and big words and money scare me.
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Mar 1, 2017 02:09
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Magnetic North posted:So, maybe I'm feeling pessimistic because I'm reading The Big Short for the first time (Spoiler: Target date funds by nature are themselves composed of a diverse collection of stocks and bonds.
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Mar 1, 2017 02:14
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If you're worried about vanguard shutting down and taking all your money, read this http://jlcollinsnh.com/2012/09/07/stocks-part-x-what-if-vanguard-gets-nuked
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Mar 1, 2017 02:19
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Magnetic North posted:So, maybe I'm feeling pessimistic because I'm reading The Big Short for the first time (Spoiler: Mutual funds don't work that way. The value of the fund is based on the value of the underlying assets. For instance take the Vanguard target date funds. It consists of the Total Stock Market Index Fund VTSMX (3591 different stocks), Total International Stock Index Fund VGTSX, (6112 different stocks), Total Bond Fund II Fund VTBIX (8113 different bonds though most of that is US government), and Total International Bond Index Fund (4238 different bonds.) The NAV is calculated from the value of all those stocks and bonds, and the only way it would take a major hit would be a worldwide economic event that you're not hiding from unless you are hiding in a bunker and even then the zombies are gonna get you. Some individual mutual funds have done badly because they did dumb poo poo like the Sequoia Fund betting it all on Valeant Pharmaceuticals, but that is why you buy widely diversified index funds or target date funds that use them. You could be concerned about Vanguard (or Fidelity or Schwab or BlackRock) itself but this talks about how mutual funds are structured to minimize risk (like all the assets - stocks and bonds - being held by separate custodians which are audited by third parties.) And the guys in the Big Short just got lucky with timing, they weren't seers, people had lost their shirts betting on the collapse of the bubble before it finally hit but they don't get books written about them.
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Mar 1, 2017 02:32
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The danger of holding only one mutual fund isn't "The Big Short", its "Bernie Madoff". The underlying assets cover most of the economy, so anything that wipes out the fund is either cataclysmic or fraud. Because Vanguard is extremely transparent about what they're doing with your money, the risk of fraud is low, though I guess not nonexistent. Bernie Madoff was as opaque as could be, and claimed he was using a mysterious proprietary system to get his shockingly consistent returns month after month. It was impossible to even know what assets he was supposed to have bought. Most of his smarter investors assumed he was using insider trading, and the whole thing was shady and should have been caught sooner. So as long as the fund manager is transparent, and isn't claiming a black box investment, you're usually safe.
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Mar 1, 2017 04:31
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Murgos posted:The point of bonds isn't their price. It's the interest.
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Mar 1, 2017 09:14
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I just added $1k to a brokerage account in Vanguard and realized I really have no idea what I'm doing. I've got a Roth with Vanguard and contribute enough to the company 403b to get the match but nothing else. Otherwise, I've got a bunch of online savings accounts for future home/new car/emergency fund making .75% APY and know I can do better, but can't quite wrap my head around if I want to throw money at a mutual fund or EFT, how taxes will impact me, etc. Is the "If You Can" eBook in the OP still the best recommendation on starting to learn about babby's first investments?
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Mar 1, 2017 18:00
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You should probably max your 403b before you think about taxable investments since you say you have other liquid savings for more immediate goals.
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Mar 1, 2017 18:26
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As far as picking funds goes, I would hazard a guess that you don't know a ton about that either. If you can.pdf and the jlcollinsnh.com "stock series" will both give you great info. Spoiler - buy a vanguard target retirement date fund, or just a "total stock market" fund and you'll be in the top 80% of investors.
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Mar 1, 2017 18:43
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monster on a stick posted:Mutual funds don't work that way. The value of the fund is based on the value of the underlying assets. For instance take the Vanguard target date funds. It consists of the Total Stock Market Index Fund VTSMX (3591 different stocks), Total International Stock Index Fund VGTSX, (6112 different stocks), Total Bond Fund II Fund VTBIX (8113 different bonds though most of that is US government), and Total International Bond Index Fund (4238 different bonds.) The NAV is calculated from the value of all those stocks and bonds, and the only way it would take a major hit would be a worldwide economic event that you're not hiding from unless you are hiding in a bunker and even then the zombies are gonna get you. I guess that makes sense. I didn't realize these funds were so diverse. Though now I'm curious: Is there a qualitative difference between holding shares of an index tracking mutual fund and buying those shares in those proportions yourself? Beyond convenience, expertise of choosing the stocks, ability to buy that many shares in those fractions, and other miscellaneous nitpicks like that? Like, does a share of the mutual fund have underlying value in a way that a share of stock does not? I Like Jell-O posted:The danger of holding only one mutual fund isn't "The Big Short", its "Bernie Madoff". The underlying assets cover most of the economy, so anything that wipes out the fund is either cataclysmic or fraud. Because Vanguard is extremely transparent about what they're doing with your money, the risk of fraud is low, though I guess not nonexistent. Bernie Madoff was as opaque as could be, and claimed he was using a mysterious proprietary system to get his shockingly consistent returns month after month. It was impossible to even know what assets he was supposed to have bought. Most of his smarter investors assumed he was using insider trading, and the whole thing was shady and should have been caught sooner. So as long as the fund manager is transparent, and isn't claiming a black box investment, you're usually safe. I guess this is what I was sort of thinking of: not being able to comprehend what is being offered and not being confident enough to say it's just me.
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Mar 2, 2017 01:09
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About the only thing you give up by owning shares via a fund rather than directly is voting rights, which you inherently delegate to the fund manager when owned via a fund. For most normal people in most circumstances this is pretty irrelevant.
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Mar 2, 2017 01:26
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Magnetic North posted:I guess that makes sense. I didn't realize these funds were so diverse. Though now I'm curious: Is there a qualitative difference between holding shares of an index tracking mutual fund and buying those shares in those proportions yourself? Beyond convenience, expertise of choosing the stocks, ability to buy that many shares in those fractions, and other miscellaneous nitpicks like that? Like, does a share of the mutual fund have underlying value in a way that a share of stock does not? Those nitpicks can be significant though. You can read about front-running an index (buying shares in a company before it gets added to the S&P 500 or whatever in order to make a profit - you want to avoid this), sampling (not buying every single company in a published index because it can be expensive to buy thinly traded securities especially in emerging markets), being able to lower your cost basis by using ETF redemption, etc. Otherwise you can build your own "index fund"; if you want to simulate the CRSP Total Market Index (which is what Vanguard uses for their Total Market Index), just go to the website for that index at http://www.crsp.com/products/investment-products/crsp-us-total-market-index, download the Excel file that is updated daily, and buy away.
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Mar 2, 2017 01:35
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| # ? May 17, 2024 01:11 |
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I feel like a complete loving idiot for never realizing this but I just learned today that you can withdraw contributions from Roth IRA accounts without penalty. For awhile, I was operating under the assumption that your money was locked in till 59 1/2 or for a few other scenarios. So as a result, I ignored opening an IRA while continuing to put money into a Ally Savings account to build an 6 month emergency fund, while maxing out my employer's 401k contributions. So at least I was doing a few things right  I currently have 5 months of living expenses in my emergency fund, I max my employer contribution for my 401K and I have no debt. I'd like to ideally save for a house down payment while also saving my money for other rainy day things as well. Prior to not having a good understanding of a Roth IRA, I was looking at putting some money into an investment account with Vanguard to help save for a house. Now, realizing that I can actually withdraw my contributions if need be (as well as the rule about being able to withdraw up to $10,000 for a first time home purchase), I'm leaning towards putting my funds, both rainy day and emergency fund, into a Roth IRA with Vanguard instead. I can max out my 2016 contributions and get myself within striking distance of my 2017 limit right now. Question is, is there something else I could be doing that would be a better idea? Feel free to enjoy some schadenfreude on me. I'm laughing about it because I figured it out early enough that I can take a huge advantage from opening a Roth IRA, as well as the rest of my finaces not being turbofucked.
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Mar 2, 2017 02:49
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