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LODGE NORTH posted:So, as far as the IRA goes, the brokerage is selling and buying each year? If your question relates to, "How much should I withdraw every year?" That all relates to how much you need in order to pay your annual expenses. Hoodwinker fucked around with this message at 23:08 on Jun 18, 2020 |
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Jun 18, 2020 23:06
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Hoodwinker posted:Okay, reading your question again, it sounds like you're asking about how the value of the account changes as you're making withdrawals, correct? The 7% number we use is for the accumulation portion, where you're only putting money in. Kinda, I think I may be able to explain better. Assuming everything is clean cut, no differences or deviations, if I put $100 in today, and it's expected to grow at 7% per year, next year, if I didn't do anything else, its value would be $107. Then that $107 would be generating another 7%, to put me at $114.50. Obviously, I'm guessing and as far I understand, the monetary value is growing because of how much money I'm investing and what its average growth is per year. As in, the example uses $100 that never gets added to via my personal money, but in reality it's a lot more money and then more frequent transfers from my bank account that then gets added to the overall 7% per year. I think I get this part. But when it gets time for me to retire, is that the only time I see the money in the account itself go up? When things change in the later years, does the money I have just get sold and then shift? As in, if I had 50% in stocks and 50% in bonds at some point, as I get older, does it just sell and restructure where it is currently to redistribute it as, hypothetically, 80% bonds and 20% stocks? It's hard for me to explain, because as I'm guessing you all can tell, I suck at even basic math. But what I'm asking is more of a mathematical breakdown of how the money or the value etc grows. I don't need exact real life numbers or anything. Making it stupefied by using $100 is fine with me, I'm just a bit lost or confused on how it all works at the end of the day.
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Jun 18, 2020 23:25
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LODGE NORTH posted:Kinda, I think I may be able to explain better. No , you’re starting to get it. Very general numbers: a target date fund for you now is probably 80/20 stocks/bonds (or maybe 90/10). A target date fund will auto switch over the years. You will see the same balance (with whatever up and down increases and decreases), but basically, today that $100 is 80/20 stocks/bonds, by the time you are like, 55 it’ll be more like 20/80 stocks/bonds. So yeah , they’ll auto adjust in a target based fund based on being more conservative as you get older so you don’t lose all your money 2 months before retirement because say....a global pandemic hits and tanks the stock market.
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Jun 18, 2020 23:28
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LODGE NORTH posted:So, as far as the IRA goes, the brokerage is selling and buying each year? The fund you're investing in, holds a bunch of stocks and bonds and stuff. The value of those things rise over time on average (assuming that the near future resembles the recent past). When you get old, you'll want to start withdrawing some of the value of your account in cash to live on. You'll have to sell some shares of whatever mutual funds you hold in your account, so you can withdraw some cash on a regular basis. The various different types of tax-advantaged accounts each have different rules for when you can start doing that without paying an early withdrawal penalty, and at a later date, when you are required to start taking distributions from your account. These rules are imposed by the government as part of the "deal" you're making: on the one hand, you get to avoid paying some taxes, but on the other hand, you have some restrictions about when and how you can or must take money out of the account to live on. Currently the rules for a Roth IRA are: https://www.investopedia.com/roth-ira-withdrawal-rules-4769951 quote:You can always withdraw your contributions with no tax or penalty. edit: I took too long to reply, lol. Yeah if you have a target date fund it'll gradually shift your asset allocation by selling some stock to buy some bonds over time. Really it's selling shares in a stock-based fund to buy shares in a bond-based fund. If you manage your own asset allocation such as by using the three-fund portfolio, than it'll be on you to "rebalance" every year or two (more frequently than that isn't necessary) to maintain the balance between stocks and bonds that you want to have at that age. Bearing in mind that if you're regularly depositing money every year, you can rebalance by buying more shares of the fund type you're low on, rather than actually having to sell any shares of the fund type you're overweight on. The exact percentages are a choice based on risk tolerance and stuff but very very roughly: many young people are as much as 100% stocks 0% bonds; many of us in this thread advocate 90% stocks 10% bonds even for young people; and by the time you retire, you might want a balance of something like 40-60% stocks, 30-50% bonds, and 0%-10% cash and cash equivalents. So your rebalancing each year is on the order of maybe one or two percent shifts, it's not major changes in either type. Leperflesh fucked around with this message at 23:35 on Jun 18, 2020 |
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Jun 18, 2020 23:30
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LODGE NORTH posted:Kinda, I think I may be able to explain better. Dividends work the same way, but with stocks. The last way you'll see your account value go up is when the value of each share you own increases. This happens because people are paying more money for each share than they were before. This is why you'll see the value of your shares fluctuate up and down. People are constantly buying and selling these investments, and depending on how frequently the market overall is doing one or another, the value of each share goes up or down. Over time, it's reasonable to expect the value of your shares (specifically ones that are in a total us stock market index fund) to increase on average 7% per year. This means that you can watch the value of your account change on not just a monthly, but a daily basis. This isn't a good idea though, since you can't and shouldn't be making decisions about your investments based on how the market changed in a given period. Does this clarify things? If you're asking more specifically about the underlying holdings in index funds, Duckman's answer should cover that for you.
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Jun 18, 2020 23:32
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Duckman2008 posted:No , you’re starting to get it. At 55 any decent target date fund will still be heavily invested in stocks. Target date funds are usually assuming retirement ~65, and even at that target date the allocation will generally still be at around 50% equities, since part of your theoretical retirement still has a relatively long horizon and therefore can remain in higher risk investments (i.e. the money you need for when you're 80-90+ still has 15+ years from 65 to continue growing before you actually need it).
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Jun 18, 2020 23:36
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Let's be clear though that in this thread we almost never suggest someone buy individual stocks or bonds; when we discuss stock or bond holdings we're almost always talking about stock index funds or bond index funds. Neither of which pay "interest." Inside an IRA, typically the dividends and other distributions from funds are set to re-invest automatically, so you don't see cash accumulate in your account, you just see your position (number of shares) of each index grow over time. The value of each share also tends to grow over time, as the underlying stocks and/or bonds accumulate value; so the value of your investment grows by some amount annually, expressed as a percentage like 7% (plus inflation), but you don't get cash amounts equal to that percentage. Within tax advantaged space, there's no practical difference between interest, reinvested dividends, and increase in asset values; it's all just "number go up." Leperflesh fucked around with this message at 23:39 on Jun 18, 2020 |
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Jun 18, 2020 23:37
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Splinter posted:At 55 any decent target date fund will still be heavily invested in stocks. Target date funds are usually assuming retirement ~65, and even at that target date the allocation will generally still be at around 50% equities, since part of your theoretical retirement still has a relatively long horizon and therefore can remain in higher risk investments (i.e. the money you need for when you're 80-90+ still has 15+ years from 65 to continue growing before you actually need it). I've seen some seemingly decent theory that in general, if you go purely by the numbers and historical results, it makes more sense to stay heavily in stock throughout retirement (like even 80%).
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Jun 19, 2020 01:54
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That’s a pretty big if.
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Jun 19, 2020 01:54
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WithoutTheFezOn posted:That’s a pretty big if. I mean, if you think that's a pretty big if, then you kind of think the entire model for retirement is wrong, since it's all based on historical results.
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Jun 19, 2020 01:56
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SlyFrog posted:since it's all based on historical results. Hisssss
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Jun 19, 2020 01:59
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SlyFrog posted:I've seen some seemingly decent theory that in general, if you go purely by the numbers and historical results, it makes more sense to stay heavily in stock throughout retirement (like even 80%). If you liked that, you’re gonna love this: https://www.schwab.com/resource-center/insights/content/negative-interest-rates-and-future-investing Japanese investors are stock heavy and we’re gonna slowly lean that way too unless rates get back to 15+ years ago levels
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Jun 19, 2020 02:06
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Okay, I think I understand it now. At least way more than I did a few days ago - thank you all. Just a few followups. So if I invest the money in the fund and then it increases in worth by 7%, is there a set time when it becomes usable money (in that sense that it's in the Roth IRA and can be invested)? Is it every year if/when it's reported as a positive? Like, say I use $100 to invest in something and it doubles in value to make it worth $200. It's only a useable $200 if I sell it, but at the moment, it would still just be a $100 investment that I've made. As far as I understand with the way it works, it would be: $100 becomes worth some more at some point, but that "some more" is then invested in the same fund to hopefully make some more "some more". Is that just something I set up and tell it to invest whatever return it makes automatically or does it just do that on its own as a function of a Roth IRA? I think this is my last bit of questions. Again, I can't express how thankful I am for all the help here.
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Jun 19, 2020 02:07
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SlyFrog posted:I mean, if you think that's a pretty big if, then you kind of think the entire model for retirement is wrong, since it's all based on historical results.
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Jun 19, 2020 02:09
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LODGE NORTH posted:Okay, I think I understand it now. At least way more than I did a few days ago - thank you all. So the value of your investment will be whatever the market value is at that point in time. If you scroll down on this link you can see the past growth of $10,000 in that fund over a certain time period, whereas the future could be better, worse or the same. The value for a mutual fund will change daily, while stocks, bonds, ETF and other more liquid investments will have changes in value several times a second during market hours and outside of market hours for currencies and the like. https://investor.vanguard.com/mutual-funds/profile/VFIFX
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Jun 19, 2020 02:12
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LODGE NORTH posted:Okay, I think I understand it now. At least way more than I did a few days ago - thank you all. You buy $100 worth of gold. Let's say you buy one gold coin. Tomorrow, based on market conditions, that same gold coin is now worth $120. You don't have $120 in dollars in your bank account, but you do have $120 worth of gold. You decide to sell that gold, you now have $120 in cash. Or maybe you hang onto it, and the price goes higher the day after. Or maybe it goes lower. Investments work this way. You pay money for an asset (like a gold coin), and the price of that asset fluctuates daily as the market buys and sells it. Over a long enough time frame, the value of this asset goes upward. You are allowed to buy and sell stocks/bonds in your IRA more or less whenever you want. The only limitations are on how much money you can put into the IRA and how much and when you're allowed remove money from the IRA. If you want to have dividends or interest payments get reinvested by buying more of the same thing, that's a setting you configure on your IRA that will perform the rebuying for you automatically. I'll add that the use of gold was only for the purposes of discussing a tangible asset. You can invest in gold, but it's not a very good investment for long-term growth, and its purpose in your portfolio is more complicated than the scope of this discussion. To ground this a little bit too with actual stock shares, you can go look up what the current price is of any individual company stock price or any index fund stock price. Here's Apple's stock prices from today:  The value of your investment accounts will similarly fluctuate consistently on a daily basis. Hoodwinker fucked around with this message at 02:24 on Jun 19, 2020 |
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Jun 19, 2020 02:17
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e: removed a response based on a misreadingLODGE NORTH posted:As far as I understand with the way it works, it would be: $100 becomes worth some more at some point, but that "some more" is then invested in the same fund to hopefully make some more "some more". Is that just something I set up and tell it to invest whatever return it makes automatically or does it just do that on its own as a function of a Roth IRA? On the other hand if the fund managers sell an asset for management reasons, or receive income (dividends or interest) from an asset held in the fund, you can give instructions to reinvest your cut of the proceeds or hold them in the account as cash. One reason to hold them in the account as cash is so that you can invest them in a fund other than the one they came from. This would not be relevant if a target date fund is your entire strategy. Gazpacho fucked around with this message at 02:58 on Jun 19, 2020 |
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Jun 19, 2020 02:38
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In a tax advantaged retirement account you should be reinvesting dividends.
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Jun 19, 2020 03:00
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pmchem posted:If you liked that, you’re gonna love this: I mean, this is my basic long term fear. People are fleeing to stocks not because stocks are properly valued, but because you have to put your money in something that generates some type of return. And it isn't bonds. Sometimes, in my darker moments, it feels like we're being forced into stocks to get any type of returns. Bonds as a safety/refuge are being taken away, because the returns are so garbage. It feels like we're all being herded like cattle into heavier equity positions, so we can be slaughtered when the years and years of money printing and quantitative measures propping that fucker up finally disastrously collapse. I would go into gold, but I have soft, money changing hands, and I know all that going into gold would mean is that I would be forced to give up both my butthole and my gold to the actual hard men wandering around when the dark times come. I'll be damned if they'll get both.
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Jun 19, 2020 03:16
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One thing I didn’t see made explicit (though I probably just missed it): A normal brokerage account you can buy and sell your stock or funds at any time. It’s yours. You will pay taxes on any money that you gain in this way, but hey that’s life. However some of the account types we’ve been talking about (401k, Roth IRA, etc) are restricted. You pay a 10% penalty for withdrawing from a 401k before you are old enough. You are limited in what you can withdraw from your Roth, again until you are old enough (think retirement age). That’s the downside of these accounts, but the major upside is that they have really good tax breaks to make up for it. The overall effect is supposed to be to entice you into saving for retirement. I bring this all up because you are asking some basics about putting money in and taking it out, and I don’t want you to be blindsided by these restrictions. You should think of an IRA or a 401k as a one-way account, contributions only, until you’re 60. If that’s not what you are after then get a normal brokerage account.
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Jun 19, 2020 03:22
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SlyFrog posted:I would go into gold, but I have soft, money changing hands, and I know all that going into gold would mean is that I would be forced to give up both my butthole and my gold to the actual hard men wandering around when the dark times come. I'll be damned if they'll get both. There's 3 or 4 thread titles in here if we get tired of the current one.
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Jun 19, 2020 03:28
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Ulf posted:One thing I didn’t see made explicit (though I probably just missed it): This being said, you can still transact freely within the account, which is a thing that confuses some newcomers. For example, you can sell your funds in the account to get cash and just leave that cash in the account. For long-term, passive investing, there aren't many good reasons to do this, but it's not like once you put money in you can never touch it again. You just can't get it out.
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Jun 19, 2020 04:10
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raminasi posted:This being said, you can still transact freely within the account, which is a thing that confuses some newcomers. For example, you can sell your funds in the account to get cash and just leave that cash in the account. For long-term, passive investing, there aren't many good reasons to do this, but it's not like once you put money in you can never touch it again. You just can't get it out. And worth mentioning , especially in the case of re balancing, you can sell for whatever , then buy whatever.
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Jun 19, 2020 05:57
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And in Roth IRAs, you can in fact withdraw your contributions without penalty. You just can't withdraw the gains without paying a penalty (and tax). You shouldn't, though, because you can't put the money back in, and the annual restriction for contributions is relatively low, so for every dollar you withdraw early, you're robbing future-you of that dollar plus all its earnings from now till then. It's better to just act like that money is untouchable and only resort to it if you're facing some kind of huge financial disaster.
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Jun 19, 2020 06:11
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SlyFrog posted:I mean, this is my basic long term fear. People are fleeing to stocks not because stocks are properly valued, but because you have to put your money in something that generates some type of return. And it isn't bonds. On the plus side, Japan says you can do what we are doing for decades and while you can see the societal seams creaking they aren't cracking yet.
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Jun 19, 2020 10:58
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Ulf posted:One thing I didn’t see made explicit (though I probably just missed it): There is also 72t's and Roth conversion to get money out of a traditional IRA before the age of 60, but that's not stuff you should be thinking about unless you want to retire early.
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Jun 19, 2020 12:26
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Leperflesh posted:And in Roth IRAs, you can in fact withdraw your contributions without penalty. You just can't withdraw the gains without paying a penalty (and tax). You shouldn't, though, because you can't put the money back in, and the annual restriction for contributions is relatively low, so for every dollar you withdraw early, you're robbing future-you of that dollar plus all its earnings from now till then. Or until you’re retired and past retirement age, right? 59.5, was it?
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Jun 19, 2020 14:18
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Alchenar posted:On the plus side, Japan says you can do what we are doing for decades and while you can see the societal seams creaking they aren't cracking yet. My understanding is that Japan places some actual value on older people, and doesn't say, "Whoops, guess you didn't save enough, time to watch you die of neglect."
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Jun 19, 2020 16:00
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Japan and Argentina are always the economic outliers. Japanese society is so very different from the US. I don't think it's comparible. I'm not even sure Japan has it more right since there are all these stories about how uncompetitive the local Japanese market is when you look beyond their high performing multinationals.
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Jun 19, 2020 16:08
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Xguard86 posted:Japan and Argentina are always the economic outliers. Argentina is always confusing. You look at the resources they have and they should be a mini America. Political corruption is a huge issue but even so it is kind of crazy. I should really look for more info on exactly why everything is like it is down there.
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Jun 19, 2020 16:35
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spwrozek posted:Argentina is always confusing. You look at the resources they have and they should be a mini America. Political corruption is a huge issue but even so it is kind of crazy. I should really look for more info on exactly why everything is like it is down there. It's really tragic. At one point they were on track to be wealthier than any European country and even challenge the US. I think this was the economist article I read a few years back detailing their sad state. It's paywalled unfortunately https://www.google.com/amp/s/amp.economist.com/briefing/2014/02/17/a-century-of-decline
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Jun 19, 2020 16:40
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Pollyanna posted:Or until you’re retired and past retirement age, right? 59.5, was it? That's right, it's at least 59.5 years old, and at least five years since first you started contributing. Or if you become disabled, or if you die your inheritors can make qualified distributions, or you can use it to buy or build your first home (but you shouldn't do that). There's also certain situations where you can take distributions and pay income taxes on your gains but not the 10% penalty: quote:You're taking a series of substantially equal distributions. Leperflesh fucked around with this message at 20:09 on Jun 19, 2020 |
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Jun 19, 2020 20:05
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Xguard86 posted:It's really tragic. At one point they were on track to be wealthier than any European country and even challenge the US. They were talking about fracking the Vaca Muerte shale about a year back, but current energy prices mean they have to defer becoming full southern hemisphere Texans.
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Jun 19, 2020 21:27
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Tried the stock picking thread a few days back, no bites, so I'll try again here. Scenario: Every quarter I vest a bunch of shares of company stock. I've been immediately selling and buying the market to diversify away from the risk that's already pretty concentrated on my overall employment and future vests. Question: How could I diversify even more effectively? I cannot trade derivatives on my company, can't short it either. However, I have been looking into potentially shorting a competitor (or set of competitors) as a way to help reduce some risk. In general, I am willing to give up some upside on my future vests of company stock in order to reduce the downside of future vests. Shorting the competitor seems to expose me into "potentially really bad situations" where my company goes down, competitor goes up, increasing the volatility of my income stream, which is kinda the opposite of what I'm looking for? Thoughts?
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Jun 22, 2020 02:20
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Your current efforts are the best solution to this problem, otherwise you are exposed to massive losses related to your short. Worst case scenario is your company poo poo the bed and your competitor goes up theoretically to infinity. You're taking infinite losses on your naked short of the competitor at the same time that your company is presumably suffering. Keep liquidating your vested shares ASAP and call it a day. If you're super concerned (like you work for WYNN or something) then sell and keep the cash.
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Jun 22, 2020 02:43
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CubicalSucrose posted:Tried the stock picking thread a few days back, no bites, so I'll try again here. Don't. You have a great solution already. Betting on the downfall of your competitors is betting on the success of your company or the destruction of your industry. That's just reconcentrating your risk back into your industry. If you work in something hyper specific you could buy index funds that don't include that element, but that sounds like effort. If you work at one of the big tech companies then you are ironically rebuying several shares of it a year by buying index funds as they are generally the top 10 holdings in market cap weighted funds. Keep on rich get richer-ing those shares and roll around in the profits. 
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Jun 22, 2020 04:00
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Goons who buy/hold/think about buying bonds, has your opinion on them changed in recent months? Negative yields and all that jazz..
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Jun 22, 2020 17:51
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Maurice Augustus posted:Goons who buy/hold/think about buying bonds, has your opinion on them changed in recent months? Negative yields and all that jazz.. Well, if interest rates go more negative in the future, then those who bought bonds now will be laughing all the way to the bank!
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Jun 22, 2020 17:57
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Maurice Augustus posted:Goons who buy/hold/think about buying bonds, has your opinion on them changed in recent months? Negative yields and all that jazz.. I ended up not switching as much to Bonds as i was previously posting about on here, but i did switch about $1,000 from a stock fund to the Vanguard BND ETF. I have at least 8 months rent in my emergency fund, i switched it more because its a somewhat "in case of emergency break glass" backup to my emergency fund backup, and in theory is more stable than stocks are right now, even with whatever negative yield it could have. It honestly is more psychological , I'm still fully employed (wife is now partially not employed which is what caused me looking at it) , if we get to the point where i need to start drafting from our Roth, the country won't be in a good place. So i highly doubt i needed to do it at all, but that's why i only moved $1,000 as an ETF, vs something like $3,000 for the mutual fund version. Most of our 401k is in my work one, which i have kept at 5% bonds on auto investment and have not touched and won't touch at all.
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Jun 22, 2020 22:58
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When discussing bonds, especially with folks unfamiliar with them, it's critical to be specific about whether you are A) buying bond funds, or B) buying actual bonds; and secondarily, when talking about bonds being "up" or "down", it's critical to be clear about whether you're saying: 1) Bond prices are up (and therefore bond yields are down), or 2) Bond yields are up (and therefore bond prices are down) and thirdly, for long-term investing, we don't or shouldn't care particularly about what bonds have done in the last three months, because we're holding them for another 20 or 30 or 40 years. Right?   It looks to me like the trend with bonds from 2000 to 2020 is gently upward, and that's what I expect to prevail over the next 20 years; but also that the much steeper upward trend since early Novemer 2018 might have attracted some investors to bonds with unrealistic expectations of a continuing steeper uptick. There have been, in the last 20 years, two extended periods in which a bond fund would have returned an investor basically nothing (less than nothing accounting for inflation): Jan 2001 through July 2009, and June 2010 through January 2018. I think that's suggestive of a general principle that one should not expect bonds to perform over periods of as long as a decade. To me, though, these charts are also suggestive that we've had a very long period of consistently very low interest rates, compared to earlier decades of the last century when interest rates were often higher. I hold bonds in my long-term portfolio as a hedge against volatility in my stocks, not because I am seeking good performance. I think there's an interesting and important argument to be had, about whether bonds over longer periods of 20+ years can still be expected to produce acceptable returns for the retirement portfolio, compared to e.g. just inflation-proof treasuries or even CDs or something. I've seen arguments that bonds have simply faded from use, or that we are just never going to see high interest rates again, due to a fundamental shift in monetary policies. I'm interested if folks want to discuss that!
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Jun 22, 2020 23:17
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