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Pollyanna posted:Just so I understand, the “time in the market” adage is due to the interest accrued by positive annual returns being reinvested into your funds, correct? So as long as you are invested during those days with high return, you’ll gain <something goes here> from it and you can reinvest it? Not quite. The time in the market adage is because we cannot know the future. We know that there is a reliable risk premium in the long term but that the movements of the market are unpredictable in the short term. The long term gains of the market are not delivered smoothly over time. They are delivered in fits and starts. The longer you are in the market, the longer you are exposed to the reliable risk premium. Therefore, the best move you can make (mathematically speaking) is to invest now. Investing in stocks is risky. Most companies fail in the long term. Many survive and trundle along. Some grow in incredible ways. It is risky to give your money to someone to hold and try to run their business and so in return for taking that risk, people pay a premium for the chance to have your money (investors demand a premium to be willing to part with their money). This is the reliable risk premium of the market. In return for the very real possibility that your investments will fail (if you buy individual stocks) or that you will endure months or years—even decades—of pain (if you invest in indexes), you expect a premium on what you invested. This is the reliable risk premium of the market. Some of that comes to you as dividends. Some of it comes to you as retained earnings, which sees the value of your stocks (in general!) go up. In the long run, dividends and well-invested retained earnings are the same thing.
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Mar 10, 2020 19:03
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I’d be interested in peoples' thoughts on “what to do when you’re (x<5) years from retirement”, but I would imagine there’s probably not a big crowd for that around here. With a personal perspective, that is, I know anyone can link blog/article posts.
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Mar 10, 2020 19:05
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SlyFrog posted:The purpose of even long term investing is, eventually, to use the money. If the purpose of this thread is simply "Everyone is 20 years old, what do you put your money in," then just throw up 100% equities in a broad market fund in the first post and be done with it. You can post about your post-retirement questions ITT if you want, it was just a suggestion. Yeesh.
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Mar 10, 2020 19:07
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WithoutTheFezOn posted:I’d be interested in peoples' thoughts on “what to do when you’re (x<5) years from retirement”, but I would imagine there’s probably not a big crowd for that around here. With a personal perspective, that is, I know anyone can link blog/article posts. A portion of this arguably depends on your life expectancy (there's even some debate as to that, but if you are retiring "early" it is almost certainly the case that you cannot get by with the same asset allocation that an ordinary age (e.g. 65ish) retiree can). This is not solely because of life expectancy, but also due to availability of things like Medicare, etc. Also, most people, as they age, tend to cycle down in voluntary expenses (though obviously some of this may be offset by increases in medical expenditures, which again, dovetails in with the question of things like Medicare). I guess that was a lot of words to say, are you talking about early retirement (like in your 40s), or retirement at something like age 65?
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Mar 10, 2020 19:09
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Long-term Investing and Retirement: It is a good day to buyInept posted:Not really. SA's user base is mostly people in their 20s to 40s. You can start a thread for retirees though. It might be interesting for people who have retired early. The strategies for the distribution phase of retirement are going to be a bit different than the accumulation phase, and conflating the two in the same thread would probably cause some confusion. A thread for retirees (whether early or at the more typical age) probably wouldn't see much action, just because of forum demographics, but it would make sense to split that out if enough people are interested in talking about it, because it's definitely different than people in the early stages of retirement preparation. Minidust posted:Hello thread. Not well versed in this stuff at all, but I'm currently in the process of getting the 401K from my old job rolled over into an IRA. It's been two weeks since I initiated the request, and the 401k has lost a few thousand dollars, I assume due to the COVID market panic. Your money is equally safe in your 401k or your IRA, it doesn't matter. What determines the fluctuation is what you choose to invest in, most specifically the proportion of stocks you're holding versus your proportion of bonds. A portfolio consisting of 100% stocks will fluctuate much more than one that is, say, 70% stocks/30% bonds, and that will fluctuate more than one that's 50/50. Only you can decide what proportion is right for you - it depends on a lot of factors, most importantly your own comfort level with seeing number go down, as well as how close you are to retirement, your total amount of invested assets, your expected needs of withdrawal in retirement (for example, do you also have a pension or something?), etc. Please feel free to post all the details, we'll be glad to offer advice that will hopefully be useful.
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Mar 10, 2020 19:24
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I meant more of a discussion in general. We already rolled our dice and retired six months ago.
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Mar 10, 2020 19:26
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The only reason I pointed at a chart showing where we were at a year ago, was to try to mollify the sky-is-falling folks who are reacting emotionally to headlines like "DOW PLUNGES BIGGEST LOSS EVER" and are not fully understanding that. I get that from outside this thread too. Sometimes gleeful. I've a friend who is kinda praying for global collapse, for personal and emotional reasons unrelated to long-term investing, who was under the misapprehension that we'd just seen a truly historic collapse of the market akin to bust in 1929 that heralded the Great Depression. It's correct that the market could drop more, and maybe we'll return to 2018 levels, or 2017, or 2015. And it's correct that if that happens, the strategy for long-term and retirement investing still will not have changed. But I don't consider this "nitpicking" or arbitrary. It's providing information and facts to help counter an emotions-based impression conveyed by the hysterics and melodrama of the modern 24-hour news cycle and twitterverse, and the intended audience in this thread are the new folks who are still just trying to get used to the idea of long-term investing and might need some reassurance. That is: look, ignore the headlines, get off twitter. Those people are trying to rile you up, because that generates clicks and sells ads. See? What they called a MASSIVE SELLOFF OF EPIC PROPORTIONS was a drop that put us parallel with the chart from only a year ago: so you can't trust the hyperbolic tenor of those headlines.
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Mar 10, 2020 19:30
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GoGoGadgetChris posted:Best advice I've ever read is "Don't just do something, stand there!!" A single moved word and you have this guy's gem, whoever he is... “Don’t do something—just stand there.” — John C. Bogle
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Mar 10, 2020 19:38
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Now seems like it's a good time to look into doing a FHA Streamline refinance. Yes or no? My current rate is terrible (5.625%). Should I wait or go go go?
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Mar 10, 2020 19:41
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Kylaer posted:Your money is equally safe in your 401k or your IRA, it doesn't matter. What determines the fluctuation is what you choose to invest in, most specifically the proportion of stocks you're holding versus your proportion of bonds. A portfolio consisting of 100% stocks will fluctuate much more than one that is, say, 70% stocks/30% bonds, and that will fluctuate more than one that's 50/50. Only you can decide what proportion is right for you - it depends on a lot of factors, most importantly your own comfort level with seeing number go down, as well as how close you are to retirement, your total amount of invested assets, your expected needs of withdrawal in retirement (for example, do you also have a pension or something?), etc. With that said, yes, I may try to be a bit more hands-on once the IRA is all set up!
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Mar 10, 2020 19:51
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Jumping onto the tax loss harvesting question - my traditional IRA is showing a total loss of around $7000. It's all long-term, which makes sense since this is old 401k money. I'm income-limited from traditional IRA tax breaks, so is now the time for me to convert the whole shabang into a Roth IRA? My accountant advised me to do only $5000 a year ($2500 for me, $2500 for my wife, both from trads) to keep the tax burden down, but if I've got a big loss, seems like it's a good time to convert everything and use the loss for 2020 taxes. If it wasn't the height of tax season and thus probably weeks before I can talk to her again, I'd ask the accountant.
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Mar 10, 2020 19:55
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Gerdalti posted:Now seems like it's a good time to look into doing a FHA Streamline refinance. Yes or no? Now is the time, imo.
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Mar 10, 2020 19:55
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WithoutTheFezOn posted:I’d be interested in peoples' thoughts on “what to do when you’re (x<5) years from retirement”, but I would imagine there’s probably not a big crowd for that around here. With a personal perspective, that is, I know anyone can link blog/article posts. ranbo das posted:Tax loss harvesting is cool and good, I just did it today
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Mar 10, 2020 19:59
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I have a lump of money available to invest now. Does dollar cost averaging (let's say 1/3 each month starting now) truly reduce risk or is the benefit mostly psychological?
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Mar 10, 2020 20:08
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spwrozek posted:Now is the time, imo. Hell yes it is. Just got a quote from Mutual of Omaha for 3.125%. Going to save so much money until I get the 'rona and die.
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Mar 10, 2020 20:13
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esquilax posted:I have a lump of money available to invest now. Does dollar cost averaging (let's say 1/3 each month starting now) truly reduce risk or is the benefit mostly psychological? It doesn't do either it's just increasing amount invested. Invest money based solely on investing that money, not in trying to salvage a bad thing.
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Mar 10, 2020 20:13
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esquilax posted:I have a lump of money available to invest now. Does dollar cost averaging (let's say 1/3 each month starting now) truly reduce risk or is the benefit mostly psychological? If you had invested it yesterday, you would have 3% more today. Not sure about tomorrow, though. Might go up, down, or stay the same. 15 to 30 years from now, it will almost certainly be way, way up.
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Mar 10, 2020 20:17
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Where'd that try and time the stock market game go from yesterday? I think it needs a repost already, go on just try it 10+ times and see what percent you win.
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Mar 10, 2020 20:21
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esquilax posted:I have a lump of money available to invest now. Does dollar cost averaging (let's say 1/3 each month starting now) truly reduce risk or is the benefit mostly psychological? The maths say you should put in the lump sum immediately. In most situations that will outperform dollar cost averaging. Things are pretty volatile now though, so if you wanted to DCA the money I doubt anyone would give you poo poo about it. I would do weekly payments though. A lot can happen in a month.
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Mar 10, 2020 20:25
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I understand the market moves on a daily basis and actual returns will vary depending on when specifically I buy and sell. I'm asking if spreading it out reduces volatility in returns, and if there's any quantification of that. In the contingency that I have to liquidize in 3 years, a 50% reduction in standard deviation of return may be worth missing out on a month of market time. edit: acidx posted:The maths say you should put in the lump sum immediately. In most situations that will outperform dollar cost averaging. Things are pretty volatile now though, so if you wanted to DCA the money I doubt anyone would give you poo poo about it. I would do weekly payments though. A lot can happen in a month. Thanks, this was in line with what I was asking.
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Mar 10, 2020 20:25
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Mathematically speaking, dollar cost averaging CAN do better for certain markets/durations. However in the vast majority of scenarios, dumping the lump-sum in ASAP will do better. https://personal.vanguard.com/pdf/ISGDCA.pdf edit: I read a different paper about this a while ago, but I'll be damned if I can find it. This is close enough. I want to say that the paper I read used boatloads of historical data to do a detailed analysis. DaveSauce fucked around with this message at 20:35 on Mar 10, 2020 |
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Mar 10, 2020 20:32
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The Peace of Mind given to you by dollar cost averaging is harmful to your life as an investor. If you lose money on the process, you will be disappointed, and if you make money in the process, you will have learned a bad habit. Lump sum. And if you are bothered by the daily fluctuations of your long-term savings, you need to read up on investing, or admit that these are not long-term savings.
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Mar 10, 2020 20:33
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With a long time horizon, time in the market beats out the smoothing affect of DCA. That said, with a very long horizon, time in the market isn't significantly different for money put in today vs. money put in over the next three months.
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Mar 10, 2020 20:33
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moana posted:The financial independence thread is probably your best bet if you're retiring early.
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Mar 10, 2020 20:37
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GoGoGadgetChris posted:The Peace of Mind given to you by dollar cost averaging is harmful to your life as an investor. If you lose money on the process, you will be disappointed, and if you make money in the process, you will have learned a bad habit. Lump sum. They are indefinite term savings - I am investing as if they are long term savings but am also planning for the unlikely contingency that that will not be. Straight return is not the only relevant number in investment decisions. DaveSauce posted:Mathematically speaking, dollar cost averaging CAN do better for certain markets/durations. However in the vast majority of scenarios, dumping the lump-sum in ASAP will do better. Very helpful, thanks esquilax fucked around with this message at 20:43 on Mar 10, 2020 |
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Mar 10, 2020 20:39
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GoGoGadgetChris posted:The Peace of Mind given to you by dollar cost averaging is harmful to your life as an investor. If you lose money on the process, you will be disappointed, and if you make money in the process, you will have learned a bad habit. Lump sum. It's not really a bad habit. If you're budgeting and your finances are automated, then lump sums don't really show up except for one offs like bonuses and tax returns and whatnot. The habit itself is to make regular payments towards long term savings. Like for me, I make a lump sum payment of all the money I have available to invest each week. I put that money in as soon as I have it, but it looks like dollar cost averaging since what you see is regular weekly payments of the same amount through all the ups and downs.
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Mar 10, 2020 20:41
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I'm getting a lot of reports about fights in this and the stock trading thread. Tensions are a bit high right now, so try to just keep it constructive.
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Mar 10, 2020 20:42
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acidx posted:It's not really a bad habit. If you're budgeting and your finances are automated, then lump sums don't really show up except for one offs like bonuses and tax returns and whatnot. The habit itself is to make regular payments towards long term savings. Like for me, I make a lump sum payment of all the money I have available to invest each week. I put that money in as soon as I have it, but it looks like dollar cost averaging since what you see is regular weekly payments of the same amount through all the ups and downs. But that's the thing: you're not dollar cost averaging, you're putting in lump sums. Dollar cost averaging is CHOOSING to invest only a portion of your available cash as a hedge against volatility. You're not making that choice, because you don't have the cash available to do it any other way. The choice is being made for you by virtue of you being a normal person with a finite cash flow.
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Mar 10, 2020 20:49
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All your annual contributions are already DCAed - it's just over 30 years. joke
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Mar 10, 2020 20:50
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acidx posted:It's not really a bad habit. If you're budgeting and your finances are automated, then lump sums don't really show up except for one offs like bonuses and tax returns and whatnot. The habit itself is to make regular payments towards long term savings. Like for me, I make a lump sum payment of all the money I have available to invest each week. I put that money in as soon as I have it, but it looks like dollar cost averaging since what you see is regular weekly payments of the same amount through all the ups and downs. I do this too. Is this technically dollar cost averaging? I could see it either way. Edit: answered already above.
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Mar 10, 2020 20:52
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SlyFrog posted:Also, is there a thread for people who are holding long term and actually using or withdrawing money? Is that not allowed for discussion? This thread is nominally for that, it's just that most of the people in here are in the accrual stage. If you're into the "living off the earnings" stage it will be a different discussion. The core of this thread is "make a plan, stick to the plan." For most people who come looking for advice it's "don't think, just buy" with the silent part being "according to your plan." If you're in the "I want to save up for X in 0-5 years" part we say the boring thing: FDIC insured account(s). Generally it's a boring thread with the same boring advice. Gerdalti posted:Now seems like it's a good time to look into doing a FHA Streamline refinance. Yes or no? Mash those buttons, 5.625% is horrifically high assuming there is nothing outsized about your risk (LTV still very low, income spotty, credit score low, etc.)
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Mar 10, 2020 21:06
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esquilax posted:They are indefinite term savings - I am investing as if they are long term savings but am also planning for the unlikely contingency that that will not be. Straight return is not the only relevant number in investment decisions. I would recommend a high-yield savings account while you figure out what your investing timeline for this money is. I'm not being facetious or hostile or anything, I just think that right now your plan is non existant and therefore bad. Investment Horizon is an absolutely crucial step one.
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Mar 10, 2020 21:11
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GoGoGadgetChris posted:I would recommend a high-yield savings account while you figure out what your investing timeline for this money is. I'm not being facetious or hostile or anything, I just think that right now your plan is non existant and therefore bad. Investment Horizon is an absolutely crucial step one. My plan is to hold it forever and leave it to my children. In reality, there are contingencies that I would like to take into account. I am an actuary, assuming the rest of my life will go exactly according to plan as stated on March 10, 2020 is not in my nature.
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Mar 10, 2020 22:09
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esquilax posted:My plan is to hold it forever and leave it to my children. In reality, there are contingencies that I would like to take into account. I am an actuary, assuming the rest of my life will go exactly according to plan as stated on March 10, 2020 is not in my nature. I didn't mean to imply that you should predict the future of your entire remaining life, just that your money should be divided up into different buckets with an appropriate plan for each one, and not try a one-size-fits-all approach for more buckets than is appropriate :-) Actuary is a cool job and I'm glad you are doing a good job of preparing for your future and your children's future
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Mar 10, 2020 22:13
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MJP posted:Jumping onto the tax loss harvesting question - my traditional IRA is showing a total loss of around $7000. It's all long-term, which makes sense since this is old 401k money. Paper losses in an IRA don't really benefit you like they would in a taxable account. You would pay less in taxes on the conversion now than last month only because the total value of your account/conversion is lower and not because of the loss itself. Your accountant probably recommended only converting $5k each year because that's probably how much space you have before part of the conversion would spill into a higher tax bracket than your current one.
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Mar 10, 2020 22:17
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DaveSauce posted:Mathematically speaking, dollar cost averaging CAN do better for certain markets/durations. However in the vast majority of scenarios, dumping the lump-sum in ASAP will do better. The paper says that in the US, lump sum outperformed systemic 68% of the time for a 12 month period. That’s not an overwhelming advantage though it is a considerable one. For 36 month periods, lump sum unambiguously outperforms. It argues that for some investors, systemic investing allows you to buy some downside protection at the cost of a smaller expected return. One thing I wish they were clearer about. When they say it’s a 2.39% cost on average in the US, over what period are they thinking?
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Mar 10, 2020 22:20
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Not gonna lie, I would love to retire early. But I just don’t see how that’s possible without an extra 15-20 years of savings and contributions. Just intuitively, I can tell that cashing out at 45 would leave you with a lot less money than you’d have at 65. Right?doingitwrong posted:Not quite. I think I get it a bit more, thanks! I’ll investigate further how dividends and retained earnings work...
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Mar 10, 2020 22:37
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Pretty much every retirement calculator has a “number of years in retirement” or “at what age will you retire” field. Play around with them. And despair.
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Mar 10, 2020 22:46
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Pollyanna posted:Not gonna lie, I would love to retire early. But I just don’t see how that’s possible without an extra 15-20 years of savings and contributions. Just intuitively, I can tell that cashing out at 45 would leave you with a lot less money than you’d have at 65. Right? Here's an intuitive way to think about it. We're all familiar with the benefits of compounding interest, right? The larger your investments grow, the faster they grow in absolute terms. This means the final years before retirement are when you'll expect to have the greatest absolute gains before you start withdrawing (changes in asset allocation affecting expected % returns notwithstanding). Now imagine you're starting with a retirement age of 65 and then reducing that 1 year at a time. Each time you take off a year at the end, that was going to be your hypothetical biggest year for absolute gains. It's the inverse of the principle of compounding interest working against you.
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Mar 10, 2020 22:58
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WithoutTheFezOn posted:Pretty much every retirement calculator has a “number of years in retirement” or “at what age will you retire” field. Play around with them. Very specific story but I knew a sales rep who banked his money and quit in his forties to run a fishing charter. The plan was for the business to break even once he paid himself a pretty low wage. Grown kids, divorced, simple tastes. Seemed like a decent plan, subsidize his hobby until SS kicked in. Lost touch with the guy so no idea if he made it or how long. Obviously a lot can go wrong. I like to think that he's still doing it: fishing, telling stupid jokes to other old white guys and getting paid for it.
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Mar 10, 2020 23:13
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