Retirement Investments

[Wolf359]

I am slightly confused as to why you don’t understand that they are not designed to mimic “the market.”

They are balanced portfolios made up of 4 or so indexes. The individual indexes do what they are designed to do. The allocation between those indexes varies over time depending on the fund and target date. So yes, a 2065 target fund currently at a 90/10 won’t match a pure S&P500 fund in a “market” where the SPX is going gangbusters. It’s not designed to, and literally can’t because of the allocation of its funds.

Apples to oranges.

Oh I understand that they don't beat the S&P 500, but they lag consistently and the major advantage of them is that while the gains aren't as good, the downside is supposed to be less. But if you look at their record, when the S&P 500 was down 4% in 2018, their fund was down 8%. So not only are the returns worse than the S&P 500, their losses are even worse also. Plus a target fund 40+ years away should probably be mostly stocks, what's the point of bonds if you don't need the money for 40+ years?

Not sure on the dislike for target funds. I'm going to guess that most people using them are going to only reach a level of "just enough" for retirement. Once in retirement, that money has to last, and they have to pull from it regardless of what the economy is doing. I'm dubious that most have that much to spare--if you look up what the average and median 401k values are, most of America hasn't got anything to gamble with.

They're basically a gimmick, would prefer some older tried and true stuff. Maybe a mix of total stock market, Nadaq index, S&P 500 index, Berkshire Hathaway etc. Berkshire is probably good in a down market, not as much tech exposure but not as much as upside as there isn't as much tech.

 

[BLND1]

Oh I understand that they don't beat the S&P 500, but they lag consistently and the major advantage of them is that while the gains aren't as good, the downside is supposed to be less. But if you look at their record, when the S&P 500 was down 4% in 2018, their fund was down 8%. So not only are the returns worse than the S&P 500, their losses are even worse also. Plus a target fund 40+ years away should probably be mostly stocks, what's the point of bonds if you don't need the money for 40+ years?



They're basically a gimmick, would prefer some older tried and true stuff. Maybe a mix of total stock market, Nadaq index, S&P 500 index, Berkshire Hathaway etc. Berkshire is probably good in a down market, not as much tech exposure but not as much as upside as there isn't as much tech.

I guess I don’t understand why you would want a total market index (assuming you mean something like total US market) AND an S&P500 index. They are same/same in most market cap weighted indexes.

I think there is absolutely a place for fixed income/non-equities even 30+ years out from retirement.

For example, I use EDV (a treasury STRIPS extended duration ETF) in a small percentage of my equity heavy allocation. It’s not for everyone but it definitely provides flexibility as a relatively less correlated alternative to my equities.

Everyone will have different risk tolerances. Lots of young folks can absolutely go 100% equities in an S&P500 index fund. Lots of retired folks also run that allocation. It’s up to the individual to determine what that tolerance is.

A target date fund is really just an “easy button” for folks that follows an established allocation glide scope. Most folks not interested in investing details could do far worse. Absolutely nothing wrong with that.

 

[Wolf359]

I guess I don’t understand why you would want a total market index (assuming you mean something like total US market) AND an S&P500 index. They are same/same in most market cap weighted indexes.

I think there is absolutely a place for fixed income/non-equities even 30+ years out from retirement.

For example, I use EDV (a treasury STRIPS extended duration ETF) in a small percentage of my equity heavy allocation. It’s not for everyone but it definitely provides flexibility as a relatively less correlated alternative to my equities.

Everyone will have different risk tolerances. Lots of young folks can absolutely go 100% equities in an S&P500 index fund. Lots of retired folks also run that allocation. It’s up to the individual to determine what that tolerance is.

A target date fund is really just an “easy button” for folks that follows an established allocation glide scope. Most folks not interested in investing details could do far worse. Absolutely nothing wrong with that.

They're all good funds, just throwing out options, up to the individual on what kind of mix they want.

 

[Davejam]

Oh I understand that they don't beat the S&P 500, but they lag consistently and the major advantage of them is that while the gains aren't as good, the downside is supposed to be less. But if you look at their record, when the S&P 500 was down 4% in 2018, their fund was down 8%. So not only are the returns worse than the S&P 500, their losses are even worse also. Plus a target fund 40+ years away should probably be mostly stocks, what's the point of bonds if you don't need the money for 40+ years?

Going to need a source/reference for this. Also, include 2008 bear market in your analysis. Seems like some cherry picking. When it comes to stocks you could pick any finite period to make just about any point. So, just be careful you're not fooling yourself.

The point of bonds is that it lowers your risk. You're taking unnecessary risk by being 100% in stocks.
Mostly stocks sure....but define "mostly". A good definition would be at most 75-80% stocks.

 

[Wolf359]

Going to need a source/reference for this. Also, include 2008 bear market in your analysis. Seems like some cherry picking. When it comes to stocks you could pick any finite period to make just about any point. So, just be careful you're not fooling yourself.

The point of bonds is that it lowers your risk. You're taking unnecessary risk by being 100% in stocks.
Mostly stocks sure....but define "mostly". A good definition would be at most 75-80% stocks.

The source was the Vanguard 2065 fund. Hasn't been around before 2018 so no 2008 to compare it with. Pick your own target fund that includes that date and how they beat the S&P 500 and did better in a down year like 2018. I wasn't cherry picking, that was a target fund that was suggested. Bad funds tend to have outflows and close. New funds get created when old ones fold. So if you have fund that's been around a long time, they usually have a good track record. The newer funds may or may not have good records, they could be too new to prove themselves.

 

[ArrestMeRedZ]

I think the problem with bond funds right now is the yield is so low (as in historic lows) real returns when inflation is factored in are negative. That, combined with the risk of losing capital as bond prices drop if interest rates rise (and let's face it, they can't go down) means we have to throw previous recommendations of stock to bond ratios out the window. With this market, they simply don't apply. More and more financial advisors are coming to this conclusion.
To avoid the risk of rising rates (and subsequent bond price drops) plus loss of capital from corporate bonds that default, you could invest in short term government bond funds. My experience in a Fidelity fund that does that is that the returns are enough to cover their fees, but the funds make almost nothing above that. I decided that using my money to profit them only wasn't the way to go.
I've been retired for 5 years. My funds are 100% invested in stocks and real estate with the exception of a large bucket of cash or cash equivalents that will help me avoid sequence of return risks in case the market tanks. This reserve is also available to pay for real estate improvements or repairs, or cover extended periods of no rental income.

 

[BLND1]

I think the problem with bond funds right now is the yield is so low (as in historic lows) real returns when inflation is factored in are negative. That, combined with the risk of losing capital as bond prices drop if interest rates rise (and let's face it, they can't go down) means we have to throw previous recommendations of stock to bond ratios out the window. With this market, they simply don't apply. More and more financial advisors are coming to this conclusion.
To avoid the risk of rising rates (and subsequent bond price drops) plus loss of capital from corporate bonds that default, you could invest in short term government bond funds. My experience in a Fidelity fund that does that is that the returns are enough to cover their fees, but the funds make almost nothing above that. I decided that using my money to profit them only wasn't the way to go.
I've been retired for 5 years. My funds are 100% invested in stocks and real estate with the exception of a large bucket of cash or cash equivalents that will help me avoid sequence of return risks in case the market tanks. This reserve is also available to pay for real estate improvements or repairs, or cover extended periods of no rental income.

With proper duration matching there is minimal to no interest rate risk with bonds…

Inflation protection on the other hand… only with TIPS. My LTT will get smashed by inflation, but that isn’t why I have LTT in my portfolio (the large percentage of equities is my inflation hedge).

The point is that not every investment instrument will perform well in every market, so some people find it helpful to diversify to help hedge their investments. Everyone’s risk tolerance will vary.

As far as target date funds go - they do exactly what they are designed to do. Whether or not that ends up benefiting the investor is irrelevant and completely out of our control. We don’t know what the future holds, a target date fund is an easy button way to reduce some risks.

 

[Pablo]

I didn't read the whole thread (sorry)

Just buy VTI* with every penny you have. When it hurts, buy more. Keep buying and buying. DON'T WATCH THE BALANCE. Just keeping saving and buying more. 25% of your income at least.

Check to see if you can have a Brokerage account or Brokerage link in your 401K, and easy with your other savings to have a brokerage account that charges zero to trade.

If you can't buy VTI in your 401K then see what the widest market fund you can buy is. Do this and check back in - in 25-30 years.

 

[Dave Hess]

VTI is ultra low risk and should be a core holding.

 

[Warstud]

And you should really educate yourself more on the risk vs. reward of 100% stocks vs something like 75%stocks/25%bonds.
You might find that you are taking unecessary risk.

This makes no sense. Your telling someone there taking unnecessary risk but then you advise them to start buying stocks at the bubble highs.

 

[dareo]

Learn all you can. Knowing how to maintain and fix things yourself on your car saves money. Knowing how to invest your own money creates a lot more.

Skip the bonds until the yields are a lot higher. Take all the company matches and tax advantaged accounts you can. Spend less and put money in a cash brokerage. Find some companies you think will be good long term and are not overpriced hyped out meme stocks. Identify quality, track, buy low, hold.

Most important thing about investing: do it.

 

[Dave Hess]

DCA investing in a 401K for 35 years has created lots of 401K millionaires.

Just run the numbers in a 401K calculator.

 

[fozzdesy2001]

Roth is the way to go just make sure you don't go over the contribution max limit, Also the company match might not go to a Roth account

 

[MoneyJohn]

Everyone is different and everyone's risk tolerance (and greed) is different too.

If it were me, I would first reduce my tax burden as much as possible. I would invest 90% of retirement in passive indexes and 10% would be play money that I am willing to lose in stocks. When I started, I was taught stocks are the only way to invest. ETF/Mutual funds were frowned upon. So I started investing in stocks but quickly realized that its a loser's game. Even though my stocks have appreciated significantly, getting an exact understanding of the company's financials and future is very difficult for a regular Joe, so I have pulled back now for stocks.

 

[JHZR2]

Nope, I suggested a balanced porfolio. I am staunchly against putting your money 100% in stocks ever.
Predicting bubbles and timing the market is not in your best interest.

In your example one of 2 things can happen. The price of stocks can go down OR earnings can go up.
Coming out of the pandemic companies are starting to make bank. Earnings are going up. The reason prices are high is in anticipation of that.
So, you're betting one way...will miss out on a lot of earnings if you're wrong.
I've got a balanced portfolio with a long time horizon. I'm sort of indifferent to what happens short term.

Yes, prices have held on in anticipation of economic reopening. But they’ve priced that in and some. And, the artificially induced drop in March of 2020 aside, there really hasn’t been a correction that I’d consider a natural, healthy drop to get tings back in line.

Timing as a whole is silly, lots of analysis says that. But it’s also true that now isn’t the time to jump all in on S&P type funds. If someone actually wishes to be proactive, then biasing away from them now, with a shift as things corrects, is a decent idea. Note I said bias, not zero.

 

[doitmyself]

Nick1994, are you listening? Do you understand any of this? Are you the type to spend LOTS of time learning the complexities of financial planning and want to control it yourself? Or, are you like me? At age 65 I still do not understand this very complex subject. My method is/was to investigate with some trusted finanacial planners like Fidelity, Vanguard, and in my case TIAA and go with a "cookbook"/rule of thumb type plan of a balanced, diversified, portfolio based on MY goals, risk tolerance, etc. I meet with my advisor annually to tweak things as needed. I invested for the long term, meaning you ride the waves up and down. In the down times you are buying more shares at lower dollars that will grow more during the good times (how it was explained to me). I talk to people at my large workplace and some claim to have accumulated a lot more than me going one direction. I talk to others that at age 55 are nervously playing "catch up" because they invested in a different direction. I did well trying to stay somewhere in the middle regarding investment options and risk.

Please tell us what you are thinking and if you have learned anything here. Thank you.

 

[Dogman]

Cheap, broad market index funds are an excellent choice.

 

[Jimmy_Russells]

In Canada we have some newish asset allocation etfs that are literally one ticker, and all you need. They hold 10,000+ stocks (and some bonds if desired) from around the world are simply meant for someone to buy and hold until retirement without having to rebalance different etfs over time.

Vanguard, Blackrock and BMO all have five different etfs varying from 100% equities, to 80/20 equities/bonds, all the way down to 20/80. The MERs are cheap, roughly 0.24%.

Does something like this exist in the US?

 

[Dogman]

In Canada we have some newish asset allocation etfs that are literally one ticker, and all you need. They hold 10,000+ stocks (and some bonds if desired) from around the world are simply meant for someone to buy and hold until retirement without having to rebalance different etfs over time.

Vanguard, Blackrock and BMO all have five different etfs varying from 100% equities, to 80/20 equities/bonds, all the way down to 20/80. The MERs are cheap, roughly 0.24%.

Does something like this exist in the US?

Yes, blackrock and I believe wisdomtree offer asset allocation etfs. Wisdomtree is US only as far as I recall and 90/60 stock/bond, using bond futures. Blackrock is basically like a vanguard lifestrategy mutual fund in an etf wrapper.

vanguard surprisingly still does not offer a asset allocation etf in the US.

 

[Nick1994]

Nick1994, are you listening? Do you understand any of this? Are you the type to spend LOTS of time learning the complexities of financial planning and want to control it yourself? Or, are you like me? At age 65 I still do not understand this very complex subject. My method is/was to investigate with some trusted finanacial planners like Fidelity, Vanguard, and in my case TIAA and go with a "cookbook"/rule of thumb type plan of a balanced, diversified, portfolio based on MY goals, risk tolerance, etc. I meet with my advisor annually to tweak things as needed. I invested for the long term, meaning you ride the waves up and down. In the down times you are buying more shares at lower dollars that will grow more during the good times (how it was explained to me). I talk to people at my large workplace and some claim to have accumulated a lot more than me going one direction. I talk to others that at age 55 are nervously playing "catch up" because they invested in a different direction. I did well trying to stay somewhere in the middle regarding investment options and risk.

Please tell us what you are thinking and if you have learned anything here. Thank you.

I really appreciate the advice here, have been reading all comments.

I'm a WP Carey School of Business graduate, and a lot of this goes right over my head but I'm definitely learning.

I think my best bet is to reach out to a financial planner at one of the companies you listed and get some opinions, make some plans.