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How to Invest for Retirement
- Thread starter Piecake
- Start date
Investing 500$ on crypto sure is risky. When you reach retirement God knows what the coin will be valued. Could be 0 could be 50x! The risk/reward is out of this world its crazy not to do it. I dont understand you guys.
anyhow, cheers.
Perhaps you would care to purchase my Guide to the Luckiest PowerBall Numbers for only $5.99? I use rigorous back-testing to determine the PowerBall numbers most likely to be drawn. Why spend $500 on crypto coins, when this only costs you a few bucks? And if you win, you win even bigger! You would be crazy not to do it.
Sure, this is a fully general argument for speculative investing. $500 isn't that much money. We could drop that much in cryptocurrencies, in penny stocks, in oil futures, in currency day trading, in mortgage-backed securities, in margin trading on pork bellies, whatever. There are tons of ways to get into high-risk high-reward investments.
But remember that the central topic of this thread is not speculative investments or investing in general, it's investing for retirement. For that purpose, most people are going to be interested in ensuring they end up with enough to retire on rather than tossing some money on something speculative and hoping they end up with a lot more. The risk-reward doesn't work out because ending up with more than you need for retirement is sort of nice but not really important, while ending up with less than you need is a huge problem. Thus people in here are generally going to talk about boring, relatively safe investments that will plod along and be quite likely to see them safely into retirement.
I don't want to be rude about it and tell you you just can't talk about that stuff here, but you probably will find more people willing to talk about this in the general stock discussion thread, which leans a lot more towards trading and speculation.
I'm in, where do I sign up?
ClosingADoor
Member
Join us in the Stock thread over here: http://www.neogaf.com/forum/showthread.php?t=176332
Edit: I should read it all first, already linked above.
RumblingRosco
Member
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YuriLowell
Member
So at my new job, we have a choice between getting a hybrid pension plan or to go with what seems to be a 401k equal.
The 401k equal seems like the way to go with their 8.5% contribution.
I'm not sure I trust the state to take care of the pension plan.
What would you guys do?
The 401k equal seems like the way to go with their 8.5% contribution.
I'm not sure I trust the state to take care of the pension plan.
What would you guys do?
milanbaros
Member?
There are literally thousands if not millions of those bets to be made though. I don't believe the time/effort price to pay over 30 years on doing these bets would be suitably rewarded compared to total market passive investing.
You might as well play the lottery with that attitude. It may well bring you riches but it isn't a sound retirement strategy.
RumblingRosco
Member
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YuriLowell
Member
It's you put in 5% and we put in 8.5%. It seems like they don't want people opting into the pension plan.
The hybrid pension plan doesn't make alot of sense to me since all of the calculations I have done make it seem like it is very conservative with all of its funds, plus I can't take it with me if I ever leave this job.
PflargBlarg
Member
No, cryptocurrency is not an investment in any useful sense in regards to retirement planning. You might as well go drop $500 at the horse track. Cryptocurrency speculation is the most "non-investy" investment I can think of.
It's basically like an r/wallstreetbets style situation, although even the guys there are generally speculating based on the potentially analyzable futures of actual companies that produce things.
A $500 high-risk bet on cryptocurrency is the furthest thing from a "no-brainer" for retirement as you can get.
Long term investment is in no small part fueled by compounding gains (dividends). That is the polar opposite of a high risk/high reward niche like crypto.
And yeah, to Soka's point, I'm not maxing out my retirement contributions. Nowhere close. So that would be a balloon squeeze from my regular retirement investing. It would be pretty foolish.
As an aside, the dividends I get per year now are starting to quite noticeably compound. They add up to several months income alone. I want as much of my money as possible doing that for the next 20 years tax sheltered.
Long term investment is in no small part fueled by compounding gains (dividends). That is the polar opposite of a high risk/high reward niche like crypto.
And yeah, to Soka's point, I'm not maxing out my retirement contributions. Nowhere close. So that would be a balloon squeeze from my regular retirement investing. It would be pretty foolish.
As an aside, the dividends I get per year now are starting to quite noticeably compound. They add up to several months income alone. I want as much of my money as possible doing that for the next 20 years tax sheltered.
Brah just post your cryptocurrency stuff in the stock thread. Or make a new thread on the topic. I find it pretty interesting but it shouldn't be in here. This thread is about long investment and reinvestment. You are making this out to be a bigger deal than it needs to be.
One think that crosses my mind is that owning equity, after however many layers of abstraction, allows you to diversify into all sorts of things, like land, machinery, intellectual property etc. Crucially it's also a productive asset.
Certainly an aspect of the value of the above is speculation, and much of the market cap is from expected future profits and not the value of its assets. But the business is actively trying to become more profitable.
With cyptocurrency the value is entirely what people are willing to pay. In my eyes its far more speculative that real currencies too, because at least real currencies are related to economies and productive and trade balances and stuff (not that I know much about what drives exchange rates).
Also I think the idea of investing in cryptocurrencies as an asset is silly. I expect much of the technology behind them to eventually be adopted by central banks not as some crazy shift in monetary policy, but for the sake of improving accounting and making digital financial transactions easier (perhaps eliminating the need for middle-man payments processors and such). As it stands you're kinda just investing in private currencies.
Certainly an aspect of the value of the above is speculation, and much of the market cap is from expected future profits and not the value of its assets. But the business is actively trying to become more profitable.
With cyptocurrency the value is entirely what people are willing to pay. In my eyes its far more speculative that real currencies too, because at least real currencies are related to economies and productive and trade balances and stuff (not that I know much about what drives exchange rates).
Also I think the idea of investing in cryptocurrencies as an asset is silly. I expect much of the technology behind them to eventually be adopted by central banks not as some crazy shift in monetary policy, but for the sake of improving accounting and making digital financial transactions easier (perhaps eliminating the need for middle-man payments processors and such). As it stands you're kinda just investing in private currencies.
Currently doing traditional but considering doing at least partial Roth.
I'm doing a split simply because I opted for Roth but then discovered the matching is traditional regardless. Not a ton of analysis obviously.
What's your thinking for doing the split?
aronnov reborn
Banned
I personally always do Roth. I want as much money building Tax free as possible.
Ether_Snake
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Question for Canadians, or anyone who knows.
For bonds, I currently hold a mix of Canadian and US bonds government. I know US bonds expose me to currency fluctuations, but I am wondering if I should move all to Canadian bonds. Couch Potato recommends doing so due to said currency fluctuations, but I've held BLV and the returns have just been much better than Canadian or international (CAD-hedged) bond etfs.
Is there something I'm not understanding? I know past returns are no guarantee of future returns, but Couch Potato bases his claims on the idea that the return rate won't be so different, but in this case it's been quite different, and that's not even counting the currency difference.
I'm thinking of going with VLB only, or VLB and some VBG to have a bit of international.
For bonds, I currently hold a mix of Canadian and US bonds government. I know US bonds expose me to currency fluctuations, but I am wondering if I should move all to Canadian bonds. Couch Potato recommends doing so due to said currency fluctuations, but I've held BLV and the returns have just been much better than Canadian or international (CAD-hedged) bond etfs.
Is there something I'm not understanding? I know past returns are no guarantee of future returns, but Couch Potato bases his claims on the idea that the return rate won't be so different, but in this case it's been quite different, and that's not even counting the currency difference.
I'm thinking of going with VLB only, or VLB and some VBG to have a bit of international.
Value stocks outperform growth stocks because they are riskier. Value stocks are usually value stocks because their businesses look dire, or because investors have reason to believe that their business model will be devastated by change in the future.
I think momentum stocks will continue to outperform so long as there are active traders making mistakes and chasing winners.
Unknown Soldier
Member
As far as 'value' goes, small caps are well-known for outperforming the overall market consistently over long periods of time.
VIOO tracks the S&P Small Cap 600, VTI of course tracks the S&P 500 and does a good job of that as we can see.
VIOO tracks the S&P Small Cap 600, VTI of course tracks the S&P 500 and does a good job of that as we can see.
When people say "value" in factor investing, they are referring to some metric derived from a stock's P/E ratio. Value stocks come in all sizes; for instance, Apple.
That's controversial. The term 'value premium' is commonly used to refer to the risk-adjusted advantage in returns of value stocks. Many analysts believe that a component of the higher returns for value stocks cannot be explained by risk.
...and that's the explanation for the value premium: behavioral errors.
The reason I say that I'm unsure of the future of factor premiums based on behavioral errors is three-fold:
1. The strong trend away from hedge funds and toward passive investment strategies may reduce behavioral errors.
2. One argument for why the value premium has stuck around is lack of information. We're in the information age, so maybe investors of the future will be better informed on these topics.
3. Factor investing is the hot trend right now for people who are trying to beat the market. If too much money flows into factor strategies like 'value', they dry up.
Basically, I still have some faith in the efficient market hypothesis, which says that non-risk-based premiums should be arbitraged away.
RumblingRosco
Member
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"Income" here is the non-growth yield, so income funds are made up of things like treasuries, bonds, or high-dividend-yield stocks in increasing degree of risk.
They are useful for retirees because they provide the investor with cash that they can use to pay their expenses without requiring them to sell their stocks.
If you are far from retirement, you probably do not want to focus on income funds. Bonds don't have a high enough risk / reward for people with a long investment horizon, there tends to be a dividend premium for high-yield stocks, and they are generally less tax-efficient in non-tax-sheltered accounts because the income is taxed at your marginal income tax rate (as opposed to eventually being taxed at long-term capital gains rates).
therealist
Member
What do you guys think about this investment mix
30% - VOO S&P 500 ETF
15% - VDC Consumer Staples
20% - VCR - Consumer Discretionary
10% - VWO Emerging Markets
5% - VEA Developed Markets
20% - Individual stocks
I am young therefore I am wanting and willing to take risk for a big payoff, but is this just stupid? Not diversified enough? I've had this mix for 2 months now and have gained like 3.6%. FYI 65% of the money that I own is invested in this portfolio.
30% - VOO S&P 500 ETF
15% - VDC Consumer Staples
20% - VCR - Consumer Discretionary
10% - VWO Emerging Markets
5% - VEA Developed Markets
20% - Individual stocks
I am young therefore I am wanting and willing to take risk for a big payoff, but is this just stupid? Not diversified enough? I've had this mix for 2 months now and have gained like 3.6%. FYI 65% of the money that I own is invested in this portfolio.
Could also be referring to this
"With income units, any income is paid as cash. This can be withdrawn, reinvested or simply held on your account. With accumulation units any income is retained within the fund; the number of units remains the same but the price of each unit increases by the amount of income generated within the fund. Generally accumulation units offer a slightly more efficient way to reinvest income, although many investors will choose to hold income units and reinvest the income to buy extra units."
http://www.hl.co.uk/funds/fund-disc...gal-and-general-european-index-class-c-income
http://www.hl.co.uk/funds/fund-disc...d-general-european-index-class-c-accumulation
Fund is the same just different how the income is paid.
Randolph Freelander
Member
I don't particularly care for it and you're getting a lot of overlap but don't have enough small and mid-cap, and you have too much emerging markets with not enough regular international.
If you're wanting to increase your risk a bit while still keeping it simple, you can increase ever so slightly your exposure to small- and mid-cap domestics and emerging markets. Consider something like
--- US Domestic --
60% VTI - Total Stock Market
7% VXF - Extended Market (small, mid)
Small and mid-caps are included in VTI, but you're giving yourself even more exposure hoping for larger returns while accepting higher risk.
-- International --
30% VXUS - Total International
3% VWO - Emerging Markets
Same story as above. Emerging markets are in VXUS, but you're going for more.
(You can play with the percentages, but this gets you a little more risk while still keeping you close to the regularly recommended mix for someone not concerned so much about bonds.)
To be honest, I would personally be more comfortable with the VXF tilt than VWO, but that's me. Emerging markets are just too volatile for my liking and I'm not sure I could ignore it and not make rash decisions.
PopcornMegaphone
Banned
Personally, I don't think this is ideal. What basis do you have for these assets? I suggest a 3 fund low cost lazy portfolio and be done with it. Simple and very effective. If you're really young and you don't panic during market swings consider going 100% equity and start buying bonds around 30-35 years old. Then slowly increase your bond allocation as you age by doing a yearly portfolio re-balance.
RiggenBlaque
Member
I have some choices at work for where to put my 401k that I kind of interpret as being shitty. I'm used to having the option to just throw your 401k money into one of those Target Date funds, but this new place I work at has specific funds picked out and I have to choose among them. I wound up splitting my contribution between two funds based on their risk and morning star ratings:
SHAPX Legg Mason Clearbridge Appreciation A
SBLGX Legg Mason Clearbridge Large Cap Growth A
Does anyone have any thoughts on those picks? I'm 30 years old, FYI.
I'm also interested in regularly depositing some of my income into an index fund (say, once a month) but I noticed the Vanguard Total Stock Market Index Fund has a transaction fee of $75. Would it be safe to put the money into the Fidelity equivalent (I have a Fidelity account).
SHAPX Legg Mason Clearbridge Appreciation A
SBLGX Legg Mason Clearbridge Large Cap Growth A
Does anyone have any thoughts on those picks? I'm 30 years old, FYI.
I'm also interested in regularly depositing some of my income into an index fund (say, once a month) but I noticed the Vanguard Total Stock Market Index Fund has a transaction fee of $75. Would it be safe to put the money into the Fidelity equivalent (I have a Fidelity account).
therealist
Member
Thanks, I may try this. If I am really wanting to increase risk even more, do you advise increasing my allocations to VXF/VWO than the 7/3% you suggested? I know you said emerging markets are not for you, but personally I don't care about volatility too much, I just want the amount that I have in 40 years to be the highest it can be.
To be honest, I did not have a intelligent basis for these assets. All I did was look at the ETF list on Vanguard and chose them within an hour or so...
Hello? This is Hailun!
Member
Not all employers contribute. Some have a contribution max (mine does 3% till the contribute 3k and then cuts you off).
EDIT
For finance guys, here's my plan and I'd appreciate some feedback:
Not gonna mix up stuff too terribly much as I don't want to get bogged down.
5.5k per year per my wife and I (11k total) into a Traditional -> Roth IRA conversion via Form 8606. The idea is to keep building into this. Have Fidelity set to invest along a retirement goal. Picked the year I want to retire and it invests accordingly.
401k - We put approximately 15% in each year which works out into roughly 20k a year. Employer match is probably another 5 - 7k total.
Brokerage account - We put in a few thousand biannually or so and have it set simply to be aggressive.
Mortgage at 4%
One car note at 2%
Plan on leaving the above two alone/not accelerating their payoff since money in the investments has a growth rate of 5%.
Plan on, within the next year or two, buying a cheap investment house to rent. This may work out great since a semi-retired family member wants to move to my city for QoL reasons. I know them, they're trustworthy, and I don't mind subsidizing their rent a bit each month to help their bottom line.
Can someone explain to me why index ETFs don't experience large price fluctuation as a result of speculative trading? I understand that they have a true value based on the underlying fund, but wouldn't their price still rise superset from that if they are a popular purchase?
Only explanation I can think of is maybe fund manager floods the market with new shares when prices go up?
Only explanation I can think of is maybe fund manager floods the market with new shares when prices go up?
PopcornMegaphone
Banned
I really don't like these actively managed funds. Doesn't your 401k have some low cost total market or S&P 500 index fund choices?
RiggenBlaque
Member
I'm not an expert, but I don't think so:
Clearbridge Dividend Strategy A
SOPAX
Clearbridge Mid Cap A
SBMAX
Legg Mason Clearbridge Aggressive Growth A
SHRAX
Legg Mason Clearbridge Appreciation A
SHAPX
Legg Mason Clearbridge Fundamental All Cap Value A
SHFVX
Legg Mason Clearbridge Large Cap Growth A
SBLGX
Legg Mason Clearbridge Small Cap Growth A
SASMX
Legg Mason Clearbridge Small Cap Value A
SBVAX
Qs Conservative Growth A
SBBAX
Qs Defensive Growth A
SBCPX
Qs Global Equity A
CFIPX
Qs Growth A
SCHAX
Qs Moderate Growth A
SCGRX
Western Asset Corporate Bond A
SIGAX
Western Asset Government Reserves A
SMGXX
Western Asset Mortgage Backed Securities A
SGVAX
Walter White Walker
Member
Both of those have 5.75% front loads which steals that percentage straight off the top of whatever you put in them. They also have high fees. Do you have anything else you can pick from because these are both terrible.
edit: damn, your company hates their employees. Those are all horrible. Does your company match? If not I'd be putting money into a Roth IRA instead.
Randolph Freelander
Member
These options have horrible expenses, but if that's what you're offered, that's what you're stuck with. I'd like to see some small/mid cap exposure and what you might have for international offerings. But given these expenses, you probably want to prioritize a personal IRA once you've secured whatever the employer match would be.
Speaking of personal accounts, yes, the Fidelity total market fund (FSTMX, FSTVX) would be fine to use as a substitute for Vanguard since you're with Fidelity. If the shoe were on the other foot and you were with Vanguard, the VG fund would be free and the Fidelity fund would have the fee. Vanguard is better with target date funds (passive vs. Fidelity's managed) and offering their own ETFs (Fidelity does offer some iShares ETFs for free), but their large index funds are fairly equal.
Randolph Freelander
Member
I've seen people advocate tilting as high as 25% towards small/mid (25% of 67% being 17%, so you would be 50/17 VTI/VXF), so yes, you could work the percentages a bit. But again, I caution that this is with risk, there's no guarantee it will work out for you any better than (or as good as) just going Total Market / Total International with no tilts and leaving it alone.
PopcornMegaphone
Banned
This is one the most shameful fund lists I've ever seen from a 401k offering. I'd contribute up to the company match then put anything else in a vanguard Roth IRA.
I would also let your HR dept know how bad these funds are. Maybe one day they can demand changes.
Randolph Freelander
Member
I'd go further and start looking around for greener pastures.
RiggenBlaque
Member
It's a small startup company, but all their payroll is done through Paychex. I don't really understand why they chose those funds, though. I would have thought once you have a 401k program there would be no limits on what funds you could contribute to.
If they do a match, definitely contribute the bare minimum to get it and then focus on your IRA. That's a horrifying list of expense ratios. Complain to HR, if you can, and demand an index fund be added.
PopcornMegaphone
Banned
It's okay for a 401k to limit offerings to avoid people buying crazy speculative stuff like bitcoin with their retirement accounts.
That said, you should really let HR know these are really bad funds (in a friendly way). Maybe one day they'll look to change things. Companies want to keep their employees happy.
RiggenBlaque
Member
Its embarrassing to admit this, but even though I knew the funds sucked, I didn't realize what "load" meant. I'm going to talk to HR person on Monday now that I know this.
PopcornMegaphone
Banned
Speaking as someone who uses Fidelity (401k) and Vanguard (taxable) this advice is spot on. Fidelity's core index funds are comparable, but Vanguard's target date funds are significantly better.
If you just want core index funds, just buy the Fidelity comparables to keep your costs down.
RiggenBlaque
Member
That's great to hear from multiple people because when I rolled my 401k over from a different job I put it into the Vanguard target date fund even though it was through Fidelity
I started out with funds that used a load. It put a huge dent on my earnings; the load was there to pay for the commission the fund company paid to the broker. Someone in the company (or the company itself) is probably making money off the funds via commission. They either don't know just how much that wallops your retirement, in which case they might be persuaded, or don't care, in which case....good luck.
The degree that speculation can cause volatility is inversely proportional to the market cap of the asset. For index funds, that would be the sum of the market caps of all the companies in the index. So it's hard to do. Speculators are probably also less likely to want to speculate on a low-volatility asset since there is less opportunity for big scores. People with the speculation mindset are focused on Bitcoin right now.
Now if you are talking specifically about the ETF version of the index, its price is constrained by the fact that a mutual fund version also exists, and why would a rational investor pay considerably more for the ETF version than the mutual fund version if they have the same underlying assets? ETF popularity shows up more in bid-ask spreads, where the face value of the ETF is the same as the mutual fund, but the price you actually have to pay to buy it is higher. It doesn't affect mutual funds because they are not traded via limit orders.
Yeah, pretty much. The fund works with a firm that's designated with the ability to create and redeem shares.
Computers keep the price close to NAV. You can look up tracking error on funds.
This is also why ETFs are generally viewed as tax friendlier than mutual funds. The firm takes on the tax burden from buying and selling the underlying equities throughout the year and the cost of the transactions. Mutual funds pass on their taxable events via distribution at the end of the year.