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So, I don't consider myself an investor. I mean I've had $ in the stock market for years, but select stocks, and I've made moderate gains.
I noticed that most of these retirement 'funds' and 'indexes' are basically random groups that have a random volatility where your gains and losses could be unpredictable when compared against the market. Picking one is basically gambling. If I wanted to gamble then I can go to a casino.
I think putting aside small cap, large cap, energy, growth, aggressive, all of this garbage they pay people 200K salaries to come up with hundreds and hundreds of funds (which still don't beat the SP500), that it can be simplified.
So, I figured the simplification goes like this ...
-If you are close to retirement or are risk adverse, then you go with an almost 100% bond fund. You won't get crushed in events like COVID and you don't have to time the market. Your 2 and 5 year gains will be minimal, but likely you'll see a little.
-If you want the middle of the road you're in your 40s/50s, then invest in an SP500 index fund. Tracks the market basically. It wins, you win, it loses, you lose.
-If you want big risk and big gains and want aggressive growth, then invest in an almost 100% stock technology fund.
You want simplified retirement investing, here goes:
1) Use 10% of each paycheck to dollar-cost-average into a broad index fund.
2) As you get older move more of your money into safer cash/bond positions to protect against volatility wiping out a major chunk of your nest egg right before you retire.
You want simplified retirement investing, here goes:
1) Use 10% of each paycheck to dollar-cost-average into a broad index fund.
2) As you get older move more of your money into safer cash/bond positions to protect against volatility wiping out a major chunk of your nest egg right before you retire.
3) That's really it.
If by broad index fund you mean basically mirroring the SP500, then I agree. I probably also agree on contributing less...
But what's with brainwashing everybody with all of this put as much $ into these 401k/Roth accounts as you can, and all of these variety of various financial 'products' which may or may not suck.
I can guarantee there's many people who know less about this sh@t than I do and have way more $ in there than I do...
Well, by law a qualified 401(k) plan has to offer a wide variety of investment options, so that explains the variety of various financial products that may or may not suck.
People are encouraged to put money into 401(k) and Roth accounts for a few reasons. First, the employee theoretically benefits from tax-deferred contributions presuming they'll be taxed at a lower rate on the withdrawals than they would be on after-tax contributions to a non-deferred plan. Second, employers can take tax deductions on payments to qualified retirement plans immediately whereas they cannot take the deduction on non-qualified plans until the funds become taxable to the recipient. This matters because there are rules limiting how much highly compensated employees such as executives can put into qualified plans before the employer's tax deduction goes away, and that formula is partially determined by how much the rank-and-file employees contribute to qualified plans. In short, the more the rank-and-file participates, the more the employer can put into executives' retirement plans and still take an immediate tax deduction, though there is a finite ceiling regardless. That's why most companies automatically enroll their employees in a 401k plan and make them affirmatively opt out if they don't want to participate.
So, I don't consider myself an investor. I mean I've had $ in the stock market for years, but select stocks, and I've made moderate gains.
I noticed that most of these retirement 'funds' and 'indexes' are basically random groups that have a random volatility where your gains and losses could be unpredictable when compared against the market. Picking one is basically gambling. If I wanted to gamble then I can go to a casino.
I think putting aside small cap, large cap, energy, growth, aggressive, all of this garbage they pay people 200K salaries to come up with hundreds and hundreds of funds (which still don't beat the SP500), that it can be simplified.
So, I figured the simplification goes like this ...
-If you are close to retirement or are risk adverse, then you go with an almost 100% bond fund. You won't get crushed in events like COVID and you don't have to time the market. Your 2 and 5 year gains will be minimal, but likely you'll see a little.
-If you want the middle of the road you're in your 40s/50s, then invest in an SP500 index fund. Tracks the market basically. It wins, you win, it loses, you lose.
-If you want big risk and big gains and want aggressive growth, then invest in an almost 100% stock technology fund.
That seems to me to be it...
Umm, what ?
If you want passive investing to be simple, here it is.
- Determine your risk tolerance for volatility. Start there. Basically, if you can't stomach stock market volatility and it will make you panic and sell at the crash, don't go more than 30% in allocation to stocks.
- Understanding Trinity Study based withdrawal rates to determine based on your allocation, what's the max you might be able to withdrawal annually during retirement and how long that portfolio is likely to last.
- In terms of the types of investments, the best equity holding for an individual investor will be either The S&P 500 Index Fund or the Total US Stock Market Fund. The best bond holding will be a Total Bond Index.
If you want passive investing to be simple, here it is.
- Determine your risk tolerance for volatility. Start there. Basically, if you can't stomach stock market volatility and it will make you panic and sell at the crash, don't go more than 30% in allocation to stocks.
- Understanding Trinity Study based withdrawal rates to determine based on your allocation, what's the max you might be able to withdrawal annually during retirement and how long that portfolio is likely to last.
- In terms of the types of investments, the best equity holding for an individual investor will be either The S&P 500 Index Fund or the Total US Stock Market Fund. The best bond holding will be a Total Bond Index.
there is no such thing as best bond holding ... a total market fund is anything but "TOTAL " and it can be a poor choice depending on the economic environment , how long before you will tap the bond side of things and why do you want bonds ?
a total bond fund is not a good choice if you want to prop up equities if they plunge .
it is a poor choice if rates rise or inflation rises
it can get hit hard if we see credit down grades .
it is also missing much of the bond maket segments so it is not total anything.
with decades to go until retirement mitigating temporary short term dips with bonds and permanently hurting long term returns has no financial logic to it .....
So, I don't consider myself an investor. I mean I've had $ in the stock market for years, but select stocks, and I've made moderate gains.
I noticed that most of these retirement 'funds' and 'indexes' are basically random groups that have a random volatility where your gains and losses could be unpredictable when compared against the market. Picking one is basically gambling. If I wanted to gamble then I can go to a casino.
I think putting aside small cap, large cap, energy, growth, aggressive, all of this garbage they pay people 200K salaries to come up with hundreds and hundreds of funds (which still don't beat the SP500), that it can be simplified.
So, I figured the simplification goes like this ...
-If you are close to retirement or are risk adverse, then you go with an almost 100% bond fund. You won't get crushed in events like COVID and you don't have to time the market. Your 2 and 5 year gains will be minimal, but likely you'll see a little.
-If you want the middle of the road you're in your 40s/50s, then invest in an SP500 index fund. Tracks the market basically. It wins, you win, it loses, you lose.
-If you want big risk and big gains and want aggressive growth, then invest in an almost 100% stock technology fund.
That seems to me to be it...
you need to learn ...this is YOUR MONEY and you need to take an interest and learn ..already in your post you are believing stuff that is false and will hurt you , like going 100% fixed income for retirement .
as soon as someone says that it is not a good sign ... it means they know nothing about retirement planning and developing safe withdrawal rates ....
people spend more time learning about their car or refrigerator then something as important as their money.. so now is the time to start to learn about developing a safe , secure retirement income and not go by what you think or myth.
you can start with the information on the firecalc website ... then read the articles by michael kitces .... you will quickly learn why fixed income is the riskiest choice of all
Last edited by mathjak107; 04-23-2020 at 02:10 AM..
The OP asked for simplification . The Vanguard Total Bond Fund is one of the best core bond holdings and keeps it simple for individual investors to hold a bond category.
Quote:
Originally Posted by mathjak107
... a total market fund is anything but "TOTAL "
Nobody said it represented the total bond market.
Quote:
Originally Posted by mathjak107
and it can be a poor choice depending on the economic environment , how long before you will tap the bond side of things and why do you want bonds ?
a total bond fund is not a good choice if you want to prop up equities if they plunge .
it is a poor choice if rates rise or inflation rises
it can get hit hard if we see credit down grades .
There's active trading going on in the Total Bond Index Fund to help off set things you are discussing.
Quote:
Originally Posted by mathjak107
with decades to go until retirement mitigating temporary short term dips with bonds and permanently hurting long term returns has no financial logic to it .....
The "financial logic" to it, is to stay the course for 20 to 30 years. In order to do that, you need to determine a proper allocation to stocks, bonds, and cash that will enable you to sleep at night and live with said allocation for the next two to three decades.
Risk capacity is one thing. You can have 40 years until retirement and thus have a long time horizon to ride roller coaster booms, busts, and crashes....which means you "have the capacity" to be heavily allocated to stocks.
This does not mean you have the Risk Tolerance nor appetite for volatility. The reason a lot of these younger investors panic and sell at the bottom of these crashes, is because guys like you keep leading with Risk Capacity...instead of leading with Risk Tolerance.....when recommending portfolio allocation.
Granted, if someone has the Risk Capacity to eat the volatility, they could go heavy stocks for 30 to 40 years (or even more, there are guys in their 70's still with 80% in stocks) but if someone does not have that, then they ought to be heavier allocated to Bonds with a focus on cutting their expenses and eventually looking to live off a 2% to 3% withdrawal rate during retirement.
And oh BTW, for the just over 20 year period of January 2000 to end of March 2020, The Total Bond Index Fund beat The returns of The S&P 500 Index. Granted, the Coronavirus crash at the end of March played a big role in that, but it just goes to show you that we don't know what the future performance is going to be of these asset classes. Stocks should outperform Bonds, but we don't know. We should set our allocation levels based on volatility factors so that we have something customized to our individual tolerance that will allow us to "stick with it" for 20 to 30 plus years.
Quote:
Originally Posted by mathjak107
you can start with the information on the firecalc website ... then read the articles by michael kitces .... you will quickly learn why fixed income is the riskiest choice of all
Okay so can you quote an article or blog where Michael Kitces says Bonds/Fixed Income are the "riskest choice of them all"? I've never read about him saying that. Matter of fact, here's a recent interview with Michael discussing this very same topic.
simple answers to complex questions are likely the wrong answers.. dont start believing your own bull sh*t again ... you argued and argued last time only to find you were wrong ...
you are doing it again ...there is no such thing as a bond fund that is total or works for everyone in every situation , to the point you can just sit with it and get good results under all outcomes ... you are quite wrong about your perception of a total bond fund. any bond fund worked in the low inflation 40 year bull market in bonds we had ...
a total bond fund is the wrong place to be when :
you want protection in a down market ... they have little lift and behave more like stocks at times of stress then bonds... they are flat to down in major market dips usually , including the one we just had ...there are far better choices if portfolio protection is what one wants . long term treasuries soared over 40% over the one year, while a total bond fund is up about 2% ytd and maybe 6-8% over the last year ..... 2008 also saw long term treasuries up 40% while total bond funds were down to barely up at all .
they have a duration of about 7 years which means if someone wants to use the money sooner and rates are rising they will lose money . you need to match the fund duration to your needs via AN ASSORTMENT OF DIFFERENT TYPE AND DURATION BOND FUNDS . that may be dependent on whether your human capital is more stock or bond like . i will explain that in a thread later .
they are missing the sweet spot of the bond market which is below BBB , there are better choices if income is what you want a bond fund for . .
they are terrible if inflation or rates pick up , there are better choices in bond funds if that happens . we have had a bond bull market for over 40 years and except for a few speed bumps really had no bear market in bonds yet .
they maybe managed but they are not go anywhere funds , they track the barclay index at the end of the day .
total bond funds are okay but they really need other components in bond funds , they are missing to much to be one stop shopping ...
they offer near zero high yield . high yield is actually paying 6-8% today and are safer than the last rung of investment grade bonds at BBB which are higher risk and pay little .
no inflation adjusted bonds .
no international bonds .
no choice in duration value .
no protection in bad down markets like long term treasuries .
they have 20% of their fund in the RISKIEST SEGMENT OF THE BOND MARKET WHICH IS BBB ...
that is the last rung before falling out of investment grade .... one credit down grade and you are in a segment of the bond market that will have to be dumped by every insurer in the world as well as banks , pension funds , mutual funds and every institution that has to hold investment grade bonds ... high yield pays way more than BBB and is not subject to the dumping by institutions who can only hold investment grade bonds . total bond funds may have little to no high yield .
so taking the easy way out and thinking one bond is going to meet someones needs is foolish ... when it comes down to it each of us who own bond funds are doing so for different reasons and one size fits all or most is not likely true anymore at this stage ...
what would i add to a total bond fund ???? depending where we are in the cycle :
long term treasuries and in a proportion to how much fighter cover i want over my portfolio .
i would add some TIPS if inflation creeps up .
i would add an ultra short term bond fund since money market rates are near zero .
i would add a commodity linked bond fund if inflation creeps up from all this spending .
i would add a floating rate bond fund if rates rise
if the dollar weakens i would add an international bond fund .
these other components are dynamic and should change with the times .
as far as using balanced portfolios goes and using bonds through the accumulation stage...the data from morningstar shows that gun shy investors just have lower trigger points and they still bail out in market falls ..
balanced funds show no better small investor returns than growth funds do compared to what the funds investors as a group were in .
that is more wishful thinking that gun shy investors will stay the course through the accumulation stage any better . they don't and the morningstar investor returns vs the fund return has proven that in every market down turn .
i only used 100% equities for the decades of my accumulation stage . today in retirement i own a very diversified portfolio ....
while the equities are always invested the rest of the portfolio is dynamic and changes with the big picture ..
besides gold , in bond funds i own :
a total bond fund , an ultra short term bond fund , a high yield bond fund , long term treasuries , short term treasuries ...when rates were rising i had a floating rate bond fund in the mix but no long term treasuries .... that story is now changed and so have rates and the protection needed by bonds at this point .....
once again , let me say SIMPLE ANSWERS TO COMPLEX QUESTIONS ARE NOT GOING TO BE EITHER THE CORRECT ANSWERS OR THEY ARE NOT GOING TO BE THE BEST ANSWERS .
no one except vanguard ever said investing is going to be brainless and easy ... even vanguard changed their story with the study they did that investors lose up to 3% of potential return because they tend to exhibit poor behavior , make poorer choices in investments and have poor tax structure compared to having someone do it for them .
Last edited by mathjak107; 04-23-2020 at 05:01 AM..
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