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having all equities or even equities and corporate bonds is far from diversified.
as 2008-2009 showed us its only who falls the least .
real diversification would be like treasury bonds,gold,sometimes commodities and reits .
its also about owning enough of those other asset classes so they can run with the ball when its time and carry the portfolio.
the old rule of 5- 10% in gold did nothing to carry the portfolio when equities were down 45%.
but equal amounts of treasuries and gold carried the ball enough to offset the 45% loss in equities and make it a positive year.
even commodities didnt act like gold as they fell almost 50% while gold broke new highs so thats why ill say sometimes about them being opposite of stocks.
the other thing i want to comment on is target date funds.
i noticed somebody here has a 2040 fund and a 2050 fund.
why would you buy target funds which are shifting away from stocks as you age and then buy a ton of other stuff negating what the target fund is doing.
it makes noooooo sense . if you buy a target fund that needs to be your only investment or dont bother buying one,it cant work the way its designed .. you would be better served by just a balanced fund.
target funds arent so hot either for dollar cost averaging too. they work better when you lump sum invest.
the problem is that markets are generally up 2/3 of the time and down only 1/3.
your buying less and less shares over time at the same time the fund is cutting back your equity exposure. that can leave you far to conservative .
the other issue is if you were retiring now would you want a fund locking in low rates on bonds for you just as they reached the end of a 30 year bull market .bonds have pretty much no where to go but up giving you losses in the fund . balancing only by age and not events is not a good thing.
Last edited by mathjak107; 07-25-2011 at 03:36 AM..
You can have 300k in your retirement but if you have 500k in debt it doesn't matter much. I think net worth should also be taken into account. We have about 50k in retirement at 29 but we've paid off 100k of debt in the last five years.
You can have 300k in your retirement but if you have 500k in debt it doesn't matter much. I think net worth should also be taken into account. We have about 50k in retirement at 29 but we've paid off 100k of debt in the last five years.
I disagree. In the end you can only put up to $49k into your 401k per year, while you can put an unlimited amount of money towards your debt. Because of this 401k contribution cap, you cannot catch up by contributing more later on. But with the debt, you can put $300k towards it in a single year if you wanted to.
Unless you have unreasonable interest rates on your debt, I always suggest maxing out your retirement before paying off debt. This even worse if you are limited to $15k into your 401k.
You can have 300k in your retirement but if you have 500k in debt it doesn't matter much. I think net worth should also be taken into account. We have about 50k in retirement at 29 but we've paid off 100k of debt in the last five years.
What if you file bankruptcy for that that half million? Then the debt becomes 0.
I disagree. In the end you can only put up to $49k into your 401k per year, while you can put an unlimited amount of money towards your debt. Because of this 401k contribution cap, you cannot catch up by contributing more later on. But with the debt, you can put $300k towards it in a single year if you wanted to.
Unless you have unreasonable interest rates on your debt, I always suggest maxing out your retirement before paying off debt. This even worse if you are limited to $15k into your 401k.
the 49k limit is very mis-leading. its really not something most of us will ever see.
its 16,500 plus a catch up over 55 . there is a stipulation that if you can get a company to pay you and everyone else less and make a contribution to your 401k instead then the limit is very high .
quite frankly i think the odds of that happening are about on par with finding someone who actually filed a gift tax form. its so rare as to not even come up on the panel when discussing 401k limits.
the 49k limit is very mis-leading. its really not something most of us will ever see.
its 16,500 plus a catch up over 55 . there is a stipulation that if you can get a company to pay you and everyone else less and make a contribution to your 401k instead then the limit is very high .
quite frankly i think the odds of that happening are about on par with finding someone who actually filed a gift tax form. its so rare as to not even come up on the panel when discussing 401k limits.
If you're self employed, you can take advantage of the $49k limit easily. It's not that rare among business owners either. Only those who select to be employees really run into the $15,500 limit.
Either way though, $49k, $15k.... my reasoning still above still makes sense (to me atleast). Pay your tax-sheltered retirement first, then your debts (assuming debt interest is reasonable).
I disagree. In the end you can only put up to $49k into your 401k per year, while you can put an unlimited amount of money towards your debt. Because of this 401k contribution cap, you cannot catch up by contributing more later on. But with the debt, you can put $300k towards it in a single year if you wanted to.
Unless you have unreasonable interest rates on your debt, I always suggest maxing out your retirement before paying off debt. This even worse if you are limited to $15k into your 401k.
Of course there are many theories. I don't think taxes will ever be lower so I'm concentrating on roth and paying down debt now. I'll max out 401k's soon enough.
Of course there are many theories. I don't think taxes will ever be lower so I'm concentrating on roth and paying down debt now. I'll max out 401k's soon enough.
Beauty of 401k is that it can be converted to roth ira in low tax years. I'm a fan of roth as well.
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