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In my early 30s, I realized I was probably so far behind with retirement savings and had so much debt that I could probably never catch up with the traditional 401k matching. I missed out on a lot of gains from the rebound out of the Great Recession.
I graduated at 24 into the Great Recession in an economically depressed area. Part of it was my own fault. I didn't find a "career-track, professional job" until I was a month or so shy of 28. I never made above $40k for a full year from 24-28That job wasn't very stable. By the time I found something stable with a decent wage, I was already 30.
When I got that job in 2016, I was making $56k. I was still behind the eight-ball financially from years of low income, expensive moves, and personal spending habits. I lived with my parents for a couple of years to pay off all of that accumulated debt over the previous six years or so.
I cracked $100k on my 2022 return by a couple of hundred dollars. I'll be a good bit below that this year. I've had some legal and other expenses. This has been a rough year financially.
The only solution I could figure out was a government job with a pension. I landed that job in January of this year. In about five weeks, I'll have what is basically an effective tenure, where you can only be fired for cause.
Nothing is certain, and I do plan on putting feelers out in the private sector here and there, but unless a rabbit comes out of the hat, I'll probably retire as a state or local government employee somewhere within the state of North Carolina.
Projecting the cashflow out from the pension is more than I'd likely be able to accumulate on my own through typical savings plans at corporate employers without a pension. Sure, if you're comparing NC government salaries to the top tech companies in Raleigh or top Charlotte fintech salaries, the salaries don't compare, but if you're comparing with more typical private sector employers, the salaries are basically at parity. The pension and all the associated benefits are basically gravy on top of the salary.
The county contributes 8% of my pay to my 401k, even if I don't contribute a dollar. I've had to contribute X% to get Y% match anywhere else I've ever worked. I'd be vested in pension, albeit at a low level, when I'm 41. I'm "tenured" at 37. The benefits only get better into my 40s and cap out there. I could be eligible for a full state pension and lifetime medical coverage at 61. That would give me potentially some more years to top up compensation and savings in the private sector if need be.
The pension, plus SS and whatever I've privately saved, should pay for most of my living expenses.
You will be more than fine, especially if you don't have kids or a dependent spouse. SS will be the gravy on top for you. It won't be your main source of income but it will enhance your lifestyle. Maybe you'll be able to eat out a little more and hire a housekeeper or lawn service so that you won't have to be outside mowing your lawn when you're 80.
Just keep on saving and stick with your job. You'll be fine. I talked to a retail clerk the other day who is in her late 70's and has decided to call it quits after working in retail for most of her life. I did not get the impression that she had any savings, no pension. She'll be living on SS. She's just worn out and can't be on her feet all day anymore.
Incorrect again. The strategy ("the why") is not a variable in the equation. The only thing that matters in a leverage calculation is "the what" not "the why."
Thinking about this and I realized another term for MathJak to spaz out over
Mortgage Arbitrage: Not Prepaying a Mortgage, But Using Spare Cash to Invest
Mortgage arbitrage is a type of risk arbitrage. An investor holds a mortgage (i.e., debt). Instead of prepaying (making extra payments toward) that mortgage, that investor uses spare cash to invest. If investing in the stock market, that investor hopes to make more money by investing in stocks than paying mortgage interest.
or
For example, say you inherit a sum of money sufficient to pay off your 2.5% fixed-rate home mortgage. If instead you buy a 4.5% fixed-rate investment product, you'll earn 2% more each year than the mortgage is costing you. That's arbitrage.
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A different angle on Mortgage arbitrage more commonly used...
1) Buy and finance the starter home (#1) for LT
2) Get a HELOC on home #1
3) fix-up #1 to pay off the HELOC and be able to refi a larger balance for longer term (cash out refi)
4) Use the excess cash for a down payment on #2 home, finance #2 as a primary home (low rates)
5) Rent out home #1, though the terms of your owner occupied mortgage may not allow, most people do not bother telling lender (tho they have ways of finding out and calling-your-loan due, if it is out of compliance)
Rinse and repeat above, many times.
I just used a personal rule that my mortgage and excess equity, HELOC, and excess capital from cash out refi ALWAYS stayed in the real estate sector of my investment portfolio. (all Real Estate was OK for my rule, but it must be TANGIBLE RE) Several friends went bust and a few lost their homes by leveraging home equity into stocks and option trading. Was rough on the family and spouse.
I kept enough cash / access to liquidity to pay off house anytime I needed to, but I have been my own 'investment bank' since 1993. I went to a bank for a construction loan and calculated the costs and fees, and left the bank and opened a margin acct on my stock accts, (Bridge loan), as soon as home was complete, I took a HELOC to pay off the margin (which was VERY reasonable interest only loan). I only retain banks for mortgages (if I can benefit from the rates.) Doubt I'll ever pay off the mortgage on personal home, but I could if needed.
401(k) Is a ‘Horrible’ Retirement Plan was actually an EXCELLENT savings vehicle for me, because we were allowed to daily trade our company stock (which cycled a lot). A group of us would do the research and notify each other 20 min before market close if is was a sell or a buy day. We often made more growth / yr in our 401k than our salary! Then (after ~20 yrs) the company put restrictions on how many times / month you could trade company stock. We still made plenty, but not daily.
Thinking about this and I realized another term for MathJak to spaz out over
Mortgage Arbitrage: Not Prepaying a Mortgage, But Using Spare Cash to Invest
Mortgage arbitrage is a type of risk arbitrage. An investor holds a mortgage (i.e., debt). Instead of prepaying (making extra payments toward) that mortgage, that investor uses spare cash to invest. If investing in the stock market, that investor hopes to make more money by investing in stocks than paying mortgage interest.
or
For example, say you inherit a sum of money sufficient to pay off your 2.5% fixed-rate home mortgage. If instead you buy a 4.5% fixed-rate investment product, you'll earn 2% more each year than the mortgage is costing you. That's arbitrage.
How do you know the matching isn't negated by fees and bad fund selection? For example every large corp with a good matching only offers a few select ETFs that doesn't have good returns and high expense fees. The funds are so awful that performance on open market ETFs will outperform your ETF with matching.
There's no such thing as FREE picnic. Any company that offers matching are subsidizing the match with high expense fees and kickbacks from the fund managers.
You get some bad funds that only return 1-5% on the 1st 10 years? Then 5-8% in 15 years. What a joke.
401ks are all bad, take the money roll it over to Fidelity and pick a vanguard or S&P based fund with less than 1.75% fee way better.
My employer matches 6% if the employee puts in 6%. Fund fees are 0.1% or less.
buying a 60/40 portfolio while having a mortgage is still buying a conventional 60/40 portfolio..,there is nothing anything different with it then usual except the mortgage money allowed you maybe to buy more of that 60/40 then if you had no mortgage .
That is the point of leverage. You are making my argument for me. Thank you very much.
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Originally Posted by mathjak107
no matter how much money extra you put in a conventional 60/40 its is still a 60/40
Leverage allows you to put more money in a 60/40 -- hence it is a leveraged 60/40.
Quote:
Originally Posted by mathjak107
nothing in that portfolio has leveraged itself
Incorrect. The investor's portfolio includes the real estate purchased with a mortgage (borrowed money). The investor's portfolio includes the leverage of the mortgage. That is the whole point of leverage. The investor's portfolio is leveraged.
Quote:
Originally Posted by mathjak107
unlike some of the leveraged 60/40 that use either leveraged stock funds or leveraged fixed income allowing more weight to go into stocks yet still keeping the allocation consistent via options , derivatives and futures.
The investor's portfolio includes the real estate purchased with a mortgage (borrowed money). The investor's portfolio includes the leverage of the mortgage. That is the whole point of leverage. The investor's portfolio is leveraged.
Quote:
Originally Posted by mathjak107
so when they talk about a 60/40 being better then 100% equities it is based on components in the portfolio being leveraged thru futures , derivatives and options ,
The investor's portfolio includes the real estate purchased with a mortgage (borrowed money). Again, the investor's portfolio includes the leverage of the mortgage. That is the whole point of leverage: borrowing supports incremental investment. The investor's portfolio is leveraged.
Quote:
Originally Posted by mathjak107
which as i said is well beyond the scope of a 401k discussion.
You misunderstand the discussion once again. The discussion between me and WVNomad - into which you inserted yourself - was about the EFFICIENT FRONTIER which is a concept every first year finance student in college learns.
Let's review for you once again:
Quote:
Originally Posted by moguldreamer
I wanted to go back and review how we got here.
Post #4: You say Kiyosaki gives terrible advice.
Post #43: I agree with you
Post #86: RayHammer incorrectly asserts, unqualified, "Any amount over 0% allocated to bonds is way, way too much" regardless of any other factor, period.
Post #115: I tell RayHammer A zero-bond portfolio, just like its cousin a 100% equity portfolio, is rarely (if ever) on the Efficient Frontier. That is, I can construct an alternative portfolio with the same amount of risk that generates higher expected returns than a 100% equity portfolio, and I also can construct an alternative portfolio with the same expected returns of a 100% equity portfolio that has lower risk.
Post #116: WVNomad asks a detailed question about my post #115: "If you just use two asset classes, I would think a 100% equities position would be on one end of the efficient frontier, and 100% bonds on the other. Can you create a lower-volatility equivalent return portfolio with a mix of equities and bonds than with just 100% equities?”
Post #117: You appear to be attempting to answer WVNomad, but your reply is orthogonal.
Oh. Someone pointed out to me you might not understand my use of the word orthogonal in this context. Sorry. “Irrelevant” to the discussion - it doesn’t bear on the central question of 100% equities being - or not being - on the efficient frontier.
Post #142: talking to @WVNomad, in response to his specific question “Can you create a lower-volatility equivalent return portfolio with a mix of equities and bonds than with just 100% equities?” I give him an example satisfying the conditions: Yes, it is empirically possible to create a portfolio that has the same expected returns of a 100% equity portfolio but with lower variance (risk).
Post # 145: You reply to me with a bunch of irrelevant stuff regarding investor behaviour. Investor behavior is irrelevant to the question of portfolio construction to be on the efficient frontier. Investors can be irrational, perfectly rational, or somewhere in between, and it has no bearing whatsoever on the question “is a 100% equity portfolio on the efficient frontier.”
Post #150: I say as much: Investors can be irrational, perfectly rational, or somewhere in between, and it has no bearing on the question “is a 100% equity portfolio on the efficient frontier.”
Post #153: You erroneously say "the actual facts and how things have played out say 100% equities has beaten balanced portfolios over every typical accumulation period forever .”
Post #156: I show your assertion in #153 is flat out wrong. In 153 you say 100% equites has beaten a balanced portfolio over every typical accumulation period, and I show you how a levered 60/40 balanced portfolio indeed beats 100% equities.
Post #157: You appear to acquiesce, saying “who cares” but that somehow that my example of a levered 60/40 portfolio is cheating (my interpretation of your point) and shouldn’t be used for comparison purposes.
Post #158: I counter your assertion that rationality is a part of efficient frontiers. It isn’t, of course, because the mathematics doesn’t care about bout rationality.
Post #159: You erroneously asset investor behaviour is somehow factored in to the efficient frontier.
Post #160: I take apart your assertion there is no reason to have bonds in a portfolio, line by line.
Post #161: You erroneously assert I’m posting a bunch of nonsense with no bearing on the question of “Is a 100% Equity Portfolio on the Efficient Frontier.” (The irony is thick.)
Post #167: You erroneously asset, once again - but subtly changing your argument, "maximum growth in a 401k is going to be based on 100% equity funds available”. <== Notice your assertion is NOT the topic that @WVNomad asks me about in Post #116.
Post #169: You completely misinterpret the discussion.
It occurs to me that your assertion that Investor Behaviour has a bearing on the Efficient Frontier is because you are conflating two separate concepts in modern finance that both use the word “efficient”.
1) The first is the Efficient Frontier, where investor behavior & rationality are not part of the equation, as I’ve demonstrated.
2) The second is The Efficient Markets Hypothesis - but we are not talking about the EMH here at all.
The mathematics are incontrovertible.
***
Look, Mathjak, you're a good guy, and you've made a lot of money investing, and I tip my hat to you. I've never run across someone like you who never went to college, never took any math, never studied academic finance (which requires math) who nevertheless takes such a strong interest in investing. Good for you.
My interchange with WVNomad was on a specific item in academic finance about the Efficient Frontier. Don't get hung up on it.. Don't worry about it. Believe it (because it is true) or don't believe it (because you can't follow the logic) - it doesn't change what you personally will do.
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