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Tortilla Maker posted:The governments L2040 fund is broken down as: There are other brokers that would let you start with as little as 100 dollars - they do this by setting up monthly contribution amounts etc. - so if you wanted to do that you could. Even in those cases, though, it would still be going to 1 general fund rather than allowing you to pick funds. The biggest disadvantage of the STAR fund is that its fees are higher than most of the typical funds that Vanguard runs (its sub-funds are actively managed), but if you plan on growing the fund to 3k and then putting it in one of the target accounts, it wouldn't ever have enough money to really make an impact. T0MSERV0 fucked around with this message at 11:25 on Oct 12, 2009 |
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Oct 10, 2009 14:10
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Tortilla Maker posted:The governments L2040 fund is broken down as: That's not a bad breakdown. Personally if I was holding equities I would want it to reflect the total global equities market - so it would be around 70% US domestic stocks and 30% international. My problem with the TSP is that it isn't as broad based as I would like. The int'l index only really tracks developed countries - I have no exposure to the developing world. The C fund (S&P 500) is great, but I would prefer an index for the entire US market. You can do this by purchasing the small cap TSP fund and use it to complete the S&P500, but this is a pain in the rear end. The real star of the TSP is the G fund. Like you mentioned it is only available to TSP participants and some government entities (the social security trust fund is in the G fund). The G fund is basically free money for its participants. It is essentially a short-term bond that provides long term yields. It's yield is tied to the average of outstanding US treasuries which works out to a 9 year maturity. However the G fund resets itself every day I think (or if not every day than incredibly often). So it is basically a short term bond that guarantees long term yields. Again, free money. If you want to have any fixed income exposure and have access to the G fund you would almost be better off ignoring commercial fixed income and putting it all into the G fund. You will lose out on some possible future growth as the US Treasury can borrow far more cheaply than a US company. However there will be zero default risk and reducing your portfolio's risk is one of the main reasons that people hold bonds
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Oct 12, 2009 08:58
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Happydayz posted:That's not a bad breakdown. Personally if I was holding equities I would want it to reflect the total global equities market - so it would be around 70% US domestic stocks and 30% international. The total global market capitalization is something like 40 trillion, and the total US market capitalization is something like 20 trillion; so you'd actually want to hold something like 50/50 if you wanted to refelect the total global equities market.
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Oct 12, 2009 14:15
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I get paid to go to graduate school so my income is pretty fixed and secure for the next 3-4 years. I'll be putting away between $500 and $700 a month during that time: the first $5,000 in a Roth IRA and the rest in taxable accounts. I have $19K in a Roth IRA, $1K in a rollover IRA and about another $20K in taxable accounts. I'm going to convert the rollover into the Roth and pay the taxes on it now while my income is so low. I had a bunch of money in a target retirement fund and short term bonds, but now that it's reached a critical mass where I would like to split it off and manage it myself. Here's my proposed asset allocation. I am comfortable in anywhere in the 50-70% equity range. I tried to hit around 60/40 domestic/international equities. code:1) Is this a reasonable asset mix (i.e. did I forget anything major?) 2) Am I spreading myself too thin investing in so many funds?
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Oct 12, 2009 23:01
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Given how many good high-interest savings accounts are available now, I'm not sure I'd even bother with a money market fund. Even if the returns ended up being slightly better, you're still giving up FDIC protection for almost no reason. I'm not sure about the small-cap/value choices, why not just take one whole-US-market fund and get everything. I'm a big proponent of value investing, but I still don't think value-based funds are better than general ones. While being priced conservatively relative to its balance sheet is something I'd look for in a stock, I highly doubt that that measure alone would predict higher performance. Lastly, you could combine the europe and pacific portions by using whatever the mutual fund equivalent of VEA is.
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Oct 13, 2009 06:32
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SecretFire posted:Given how many good high-interest savings accounts are available now, I'm not sure I'd even bother with a money market fund. Even if the returns ended up being slightly better, you're still giving up FDIC protection for almost no reason. Thanks for the advice. The money market argument makes sense to me, but I have a few more questions about the other points. 1) I was trying to increase value exposure based off of reading things like this. What are the appropriate ways to increase value exposure if not through a value index? Is that even something that you would want to do? 2) I kept the Europe and Pacific separate to maintain the ability to rebalance them as necessary. The FTSE all-world ex-US also has a slightly higher expense ratio (0.4%) than the Euro and Pacific (0.29%). Is something like the FTAIWldIn a better way to go for some reason that I am not aware of?
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Oct 13, 2009 07:11
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Unless you have some specific reason to separate your exposure to Europe and Asia, have you looked at Vanguard's Europe Pacific ETF as an alternative?
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Oct 13, 2009 07:23
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GamingHyena posted:Unless you have some specific reason to separate your exposure to Europe and Asia, have you looked at Vanguard's Europe Pacific ETF as an alternative? My intent was to rebalance my portfolio yearly. Holding the European and Pacific markets separately would allow me to rebalance them individually. I'll continue putting income into these funds 2-4 times per year in addition to the rebalancing. For the few ETFs and corresponding mutual funds I looked at, the spread in expense ratio was ~0.1% which means ETFs would save me around $3 per year on my investment levels. I think the transaction costs of consistently buying and occasionally rebalancing would outweigh those savings quite quickly.
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Oct 13, 2009 08:24
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g-unit posted:1) I was trying to increase value exposure based off of reading things like this. What are the appropriate ways to increase value exposure if not through a value index? Is that even something that you would want to do? Berkshire hathaway? Ultimately value investing requires judgment calls, and that means active management from my perspective. I'm highly skeptical that any group of measures, even value-oriented ones, would automatically predict (in the long term) market-beating returns. Really, you have to look at what graham was doing with the value investing concepts. The idea was not to predict superior gains (although the hope was that in the long term, this would be the case) but to increase the safety of a stock holding by ensuring that they're unlikely to go bankrupt and have some "real value" holding up the price over the long term. For the average investor, he recommended value picks because they were safe enough to leave alone and thus could get approximately market-average returns - broad market index funds can do this without having to pick stocks at all.
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Oct 13, 2009 19:20
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I recently got a full-time job ($20/hr, 40 hr/wk) and am in my window to sign up for investment benefits. My company will match 50% on 6% max on the 401(k) and I am 21 and don't have very much financial commitment. There are three ways I can allocate percentages of my income and wanted to know what my best plan of action is, the options are: EMPLOYEE PRE-TAX (0% to 50% in increments of 1%) EMPLOYEE ROTH (0% to 50% in increments of 1%) REGULAR AFTER-TAX (0% to 7% in increments of 1%) Could someone suggest what a good denomination would be to fulfill the three steps in the OP of 1) Contribute to 401(k) up to employer match 2) Max out Roth IRA ($5,000 this year) 3) Max out 401(k) ($15,500 limit this year) Also, should I just do the most aggressive investment plan because I am young and don't plan on using this money until retirement?
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Oct 14, 2009 03:47
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HomerCSM posted:I recently got a full-time job ($20/hr, 40 hr/wk) and am in my window to sign up for investment benefits. My company will match 50% on 6% max on the 401(k) and I am 21 and don't have very much financial commitment. At that pay rate, you should still end up in the 15% bracket regardless, so I would recommend the EMPLOYEE ROTH option. As far as investment choices, you do need to be on the aggressive end due to your time horizon, but maxing out on the most aggressive fund may be too much, depending on what your plan offers. I think you might be better off going with a broad-market index fund until you can do some research on your plan's offerings and figure out what risk/reward you're comfortable with.
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Oct 14, 2009 06:00
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SlapActionJackson posted:At that pay rate, you should still end up in the 15% bracket regardless, so I would recommend the EMPLOYEE ROTH option. Since my employer matches 50% on 6% max on the 401(k) does that mean I have to put 6% in regular after-tax or will my first 6% in my employee roth be matched?
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Oct 14, 2009 18:53
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HomerCSM posted:Since my employer matches 50% on 6% max on the 401(k) does that mean I have to put 6% in regular after-tax or will my first 6% in my employee roth be matched? Ask to make sure, but most likely your roth contribution will be matched with a pre-tax match.
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Oct 14, 2009 18:56
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I'm hoping for a couple points of advice, on holding cash and general portfolio input. Applicable personal info - 23 years old, relatively stable job in an unstable industry in a high cost of living area, no planned or projected near-term major life events. I've got about 16.8% of total assets in cash. I'm willing to accept some small amount of risk with this cash, it's not really an emergency fund, I could mostly make my expenses go away with my job in that scenario. I do want to keep it liquid though. I'm not particularly in the market for a house, but could be with the right opportunity, and generally want to keep some dry powder for opportune asset purchases. That said, money market returns blow at the moment. I generally use Vanguard for mutual funds and my money market funds are parked there, so I was hoping to use some of their other offerings to try to wrangle some additional return from this cash. The options I've been looking at include: VFSTX (2.65% current yield, 2.8 duration as of Dec 08) VBISX (1.60% current yield, 2.8 duration) VSGBX (1.52% current yield, 2.5 duration) VIPSX (1.20% current yield, 5.8 duration - more interest rate risk for less yield, but the inflation indexing seems like it would hedge against that risk) VMLTX (1.45% current yield, 2.4 duration, tax exempt) VFICX (4.32% current yield, 5.2 duration - this one would definitely be stretching the duration im willing to accept) I'm leaning towards VFSTX, but it would be nice to get some feedback before pulling the trigger and taking on the risk. As far as general portfolio advice, this is how I have things broken down now. I'm excluding a chunk of shares held in the small-cap I work for the numbers below, that accounts for 14.6% of total assets but I'd rather not share enough detail to get worthwhile feedback on that. code:401K contributions (6% to get a max match of 3%) are currently 60% FUSEX and 40% FDIVX, and since I started my Roth 3 years ago, I've been maxing that out in some mix of VISVX and VEIEX. The AISX and CAIBX purchases were poor decisions (front-end load) from a long time ago, but I haven't liquidated them since the maintenance fee isn't unreasonable. Everything else is just erratic savings, nothing's been done with any systematic plan in mind. I'm fairly risk tolerant - expenses are at about 60% of take-home pay excluding bonus (medical benefits are deductions), no dependents, no house, no debt, negligible fixed expenses outside of an apartment I can get out of in a month's notice. Basically, everything is all over the place and I would like to clean it up some. While I'm at it, I figure I should go over allocations, planning, etc. So, -Which funds should I get rid of, and which ones should I consolidate that money into? -How should I adjust my overall allocation, and do I need to bother with fixed income beyond where I park my cash at this age? (keep in mind ARCC is heavily weighted towards debt/convertible debt) -Are there additional asset classes I would benefit from entering into for diversification/hedging? -Anything else, I'm more than open to advice and would appreciate the input. AreWeDrunkYet fucked around with this message at 17:22 on Oct 15, 2009 |
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Oct 15, 2009 16:52
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I'm looking to start investing for the first time. I'm a grad student so there's no employer matched 401k for me, so I was thinking about opening a Roth IRA. Is vanguard still a good place to do this? I looked at some of the funds they offered and I wouldn't even know where to begin picking. Any suggestions? Basically I just want to put a few hundred bucks into it every month and then mostly ignore it until I'm ready to buy a house / retire.
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Oct 20, 2009 05:20
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bobwhoops posted:I'm looking to start investing for the first time. I'm a grad student so there's no employer matched 401k for me, so I was thinking about opening a Roth IRA. Is vanguard still a good place to do this? I looked at some of the funds they offered and I wouldn't even know where to begin picking. Any suggestions? Vanguard is what many people use, but it has high minimums ($1,000 for the STAR fund, $3,000 for most other funds). T. Rowe Price lets you start funding a Roth IRA with as little as $50/month on an automatic investment plan, although it accesses a $10 annual fee for accounts with less than $5,000. A lot of people find Retirement Funds to be a good fit since they give you a diversified, auto-rebalancing portfolio with a single fund to manage. This is especially true when you are just beginning to fund an account, since you cannot diversify well with the high fund minimum investments. If you need the money in the next 5 years you should keep your equity allocation low. The books in the OP will give you a better idea about your risk tolerance and what makes sense for your personal situation. I have read and recommend The Bogleheads' Guide to Investing to new investors in addition to The Four Pillars of Investing - check your local library, they might have copies of one or both.
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Oct 20, 2009 16:19
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var1ety posted:Vanguard is what many people use, but it has high minimums ($1,000 for the STAR fund, $3,000 for most other funds). T. Rowe Price lets you start funding a Roth IRA with as little as $50/month on an automatic investment plan, although it accesses a $10 annual fee for accounts with less than $5,000. Well, I've got an extra 5,000 sitting around and I'd like to invest all of it by the end of the year (when they say you can put in 5,000 per year into a Roth IRA do they mean Jan 1 - Dec 31?), and keep on putting in the max every year. So the 1,000 minimum is fine, but you're right, it would be hard to diversify with a 3,000 minimum. I'm not planning on taking out the money any time soon, short of an unforeseen emergency. Is it recommended to do a lot of reading before investing anything? Once I get some serious money invested I definitely will, but right now it's just 5k and I want to just get started.
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Oct 20, 2009 20:37
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bobwhoops posted:(when they say you can put in 5,000 per year into a Roth IRA do they mean Jan 1 - Dec 31?) IRS Publication 590 posted:Contributions must be made by due date. Contributotions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means that contributions for 2008 must be made by April 15, 2009, and contributions for 2009 must be made by April 15, 2010. http://www.irs.gov/pub/irs-pdf/p590.pdf at 12. Id. posted:You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions). Id. at 64.
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Oct 20, 2009 22:17
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I started with my current company in 2005 at the age of 28, and have been investing into my 401(k) at 12%, which they fully match. Even though the economy is sauntering downward, my company's doing well enough that they're upping the matching rate to 20% starting January 2010. Now, I'd be a fool to pass up on 8% free money at the age of 32, BUT...I'm also trying to pay down $15,000 in credit card debt at the pace of about $750-$950 a month at this current time with 15% annual rate (minimum payment is $330 a month, but I'm well above that obviously). My question is this - should I up my contributions in January and lower what I'm using to pay off my credit cards, which means taking longer to eliminate the debt? Should I up my contributions in Jaunary and keep my credit card payments the same, which means cutting out drat near everything fun? My long-term goal is to kill my debt and then start taking that credit card money and splitting it into a mortgage down payment and a Roth IRA by January 2011.
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Oct 22, 2009 14:32
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CobiWann posted:words You are getting 100% return on that extra 8% of your salary. Then over a period of time properly invested all that money could be expected to earn X%. There are online tools that you can use to calculate that. If you take that 8% instead and apply it to credit card debt you will save money on interest. There are online tools to calculate that at well. Figure the numbers out and see where you will come out ahead.
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Oct 22, 2009 14:47
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CobiWann posted:I started with my current company in 2005 at the age of 28, and have been investing into my 401(k) at 12%, which they fully match. Man, what company matches up to 20% of your salary in 401k contributions? That is by far the best match I've ever heard of, heck that's better than a traditional pension plan.
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Oct 22, 2009 14:52
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Don Wrigley posted:Man, what company matches up to 20% of your salary in 401k contributions? That is by far the best match I've ever heard of, heck that's better than a traditional pension plan. When I saw it this morning, I had to double check with my HR person just to make absolutely sure it wasn't a misprint. I've been VERY lucky with this company. Without going into detail, I work at a federal agency in DC as a contractor. This company is VERY aggressive in terms of employee retention and contract negotiations. When the government people in my office got a bonus for all the work we put in during the switchover from the Bush Administraton to the Obama Administration, my boss suggested to my company that the contractors get one too, and the company went "sure!" And it was comparable to what the GS personnel got. Anyway, thanks for the advice. Early number crunch suggest taking the 20% match to save on the tax hit from my income bracket, but I'll do more over the next few months since I have until January 1st.
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Oct 22, 2009 15:09
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AreWeDrunkYet posted:Anyone?
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Oct 22, 2009 17:15
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AreWeDrunkYet posted:The options I've been looking at include: VIPSX 1.2% yield is a real yield, and the rest are nominal yields. So it is not "more interest rate risk for less yield". If inflation over the next decade is 2-3%, VIPSX is a good deal compared to other options. Consider that high quality munis should have significantly lower default rate and much better recovery rate than high quality corporates. I'd consider VFSTX in a retirement account (tax sheltered) for longterm holding for the bond portion of my portfolio. I'd prefer VMLTX for short-term cash parking in a taxable account. At the moment, my preference is mostly VIPSX/TIPS for the bond portion of my retirement portfolio. I use VMLTX and 1-2 year CD's to park my cash.
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Oct 22, 2009 17:57
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Just wanted to preface that I'm not arguing, just trying to more insight into your advice.80k posted:VIPSX 1.2% yield is a real yield, and the rest are nominal yields. So it is not "more interest rate risk for less yield". If inflation over the next decade is 2-3%, VIPSX is a good deal compared to other options. I was referring to structural interest rate risk. I understand that TIPS hedge the inflation portion of rate changes, but if real yields vary over time, would my position not be exposed to this risk no differently than any typical fixed income security? 80k posted:Consider that high quality munis should have significantly lower default rate and much better recovery rate than high quality corporates. I'd consider VFSTX in a retirement account (tax sheltered) for longterm holding for the bond portion of my portfolio. I'd prefer VMLTX for short-term cash parking in a taxable account. Actually, none of this cash is in a retirement account - again, it's dry powder for the right circumstances. My marginal rates make munis almost a non-consideration despite their quality. I understand your propensity towards inflation hedged and low-risk/tax protected short-term securities, but why is it that you feel that the protections offered by them are worth giving up the additional yeild from short-term corporate paper? And 1 year CDs are currently offering in the 1.75% range - this seems like quite a yield hit to short-term corporates and a gamble on short-term rates staying low, even with the bonus of downside protection. AreWeDrunkYet fucked around with this message at 20:25 on Oct 22, 2009 |
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Oct 22, 2009 20:19
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AreWeDrunkYet posted:I was referring to structural interest rate risk. I understand that TIPS hedge the inflation portion of rate changes, but if real yields vary over time, would my position not be exposed to this risk no differently than any typical fixed income security? Real yields will fluctuate (in the past couple of years, 10-yr TIPS have gone from 2.8% to less than 1%) and so you will experience significant volatility over the short-term, just as you would with nominal bonds. But hedging the inflation portion is an important difference. TIPS guarantee a real yield if you hold to maturity, whereas a nominal bond can easily experience a negative real return. I always prefer to keep nominal bonds to be short duration, but have no problems going out 20 years or even higher with TIPS (as long as I am happy with the real yield at the time that I purchase it). From an MPT-perspective and defining volatility as risk, this makes no sense. But from a perspective more akin to the institutional strategy of "immunization", it makes a lot of sense, since TIPS are structured to be more relevant to the consumption needs of ordinary investors. If you are a pension fund with known fixed payout obligations, longterm nominal bonds are an essential part of the strategy. For an ordinary person that is more concerned with personal standard of living, longterm TIPS make more sense. Volatility is an important aspect of risk, but the structure and guarantee of a security is also important in deciding what is more suitable to you, as the volatility in the short term eventually converges to different guaranteed outcomes. AreWeDrunkYet posted:Actually, none of this cash is in a retirement account - again, it's dry powder for the right circumstances. My marginal rates make munis almost a non-consideration despite their quality. I understand your propensity towards inflation hedged and low-risk/tax protected short-term securities, but why is it that you feel that the protections offered by them are worth giving up the additional yeild from short-term corporate paper? And 1 year CDs are currently offering in the 1.75% range - this seems like quite a yield hit to short-term corporates and a gamble on short-term rates staying low, even with the bonus of downside protection. An important thing to recognize is that I am not giving up additional yield by choosing CD's/munis/treasuries over corporates, because this decision is not made in a vacuum. I'm simply choosing to take my risk elsewhere. There is an equity portion in corporate bonds, so I could easily choose to use short-term corporates instead of munis/treasuries/CD's, and adjust my stock/bond allocation to compensate and get similar expected returns on my entire portfolio. I've designed my portfolio to keep correlations low between asset classes and to maximize efficiency based on my tax bracket and ratio of space between my tax sheltered and taxable accounts. You could easily have a suitable mix of investments using short-term corporates, and I believe I made a post in favor of using short-term corporates several pages back in this thread. Keep in mind many people make the mistake of coming up with an asset allocation FIRST, and then filling up each portion afterwards. Your asset allocation should be highly dependent on what type of investments you choose. If you want high yield bonds and your equities tilted towards small/value stocks, then your stock/bond allocation would be very different than if you wanted treasuries and broad-market weighted stocks. 80k fucked around with this message at 21:33 on Oct 22, 2009 |
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Oct 22, 2009 21:29
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Hey 80k, What's your opinion on holding international bond ETFs in one's portfolio?
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Oct 23, 2009 00:38
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CobiWann posted:I started with my current company in 2005 at the age of 28, and have been investing into my 401(k) at 12%, which they fully match. If you have any assets see if you can consolidate the credit card by using what you have as collateral, maybe you could put your 401k up as collateral.
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Oct 23, 2009 03:02
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Ravarek posted:Hey 80k, I've been interested in WIP (which is global inflation-linked bonds), except I believe it has some emerging market bonds in there which I am not too keen on. Overall I wouldn't consider international bonds unless you spend substantial money in non-US currencies. I certainly wouldn't bother with it if you still have a relatively small portfolio.
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Oct 23, 2009 16:13
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80k posted:Real yields will fluctuate (in the past couple of years, 10-yr TIPS have gone from 2.8% to less than 1%) and so you will experience significant volatility over the short-term, just as you would with nominal bonds. More on the further down, but these cash investments are not there to smoothing consumption needs. I've got a job for that, and I don't expect to be in a position where I can transition to maintaining a standard of living from investment income in the conceivable future. I feel that I would benefit from the additional yield from the corporate paper, and accept the fluctuations in real purchasing power should market circumstances change. I specifically cited my risk tolerance because income fluctuations would have no impact on my quality of life. The real risk, in my opinion, is a spike in inflation at the moment that I need access to my liquidity, but wouldn't the additional yield for short duration paper theoretically mitigate the risk of poor timing of inflation? That said, I really appreciate the input, this is a much better discussion of cash allocation than I have had in some time. 80k posted:An important thing to recognize is that I am not giving up additional yield by choosing CD's/munis/treasuries over corporates, because this decision is not made in a vacuum. I'm simply choosing to take my risk elsewhere. There is an equity portion in corporate bonds, so I could easily choose to use short-term corporates instead of munis/treasuries/CD's, and adjust my stock/bond allocation to compensate and get similar expected returns on my entire portfolio. I've designed my portfolio to keep correlations low between asset classes and to maximize efficiency based on my tax bracket and ratio of space between my tax sheltered and taxable accounts. You could easily have a suitable mix of investments using short-term corporates, and I believe I made a post in favor of using short-term corporates several pages back in this thread. I think I understand where you're coming from, and portfolio-wide risk wouldn't be hedged against fluctuations with short-term corporate paper if the rest of my holdings are equities and similar instruments. However, I'm not sure if taking such a holistic view of my holdings is worthwhile under my current circumstances. I've got effectively three categories of holdings - retirement accounts that for, well, retirement, shorter term accounts that are there to provide passive income while maintaining value for some level of liquidity (for example, a home purchase), and cash to enter the second class of assets when I feel doing so is appropriate. Is this the wrong approach to be taking? I understand that I'm missing out on portfolio-wide diversification and hedging with this strategy, but I enjoy the flexibility offered by this approach. If I have no desire to withdraw the retirement assets until retirement, is this approach flawed to trying to take growth risks and build a (risky) passive source of income while I'm still working? In general, the non-retirement assets ARE weighted towards a greater level of risk, hence the tilt towards low-cap value stocks, emerging markets, etc. Under this approach, am I overweighting equity risk by moving cash into low duration corporate paper rather than TIPS/munis? On another note, I've had a discussion with someone I trust that recommended just leaving the cash in my brokerage account (Zecco) at their piddly money market rates. Even if I lose out 1% yield or so, having same-day access to the funds if I want to make an asset purchase (Vanguard is NOT my brokerage) would be more worthwhile should the opportunity arise? Thoughts? Also, could you please comment on the rest of my portfolio allocation that I listed above. That seems to have been ignored by and large. AreWeDrunkYet fucked around with this message at 16:56 on Oct 23, 2009 |
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Oct 23, 2009 16:36
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AreWeDrunkYet posted:I specifically cited my risk tolerance because income fluctuations would have no impact on my quality of life. The real risk, in my opinion, is a spike in inflation at the moment that I need access to my liquidity, but wouldn't the additional yield for short duration paper theoretically mitigate the risk of poor timing of inflation? High quality short-term high quality bonds in general (whether munis, AAA corporates, or agency bonds) are good places to park your cash, as they have historically done a good job in mitigating inflation risks (much better than money market and treasury bills). Within that category, the additional yield of short-term commercial paper is compensating you for credit risk. If inflation spikes at a time you need to access cash, a likely scenario would be for credit spreads to widen, giving a hit to the value of your corporate bonds. This behavior would not be desirable for your purposes, imo. Accessing one risk premium (equity/credit) to mitigate a different risk (inflation) works when you have a long enough time period for the additional return to be smoothed over a few economic cycles. And even then, you are at risk to those once-in-a-generation shocks like we just experienced. This is why I use the highest quality bonds even in my longterm retirement portfolio. I am lukewarm on using high quality short term corporates for cash purposes. I generally stick to higher quality. But credit risk has historically been well rewarded on the short end of the curve, so it is still a smart risk to take. AreWeDrunkYet posted:I think I understand where you're coming from, and portfolio-wide risk wouldn't be hedged against fluctuations with short-term corporate paper if the rest of my holdings are equities and similar instruments. However, I'm not sure if taking such a holistic view of my holdings is worthwhile under my current circumstances. I've got effectively three categories of holdings - retirement accounts that for, well, retirement, shorter term accounts that are there to provide passive income while maintaining value for some level of liquidity (for example, a home purchase), and cash to enter the second class of assets when I feel doing so is appropriate. Is this the wrong approach to be taking? I understand that I'm missing out on portfolio-wide diversification and hedging with this strategy, but I enjoy the flexibility offered by this approach. If I have no desire to withdraw the retirement assets until retirement, is this approach flawed to trying to take growth risks and build a (risky) passive source of income while I'm still working? In general, the non-retirement assets ARE weighted towards a greater level of risk, hence the tilt towards low-cap value stocks, emerging markets, etc. Under this approach, am I overweighting equity risk by moving cash into low duration corporate paper rather than TIPS/munis? What you are doing is fine. But even so, you still need to take a holistic view of your holdings. Your job, your cash bucket, and your retirement account are still connected. You are still young and plans can change dramatically. Extreme situations can force you to access your retirement account. Your ability to contribute to your Roth in subsequent years is dependent on both income from your job and the performance of your cash bucket. Uncorrelated assets will actually boost your return for this reason (due to the effect of rebalancing). I had substantial dry powder from short-term treasuries in 2008 (i switched to munis late in the year) that rose in value at a time when equities tanked, allowing me to make contributions to stocks at bargain prices, even when my job outlook was poor. Today, although my cash bucket is earning very little, I am selling a lot of stocks at a profit, making my cash bucket grow substantially. Throughout this entire time, I have also had the benefit of smoothing volatility of my entire portfolio, which is vitally important to me. Life decisions, changes in jobs, moving across the country, having kids, etc... all of these life events will require evaluation of all of your financial assets, no matter what bucket they are in. I suggest you keep maintaining your current plan, but maintain a holistic view as well. How much equity risk you decide is a personal decision, but the decision to view it holistically is a requirement, imo. I'll take a look at your portfolio later today, if I get a chance. Your American funds are fine, if you already paid the front-end load. As far as the rest, I like to keep 50/50 domestic/international. For domestic, a broad market and a small cap or small value stock is all you really need. For international, a broad market (like VFWIX) plus International small cap (VFSVX) and emerging markets (VEIEX) and maybe international (VTRIX) is all you really need to consider. For bonds, we've talked about that quite a bit. I use mostly TIPS and short term munis/treasuries/agency bonds. Some mix of the above (or their ETF equivalents) is pretty much what I would end up recommending. AreWeDrunkYet posted:On another note, I've had a discussion with someone I trust that recommended just leaving the cash in my brokerage account (Zecco) at their piddly money market rates. Even if I lose out 1% yield or so, having same-day access to the funds if I want to make an asset purchase (Vanguard is NOT my brokerage) would be more worthwhile should the opportunity arise? Thoughts? I doubt ability to make same-day purchases is going to give you a boost in performance over the longterm. That said, I tend to keep my cash management simple, and value convenience over yield. But right now, Vanguard's money market funds have gone so low, that I have moved cash to my credit union.
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Oct 23, 2009 18:05
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80k posted:I've been interested in WIP (which is global inflation-linked bonds), except I believe it has some emerging market bonds in there which I am not too keen on. Thanks for the response. I was also looking at WIP. That being said.. Do you feel international bonds provide a diversification benefit to one's portfolio?
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Oct 23, 2009 23:58
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80k: Do you have any recommendations for a corporate bond ETF?
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Oct 30, 2009 01:09
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Ravarek posted:80k: I don't know offhand, but probably ishares. Look for average credit quality and duration to be similar to Vanguard's Short Term Investment Grade bond fund.
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Oct 30, 2009 16:45
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I'm starting a new job soon, and will finally start contributing to my retirement, although a lot later than I would have liked (27.) I am working for a university, so I have a 403(b), and not a 401(k). Are their any major differences I should know about? Here's a blurb from the HR website:quote:The University helps you plan for a secure retirement by offering a program to save and invest through the 403(b) retirement savings plan. You may begin your retirement savings plan immediately upon employment by contributing the minimum amount required by the plan and by choosing the kind of investment you would like to make. You must be employed at 75% FTE or greater for three years before The University begins to contribute 10% of your base salary to your retirement savings plan and you must contribute at least 2% for staff and 3% for faculty of your base salary to the plan at that time. Human Resources will send a reminder to you after three years of employment. University contributions will begin after three years as long as you enroll and contribute at least your minimum contribution of your base salary to the plan. Your taxes will be deferred on your contributions. As soon as you begin making your contributions to the retirement plan, they are immediately vested. You own them and you have a non-forfeitable right to their current value, even if you decide to leave The University before retirement. So if I am to understand this part, I am on my own for the first 3 years, no company (university) matching. That sucks...but I assume I should still contribute, right? Or is it better to say "no thanks" to the 403(b) until I get company matching and instead go for a Roth IRA? I know that ideally one does both, but I don't think I'll be making enough money. I'll wait a few months and see what my budget is first. I might have to keep my current job (waiting tables) as a part-time Fri and Sat night only gig to get some extra cash. Well...I know I won't need to keep it, but it's hard to turn down an extra $200-$250 a week. And maybe I can just shove a bunch of that into a Roth IRA, so I can do as much as I can to my 403(b). And then I guess I have the following investment options? quote:TIAA/CREF (Teachers Insurance and Annuity Association and College Retirement Equities Funds) Yeah...color me confused as gently caress. From what little I understand, the TIAA Traditional Annuity is going to give me a more stable interest rate, but less than would I could get from the TIAA Real Estate Portfolio or CREF. Or I could go with one of the other providers? I'm guessing I should avoid the Calvert Group, unless I really REALLY care about their cause (I don't,) but what's better between Fidelity vs Prudential? I'm guessing that since I'm younger, relatively, the more riskier options (the equity and money market?) should get a large percentage, and then just stick a smaller amount into an annuity?
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Nov 4, 2009 05:03
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How does the compounding interest work in IRAs? If someone invests their money in an IRA in a mutual fund, then the value of the mutual fund is subject to the price of the stocks within. Where does the interest come in, as opposed to capital gains? Is it through reinvestment of dividends paid by the funds?
waffle fucked around with this message at 08:46 on Nov 4, 2009 |
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Nov 4, 2009 08:43
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DrBouvenstein posted:I'm starting a new job soon, and will finally start contributing to my retirement, although a lot later than I would have liked (27.) I am working for a university, so I have a 403(b), and not a 401(k). Are their any major differences I should know about? Here's a blurb from the HR website: No major difference between them. DrBouvenstein posted:So if I am to understand this part, I am on my own for the first 3 years, no company (university) matching. That sucks...but I assume I should still contribute, right? Or is it better to say "no thanks" to the 403(b) until I get company matching and instead go for a Roth IRA? I know that ideally one does both, but I don't think I'll be making enough money. I'll wait a few months and see what my budget is first. I might have to keep my current job (waiting tables) as a part-time Fri and Sat night only gig to get some extra cash. Well...I know I won't need to keep it, but it's hard to turn down an extra $200-$250 a week. And maybe I can just shove a bunch of that into a Roth IRA, so I can do as much as I can to my 403(b). Yea, first 3 years there is no matching, so you can budget towards maxing your Roth as a priority over the 403(b). I'm guessing you are in a low tax bracket, which would make a Roth pretty attractive. DrBouvenstein posted:And then I guess I have the following investment options? Money Market is not a "riskier" option. It is considered very low risk. Anyway, the word "annuity" is used in an unconventional way at TIAA-CREF. All investments through a TIAA-CREF 403(b) plan is considered part of their RA (Retirement Annuity) or Group Supplemental Retirement Annuities (GSRA), whether they are equity, bond, stable value, or real estate account. It is the investment class (equity vs bond vs real estate, etc) that determines risk, since they all use the terminology of an annuity. TIAA-CREF choices are only attractive for their two relatively unique offerings. The TIAA Traditional (as part of their RA) is an attractive option that provides guaranteed income at a very good rate and option to annuitize. But the downside is its limited liquidity (10-yr withdrawal period and other restrictions). The TIAA Traditional (as part of GSRA) is less restrictive but also less attractive. The TIAA Real Estate portfolio (please differentiate this from the CREF Real Estate Securities option, as this is totally different) is also unique in that it is direct investment in real estate with minimal leverage. This is different from REITs which are stocks, can be very volatile, and tend to be highly leveraged. Other than TIAA Traditional (RA Option) or TIAA Real Estate, which are worthy choices, you should select mostly Fidelity funds. They have very reasonably priced index funds over a diverse range of asset classes. Forget about Prudential. You don't need to consider their options. You really should read a book before deciding which investments to choose though. Bernstein's Four Pillars of Investing is often recommended here and is a fantastic book. Learn more about TIAA Traditional and Real Estate. There are many discussions on TIAA-CREF on retirement/investment forums. For your Roth, you can choose any fund family you want. I recommend Vanguard, but there are other decent choices.
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Nov 4, 2009 18:37
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Hey 80k, You buy individual bonds, right? How many bonds do you usually hold at a given time?
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Nov 11, 2009 02:02
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Ravarek posted:Hey 80k, the only individual bonds I own are treasuries. For munis or corporates (I have no corporates at the moment, anyway), I would stick with a fund, due to liquidity and diversification.
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Nov 11, 2009 23:42
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I was finally able to find my first full-time job after graduating with a degree in finance last December. I just opened a Roth IRA with Vanguard last night and the transaction of $5,000 (max contribution) is pending as of now. Tomorrow my first paycheck will go towards my Roth 401(k) plan -- all 100% of it. I'll try and explain my situation and logic behind these decisions. I'm 24 years old with zero debt and around $200 a month worth of expenses. The company I work for does not match any of the contributions I assign to my 401(k) but they do have a profit-sharing plan. I see very little uncertainty in my near future (knock on wood) given the nature of my new job and the support I have from my very generous family. With that said, I believe the best course of action is to assign 100% of my salary to my Roth 401(k) until the end of this year -- Is December 31, 2009 the final day to contribute to this years 401(k)? Or is it in April like IRAs? Depending on the answer to that question I will or will not be able to max out my 401(k). Either way, I want to get as much money in there as possible -- am I correct in this assumption given what I outlined above? The real reason I wrote this post was to gain some guidance on building both my Roth IRA and Roth 401(k) portfolios. The vendor of the IRA is Vanguard so I am limited to there funds and ETFs -- given my youth how should I start building that portfolio? The following funds are part of my Roth 401(k) plan:
Suggestions for a 24 year old looking to maximize his retirement savings with very little expenses and a very supportive family? Thanks for the help in advance.
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Nov 12, 2009 05:11
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