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VERTICAL WIPE! posted:I'm not sure, but it looks like they're saying that maybe Vanguard can't hold the funds you currently have with Schwab. It sounds like you can still roll it over, but you have the sell the funds first. This could have tax implications -- I'm not sure -- but at least you won't be withdrawing the money and facing penalties for that. No, it seems pretty clear that he is not trying to move his fund shares over "in kind", but wants them going into Vanguard funds. So it has nothing to do with the funds that he is holding at Schwab. This is a Schwab policy, and not a Vanguard one (Vanguard simply knows that Schwab has this policy and is letting you know). Vanguard would be perfectly happy to send instructions to Schwab to liquidate the funds and transfer the money to Vanguard to be invested into Vanguard funds. However, Schwab doesn't like those types of instructions, and would prefer that the client put in a sell-order to sell his fund shares, have it go into the cash settlement account, and THEN have instructions to transfer the money over to Vanguard. I have had this issue before (Fidelity used to let me stay invested until the day Vanguard asks for the transfer, but now Fidelity wants their clients to sell first, and then initiate the transfer). It is no big deal. There are no tax liabilities involved here. You sell the funds, and it goes into a cash settlement account, but it's all done under the shelter of your IRA, and is not a taxable event. 80k fucked around with this message at 04:00 on Jul 6, 2008 |
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Jul 6, 2008 03:52
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A 2x index ETF has double the daily return, which means you can expect high volatility. This does not mean you will get 2x the longterm return of the index. Do a google search to get a better understanding on the effect that volatility has on compounding. If you're lucky, you'll find some academic papers with nice charts and tables. This makes these ETF's attractive as a trading vehicle, but not necessarily attractive to a buy-and-hold longterm index fund investor. In fact, over both short and long periods of time, occasionally you will see an ultra 2x index ETF actually underperform the index during a period where the index had a positive return. So the reason I don't advocate it is not because of conservatism (it's not my place to say whether a >100% equity portfolio is too risky for you, though i know it is too risky for me). It's simply that the added downside risk is very easy to understand, but the expected compensation (over the longterm) is not. Double the downside is something that can and will happen while holding these funds, and that is precisely the type of risk that we demand a premium for. The actual longterm compensation (relative to a standard index fund) is, on average, closer to about 1.4x, if i remember correctly, though it varies quite a bit depending on the time period. 80k fucked around with this message at 05:37 on Jul 10, 2008 |
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Jul 10, 2008 05:27
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abagofcheetos posted:Interesting, thanks for the info. I knew that actual 2x performance wasn't realistic, but I didn't realize they were structured in a way that totally kills the long term performance. I wonder if there was a way to adjust these funds to be more long-term friendly, as opposed to for day trading? Not really. You might be able to reduce the effect of constant leverage (google "constant leverage trap"), since it's possible for individuals to adopt margin investing strategies without constant leverage. However, the main problem with these leveraged products is the effect that volatility has on compounded returns. There is just no way around it. Imagine a fund company that promises double the index return over a 10-year holding period. It would be a ludicrous product for them to offer, since the chance of a negative nominal index return over a 10-year span is very small. So the investor would bear practically no incremental risk for the promise of double the return. In order to fairly share the risk of leveraged investing, it needs to be experienced on a continuous basis. As such, the effect of volatility on compounding cannot be avoided. This is why Proshares can promise double the index daily return, but it is impossible for them to promise anything in regards to a period of time longer than one day. edit: I'm not necessarily saying that leveraged investing is to be completely avoided. I just don't see how an ETF or fund can structure one to benefit longterm buy-and-holders (rather than the trading and hedging tools that they are currently used for). 80k fucked around with this message at 18:01 on Jul 10, 2008 |
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Jul 10, 2008 17:32
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-tito-, regarding the roth vs traditional 401(k), keep in mind that your company matching will be done on a pre-tax basis, regardless of whether you choose roth or traditional. So if you want to have a bit of both, you will in fact have both even if you put all your contributions into a Roth 401(k), since your employer's contributions are going into a traditional 401(k).
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Jul 11, 2008 00:18
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Modern Life Is War posted:Stuff This is one of the best posts i've read on this forum. I greatly symphathize with the ideas of people like Kotlikoff and Bodie. They have heavily influenced the way that I think about money and finances. We only live once, and the work they've done on helping us plan lifetime consumption is way too important to ignore. Hope you post more.
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Jul 14, 2008 05:08
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Idiodyssey posted:I'm not sure I understand the reasoning behind this. As far as I understood it, the percentage of my income directed towards this retirement account is immediately allocated into various funds and exposed to the market. Since you're in TIAA-CREF, it's possible you have access to TIAA-Traditional. Make sure you DON'T put your money in there if you need the money in a year, since there are some restrictions regarding withdrawals. What Unormal says makes sense. Really, you want a money market fund. TIAA-CREF doesn't have too many bond fund choices, so the ones that are available probably have a higher average duration than you would like.
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Sep 15, 2008 21:26
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Febtober posted:The purchase fee isn't too bad. It's 25 cents per $100 that you buy, so it cost me $7.50 when I opened it up with the $3k min. Also if you keep the money in the fund for over a year, they don't charge the redemption fee, according the rep I spoke with on the phone. I just checked the website and read the prospectus, and it doesn't say anything about the redemption fee being waived if you hold for over a year. I would not trust what the rep said, as there may have been a misunderstanding during the communication. And Unormal is correct. When the fee is paid into the fund, this is absolutely not an issue. It is actually beneficial for those that have higher-than-average holding periods. I consider it an attractive fee structure.
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Sep 19, 2008 21:40
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KS posted:I thought the prevailing wisdom was that the target retirement funds weren't so hot. Looking at Vanguard's, the 2045 retirement fund has 10+% of its assets in bonds. Isn't that a bit conservative? At least the expense ratio is low, and it is essentially just like putting 70+% of your money into an index fund, but I can't help thinking there are better options. The prevailing wisdom amongst many well-respected financial advisors and writers is that having only 10% bonds (or less) should be the exception and not the norm. I don't like target retirement funds, but for the opposite reason.
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Sep 24, 2008 18:30
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OK, when did Vanguard release this gem? VTWSX (Total World Stock Index)? Looks like a cap-weighted global index fund containing both US and international stocks. $3,000 minimum. This would probably be a good default equity fund choice for those that only have enough money to open one fund. I just discovered it about 10 seconds ago. Wonder how i missed it.
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Sep 24, 2008 19:02
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Jasen posted:I currently have a Vanguard Roth IRA, and for the past 2 years have contributed the max to the Vanguard Target Year 2045 fund. I've noticed people here suggesting other funds to invest in at Vanguard. How does one go about investing into these other funds? When I first created the IRA account, I could select different funds and I chose the Target Year one, is it too late to add in, say, the VTWSX one, in addition to the Target Year one, or is that a different type of investment account? They are all just different mutual funds. You can exchange out of your Target fund and into any other mutual fund (that you meet the minimums for), all within your IRA. You are free to do this at any time, though some funds will charge a fee if you haven't held your shares long enough (say 2 months or 1 year or something). The Target funds do not charge such a fee, IIRC. If you are splitting up into different funds, why keep the Target fund at all? You could, for instance, exchange into the world index fund and a bond fund and have a very diverse portfolio. Or (if your balance is enough for 3 funds), you could buy a domestic fund, an international fund, and a bond fund. The more you split up, the more control you have over your allocation, but you also need more money in order to meet minimums.
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Sep 25, 2008 19:57
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Modern Life Is War posted:I have a hypothetical question for you guys: This wouldn't be the first time this has happened. Imagine having worked hard and built up a sizeable portfolio in the mid-to-late 1960's, put it in stocks, and watch the next 15 years as your portfolio (and subsequent contributions) achieves zero nominal returns, and negative real returns? That's why Siegel's 100 year chart of stock market returns doesn't get me excited at all. Nobody has the stomach or mental fortitude to stay the course through that kind of environment for 15-20 years, with an equity-heavy portfolio. And you can never get that time back, nor choose which decades you want your wealth accumulating years to coincide with. It's perfectly possible that investors today will not see good results from their stocks before they retire. That's why I don't like target retirement funds, and cringe when people complain that they are too conservative (what with their measly 10% in bonds). I truly believe that one should be prepared for the scenario you propose. Stocks are risky, even in the "long run". And if anyone thinks that the time period I selected is too pessimistic, keep in mind the time period was nonetheless taken from the most successful and prosperous stock market in history  . Other countries have seen much worse, and nobody knows what the future will hold.
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Sep 26, 2008 04:45
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Unormal posted:I agree with this, though also remember that your equity holdings will be paying out dividends that entire time, so your returns aren't actually 0 over that time. (though certainly nothing to write home about) It's true that it's very unlikely to have zero or negative nominal returns over long periods of time (though of course it can happen). But the real returns is what matters. Between the late 1960's an early 1980's, even if the nominal annual returns were around 2-3%, that is a horrible result considering that it included a hyperinflationary period. Ravarek posted:80k, you always have some interesting viewpoints. What is your recommended asset allocation for a young person's retirement account? I know you are a bit more "into" bonds than what is the norm. I don't have a general recommended allocation, but I do think most people are overweight equities. If I had to give a general recommendation, I'd say the know-nothing investor should start with 50/50 stocks/bonds, with the bond portion heavily invested in TIPS. I know it seems radically conservative, and I know that it makes me seem pessimistic about the future. But I think it's just plain common sense for a variety of reasons: - At least twice in the past hundred years, an entire generation experienced nearly two decades of miserable stock market results during their most important wealth-accumulating years. We might be in the midst of a third one... who knows. This is why the equity risk premium exists, and why it has been so high. It is not because of short-term volatility, but rather the real possibility of devastating results. - You either believe that it's possible to experience terrible results over a long period, or you believe that today is a safer world and the equity risk premium has been reduced to reflect that. Pick one. Neither scenarios suggest an equity-heavy portfolio as a default choice for the average investor. - Many people have equity-like human capital. Your stocks may be down in the dumps at the same time that your career is suffering or that you are unemployed. So your plans of wishing for a bear market, so you can buy cheap shares could be a pipe dream. If you have that will power (doubtful), you still need the money to make it happen. Likely, you'll be selling shares to make ends meet. - None of this even touches upon the behavioral reasons why people would be better off with conservative portfolios. Sure, over the past century, equity returns have been spectacular... but the returns have been erratic, and whether an investor can achieve those returns is a different matter. The order of those returns, contributions, and withdrawals matter a lot, as well. I also think a lot of the financial advice that is out there is bad because of shortsightedness. It's easy to think equities are awesome after the longest and most spectacular bull market in history. The general "wisdom" always reflects recent history. But good retirement planning should look at market history and use monte carlo simulations and analyze human capital and lifetime consumption. At the very least, take less risk, put a sizeable portion in TIPS, and save more.
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Sep 26, 2008 17:36
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daspope posted:What sort of protection do retirement accounts require? What kind of protection are you talking about? The $250,000 is in regards to deposits in an FDIC-insured bank. But most people put their Roth IRA money into mutual funds, stocks, or money market accounts, which are NOT FDIC-insured.
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Sep 27, 2008 00:58
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Ravarek posted:I have a question about TIPS. I want your thoughts, 80k. Everybody knows that TIPS are adjusted based on inflation, or more specifically the CPI. I am rather concerned with the eternal debates/arguments over whether or not the CPI levels are accurate; tons of people yap on and on that the CPI levels are often understated. Is this conspiracy theory or is somewhat true? If the CPI levels are understated, doesn't that mean TIPS are largely useless since the return will be lower than the "real" inflation rate? TIPS are traded on the open market, and have always been attractively priced relative to nominals, so it's possible that the market has already discounted them to account for CPI inaccuracy. If CPI levels are understated, it does not make TIPS useless, it just demands a higher real rate. If CPI levels are erratically wrong, then yes, perhaps they are useless, but I do not believe that to be the case. I've followed the arguments, and am personally not too concerned about it. There are organizations/groups more powerful, vocal, and have a far more vested interest in an accurate CPI than I am. An accurate CPI is impossible, so there will always be complaints. Also, half of the conspiracy theorists that I have seen yapping on the internetz don't know the difference between CPI Core and CPI-U and their arguments boil down to "hey, the CPI doesn't include gas, but a dude's gotta drive." Ravarek posted:Speaking of VTWSX: What is your opinion of using VTWSX to replace both VTSMX (Total Stock Market) and VGTSX (Total International Stock Market) in a portfolio? I think consolidating those two funds in VTWSX is much easier in that you'd only need $3,000 to get going instead of $6,000. It is pretty much like going 50/50 domestic/foreign. I still like splitting it up between domestic and international, but you are right, for those that don't meet the minimums, the world index fund is a fine way to go, imo. edit: keep in mind that your domestic/international allocation will change with ongoing changes in world market cap weighting if you go with the single index. Ten years ago, the US portion would have been more than half of your stock holdings. Now it is less than half. Think about how much Japan's weightings have changed over the past few decades. You should decide how much control you want over your allocation or let the world market decide for you. There is no one right way. 80k fucked around with this message at 20:54 on Sep 27, 2008 |
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Sep 27, 2008 19:09
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NZAmoeba posted:Stocks are on sale right now, buy more of them for the eventual rebound (even if it takes years). If they never rebound, then we'll probably be living in a post apocalyptic hell-hole, in which case you will have bigger problems than your 401k. This type of thinking is dangerous, and fails to acknowledge the magnitude of the systemic risk that is possible and that we are actually facing right now. I'm not selling my stocks, and I'll continue to add to my position, but I'm not going to say that stocks are "on sale". The Japanese are not living in an apocalyptic hell-hole, but many of their investments will never "rebound" in their lifetime. Twice in the USA (Great Depression and the late sixties-to-early-eighties), Americans went through approximately 20 years of disastrous results from their stock investments. Bad situations, yes, but not apocalyptic hell-holes. The whole "you have bigger problems to worry about..." BS is a load of garbage. A world of miserable stock returns is possible, and still worth living. At a time like this, you should be acknowledging the risks that are out there, and reexamining your personal liquidity. Selling stocks low may need to be down out of necessity.
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Oct 1, 2008 17:56
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frumpus, that doesn't add up. you say you 80% of your investments are losing money, but it shows you have 41.57% in guaranteed investments and 13.27% in money market. Seems like more than half of your investments should be stable, no?
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Oct 6, 2008 19:57
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frumpus posted:The "guaranteed" investments lost money last quarter. v:)v you sure about that? usually bonds/TIPS (that have market risk and short-term volatility) are under "fixed income" category at TIAA-CREF. "Guaranteed" investments would be like TIAA-Traditional. You should not be losing any money on that. What investment do you have that is under the "guaranteed" category?
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Oct 6, 2008 20:32
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frumpus posted:
something is wrong then. check your transaction history and make sure there is no money that left TIAA-Traditional (either by your actions or automatic rebalancing or whatnot). Call and ask if you can't figure it out. TIAA Traditional has not been affected by this credit mess, other than a reduction in the interest rate. My father is invested in TIAA-Tradtional and principal and income have both been incredibly stable. TIAA-CREF has the highest possible credit rating. If TIAA-Traditional goes down, then we are all in big trouble (not that we already aren't).
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Oct 6, 2008 21:06
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frumpus posted:Ok apparently it all has to do with the loans I took out previously. Impossible to know without evaluating your personal circumstances, and ability/need to take risk. Also, if you intend to borrow from your retirement account, keep in mind that withdrawals from TIAA-Traditional may be restricted, depending on the type of account you have. My father's TIAA-Traditional account requires a 10-year payout period. Ask a customer representative about that. By retirement account standards, and at your age, your portfolio is not risky. But the fact that you want to borrow from it to buy a house changes the scope.
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Oct 6, 2008 22:06
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El Kabong posted:I'm thinking about investing about $15,000 in Vanguard's Total Market Index fund (vtsmx) and read somewhere that an ETF might be a better option because of the relatively low expense ratio, which about half of VTSMX's. My concern is that Vanguards Total Market Index ETF doesn't mirror the mutual fund so I wouldn't be buying into exactly what I want. Vanguard's Total Stock Market ETF (VTI) is just another share class of the corresponding index fund (VTSMX). Vanguard is unique in its way of managing their ETF shares this way. So yes, you are buying into the exact same basket of stocks whether you buy VTI or VTSMX. As far as what the Vanguard rep told you, perhaps he meant that the total share class net assets for VTSMX was much higher than the total share class net assets for VTI. But it doesn't matter, since all share classes contribute to the fund's total net assets. I'm not sure why he would have considered it worth pointing out to you. ETF shares trade on the stock exchange and are subject to bid/ask spreads, brokerage commissions, and discounts/premiums to NAV. VTI is very liquid and should have very small bid/ask spreads. Discounts/premiums usually do not persist for very long as they would create arbitrage opportunities for institutional traders. In short, if you want an ETF, have confidence that buying VTI allows you to buy into the same basket of stocks as VTSMX.
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Oct 23, 2008 02:00
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Rekinom posted:Question for the esteemed assembly: What is the most effective source of additional income? This is kind of a funny question, because it is precisely the issue that every retiree has to face. And of course you need a large investment to get substantial income from a portfolio... that's why it takes decades to save for retirement. Best bang for buck if you are of retirement age would be something like an inflation-indexed single life annuity, as it gives you the highest and most stable payout, as well as eliminating longevity risk. Drawback is that your heirs get nothing when you die. Also, you deal with issuer risk, in regards to the solvency of the insurance company. Think of it like purchasing social security benefits. The most traditional approach is a diverse portfolio of stocks and bonds, with a focus on income producing asset classes like REIT's, dividend-paying blue chips, TIPS, and short-term bonds. Higher risk and higher return is not desirable for someone that relies on income, as it requires someone to spend defensively. So contrary to many people's logic, a higher risk/return strategy during your drawdown years generally decreases your lifetime standard of living.
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Nov 28, 2008 09:35
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PIPBoy 2000 posted:I'm 23 and considering starting a Roth IRA for myself through Vangaurd. Considering going with a mix of VGSTX and a bond fund initially around 50-50 with this year's max IRA investment, and then dollar-cost averaging myself into more VGSTX and some VEXMX with next year's and ongoing investments. Does this sound like a sound strategy? I wouldn't touch long-term treasuries... one of the last things I would dump my money in right now. VBMFX is ok, but at today's prices, I would go for short-term investment grade bonds or treasury inflation-protected bonds (TIPS). But do your own research and be aware that despite the extraordinarily high risk premiums for short-term corporates, there is still a lot of risk out there and the ride can be bumpy. TIPS are a very volatile asset class as well but trading at historically very attractive real yields. edit: also, never was a big fan of VGSTX (Star fund). It's like fund diahrrea. If you are already going to mix another bond fund in there, you might as well just start off with an efficient 2-fund portfolio. Short-term investment grade fund plus VTWSX (the total world stock index, which includes domestic and international stocks): Adjust the ratio of the two funds according to your risk preferences. 80k fucked around with this message at 04:07 on Dec 1, 2008 |
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Dec 1, 2008 04:00
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kys posted:As soon as Jan. 1st rolls around I plan on maxing out my Roth IRA contribution to the full $5,500. I have been saving up cash in a savings account and I plan to buy in while the market is low. Has anyone had experience doing this kind of thing? Do you prefer to pay in monthly installments spread out throughout the year? Sure, I've been doing this every year (lump sum my Roth first week of January). But only a small portion of it goes into equities, the rest into TIPS/bonds (most of my stocks are in my taxable account). But even if I had my Roth invested in stocks, i would still probably lump sum it every year. Over your lifetime, these $5K-ish contributions will be spread out year after year... it's still "dollar cost averaging" in larger chunks over a very long time frame. You're just as likely to come out behind as you would ahead by sticking it in on January rather than periodically throughout the year. This year was obviously a bad year to lump sum in the beginning of the year... but that's only known in hindsight.
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Dec 6, 2008 03:34
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kys posted:It will just make things easier having one less savings vehicle I would have to pay into every month. The only doubt that crosses my mind is the fact that the market can take a huge poo poo like it did this year. You know that you don't have to invest in equities in your Roth? You can put it into a money market fund and DCA into your stock fund slowly throughout the year. This way, you don't pay taxes on any interest earned on the money market (since it's in your Roth).
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Dec 7, 2008 20:48
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Chad Sexington posted:Is there any point to enrolling in my company's 401k plan if they don't do matching? It seems like a terrible idea to me, but my boss keeps harping me on it because I guess he thinks I'm just being stupid or something. I tried to explain that at 22 years old, deferring taxes on my income until I retire is self-defeating, because I'm in such a low tax bracket right now and expect to be better off later in life. It depends on the quality of the 401k plan. Unfortunately, many (if not most) 401k plans are disgustingly bad. Mine should be illegal. But the idea of deferring taxes is beneficial even if you plan on being in a higher tax bracket in the future. This is because of the tax drag on investments along the way. So, if you don't get a match, I would first max out your Roth IRA. Any additional money that you can earmark for retirement, you should consider the 401k. If your 401k is as awful as mine is, you should at least see if there is one fund in there that is acceptable. And if all your choices suck, you should consider how long you will be at the company. If you plan to quit in a few years, you might just suck it up and put money in. When you quit, you can roll it over to an IRA, and have a whole universe of investment choices to choose from.
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Dec 9, 2008 20:29
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tehkaewt posted:How much in fees does Vanguard take in total in a year? Where could I even find that kind of information? Vanguard has over 1 trillion dollars under management. If their average fee is is 0.2%, it would be about 2 billion dollars of management fees. However, the 0.2% average fee may only apply to retail/investor shares. Their institutional, admiral, and ETF shares are often closer to 0.1% in fees, and this makes up a huge amount of their 1 trillion dollars under management. I would guess, they take in somewhere between 1 and 2 billion dollars in fees every year.
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Dec 19, 2008 18:28
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PIPBoy 2000 posted:Is there a reason that short-term corporates are preferred over intermediate-term or even High Yield Corporates? I know short-term should carry lower risk levels, but it seems like now may be a great time to get in on High Yield corporates with prices what they are now. I'd be going though Vangaurd so I'd be looking at VFICX or VWEHX. Would I be crazy to buy either of these with the idea of riding them out long term? Junk bond prices are low because the market is pricing in record high defaults or record low recovery rates; or both. Things are downright ugly right now, so don't think it's smooth sailing from here on out. Junk is a bit more attractive than usual right now, because we are in an environment of fallen angels, so much less call risk, so there is admittedly some decent upside potential here. So no, you are not crazy to buy it, but I personally would not go there myself. I like short-term investment-grade corporates, because there is a huge liquidity premium right now, which is just the type of risk that one should gobble up during a financial crisis, if you are lucky enough to be able to bear such a risk. Credit risk, on the other hand, cannot be taken so lightly during a time of extreme systemic risk. Also, historically, credit risk has been most rewarded on the short-end of the curve, so short-term investment grade bonds usually offer a very attractive risk-adjusted return. The key to the game is understanding the risks that you want to bear. With high yield, you are bearing equity-like risks. So why not expose yourself to equities with a portion of your money, and the rest in short-term corporates? That is pretty much my strategy now... try to gain access to extraordinarily high liquidity premiums through TIPS, muni's, CD's, and highest-grade corporates, while keeping a very high standard for credit quality (recognizing the huge risks that are out there today). Any additional risk I can bear, I am investing in stocks, including riskier stuff like emerging markets and small cap stocks.
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Dec 24, 2008 06:05
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abagofcheetos posted:Yeah but Vanguard doesn't let you buy their ETFs for free, right? If he wants to go the ETF route Vanguard would probably charge more than $7. That's right. I use Vanguard's brokerage services myself, but I do qualify for reduced commissions (check Vanguard to see what level of service you qualify for) making the fees competitive. But for normal accounts, the fees are pretty high compared to discount brokerages like Scottrade. I like ETF's for their lower fees, trading flexibility (no restrictions), and it's easier to keep track of lots for tax purposes. Going with a discount brokerage, and buying ETF's is a fine way to go, imo.
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Jan 14, 2009 17:47
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Aggro Craig posted:AFrom what I see I will have to pay a $20 annual fee for each fund account under $10,000, so that's an extra $60/year if I'm not mistaken (does fund account mean my total IRA or each fund I have in it?) Also, do I pay these fees regardless of whether I go through Vanguard directly, or if I go through Scottrade? The $20 fee is waived if you do electronic delivery of statements, confirmations, and prospectuses. You should do this anyway, as it saves trees, and really... who wants all that mail? So you can ignore that fee. But to answer your question (in case you like receiving a ton of paper mail), it is for every fund, and only if you go through Vanguard directly. It's a custodian fee, so Scottrade will have their own fee schedule.
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Jan 14, 2009 19:22
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Aggro Craig posted:Okay, I think I'm mostly straight. Since the fees are pretty close for the index funds and similar ETFs I'm looking at, I think I'm gonna go with index funds directly through Vanguard. Also, if I change my mind and want to trade my funds around, I don't have to worry about accruing fees. The only issue I have now are the minimum investments. Each fund I want to invest in has a $3k minimum, but if I allocate the way I wanted I would only be putting $2k into bonds. Is the $3k minimum for the total IRA or for each fund? I plan on maxing out my 2008 and 2009 IRAs for a total of $10k. It's for each fund. So you might just do 30% in the bond market fund, and 35% in each of total stock and total international.
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Jan 14, 2009 21:28
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Ravarek posted:80k: That sounds ok to me. I like TIPS or short-term corporates, for bonds, at the moment, but either the short-term bond index or intermediate-term bond index Vanguard ETF's would be alright too.
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Jan 20, 2009 03:46
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pr0zac posted:I've finally got enough money coming in to start investing in my retirement. I just moved $5k for 2008 into a Vanguard Roth IRA and was hoping for suggestions on a good starting setup. Right now I've got all $5k sitting in Target Retirement 2040 (VFORX) but it seems like the general consensus around here is those aren't the best investment? What would be the best place to start? I think the general consensus is favorable towards target retirement funds, because they're such a simple solution. But who cares about general consensus. Take a look at the holdings of the target retirement fund, and see if you like the allocation. Things to watch out for are stock/bond ratio, and domestic/international ratio. I don't like the target retirement funds because I think they encourage too much risk (for the given date that corresponds to your retirement date, and unfortunately that's what most people go for). I also think they have too little international exposure. So they fail on both accounts for me. Also, the "general consensus" on this forum is that if there is anything wrong with the target retirement funds, it is that they are too conservative, which is the complete opposite of how I feel. Again, another reason to avoid general consensus, and decide for yourself what works best for your situation.
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Jan 22, 2009 19:28
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Raverek, 1. I use Vanguard's brokerage services. However, the fees are not cheap unless you qualify for a higher tiered service level. For smaller sized accounts, I wouldn't recommend them. I've never used Scottrade, but have used Firstrade. Never used Zecco or Tradeking. But I know a few people that use Wells Fargo, as they get 100 free trades a year, as long as they have $25,000 with them. 2. I directly buy treasuries at auction or on the secondary market. But I do not buy corporates or muni's individually. It's tough to get adequate diversity with corporates, and Vanguard's short-term investment grade fund is tough to beat. You could buy AAA muni's individually, but only if you really understand bonds, and can hold them to maturity (as they are less liquid securities). I'd keep it simple and just use ETF's and funds.
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Jan 25, 2009 19:02
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Yes, I think international offers a huge diversification benefit, but I try not to think of it in terms of betas and portfolio optimizations. I also think those studies that suggest maximum diversification at, say, 20% international are completely misguided. The idea of treating your home country as a base, and sprinkling "the rest of the world" like a spice that improves the flavor of the portfolio only works through backtesting. It also only works on selected countries (including the United States). It obviously didn't work well in Japan, and it also didn't work well in countries where their entire stock markets went to zero. You are certainly right that non-equities (like commodities, bonds, and real estate) are better diversifiers of equities than other equities. But that doesn't mean you should just put all or most of your equities in a single basket. I would simply hold approximately the market weight of international and US (around 50-60% international would be about right, I think). Also, I think that you're wrong to see international as a more aggressive sub-class of equities. Fund families (like Vanguard and Fidelity) make this mistake of putting international equities further out on the risk/return spectrum, due to the additional beta that currency fluctuations (a zero sum exposure that offers no risk premium) provide. But that is a very elementary way of defining risk, and it's flat out wrong in regards to associating it with higher return (i.e. "aggressiveness"). Also, international can't always be riskier than domestic (as the definition of domestic changes depending on where you reside, and the US is not special and valuations change and new risks are always showing up). I think portfolio theory enthusiasts really have divorced themselves from understanding the real nature of equities, and the risks associated with them. Consider that Markowitz devoted his career to studying portfolio optimization, but at the end of the day, he ended up dividing his portfolio evenly (50/50) between stocks and bonds, cuz he couldn't think of a better way. I feel the same way with international stocks. Spread your eggs around, and understand that past performance and backtesting is more likely to fool you than to help you, if you draw the wrong conclusions.
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Jan 30, 2009 23:31
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Ravarek posted:As always, 80k, your responses are very insightful. While I do agree with you that the equity exposure in one's portfolio should include a lot of international stocks (40%+), I still feel that broad-based international indices are still highly correlated with the U.S. stock market.. at least for now, with the U.S. still the "dominant" force in the world. However, I do think things will change if the U.S. slips from economic superpower status. There's always international small caps and emerging markets too, so you don't need to stick with broad-based international indices. Yes, the key is the high correlation between US and international can change fast. You don't know what kind of surprises are awaiting us. I don't have any statistics off the top of my head, but you may be surprised to learn that international investing (investing outside ones' home country) was very popular amongst Europeans and Americans a century or so ago. Home country bias today may actually be stronger than it was in the past, despite the ease of international investing now (highly liquid ETF's and mutual funds galore). So global diversity is actually a more timeless strategy, and the right way to go going forward, imo. As for commodities, I think it's a good way to diversify. There are collateralized commodity futures (like PCRIX or DBC), and individual commodities like gold, silver, and oil, like you mention. I think real assets make a lot of sense when you have more money. If you are rich, I think it's a good idea to take a portion of your paper assets, and purchase real assets that hold their value, preferably things that you are interested in (like a serious hobby) or make you happy: like art, antique furniture, fine jewelry, numismatics, gems, or precious metal bullion. It's just another way to preserve your wealth. There are no paper assets that are immune from systemic or political risks, so I think it's ok and probably wise to get a bit more creative in diversifying.
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Feb 1, 2009 22:31
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The Noble Nobbler posted:What is the feasibility of substituting a junk bond etf for the equity portion of my portfolio? Junk bonds are hybrid securities, that are both bond-like and equity-like. So I assume you understand that if you started with a 50/50 stock/bond portfolio, and wanted to use junk bonds instead of stocks, and wanted to keep the same risk profile, you would need a higher junk bond allocation... Off the top of my head, maybe something like 65/35 junk/non-junk. Is this what you're talking about? I would only recommend this strategy if you are experienced in analyzing securities, and have determined that you can get higher or equal returns with less risk by doing this, and that conditions that would warrant such a strategy are temporary. It is perfectly possible that such inefficiencies exist, and that the junk bond market is offering better risk-adjusted returns than stocks. In fact, it is very possible that we are in such a period. However, if you are a relatively passive investor, and want to use this as a permanent strategy, I think it is a bad idea. You are taking on significant liquidity risk with too large a portion of your portfolio. You are likely underdiversified, globally, unless you start getting into foreign bonds. Junk also have negative skewness in returns and fat tails, very bad characteristics for investors. Returns are limited by yield (often reduced by call/clawback provisions), but when risks show up, returns can be disastrous (see last year). Junk also provides their incremental risk premium in the form of taxable income, which makes them very tax inefficient securities for those that have limited tax sheltered space in their portfolio. These are characteristics that make them inappropriate for individual investors. Assets can be accurately priced but inappropriate to the risk preferences of most individuals. Junk fits such a description, and this is why mean variance and efficient frontier/mean-variance should not be overly relied upon when designing a portfolio. Stocks allow you to more broadly diversify across the globe, are far more tax efficient, and have a more balanced distribution of returns (possibility of outsized returns on the positive as well as the negative side). Doing less equity, and more safe-bonds (rather than more junk and less safe bonds), you are achieving similar risk-adjusted returns (if risk is defined by volatility), but higher drawdown (due to skewness of returns on the negative side) and higher liquidity risks and tax burden.
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Feb 8, 2009 19:22
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Kobayashi posted:I was wondering, how does inflation impact the real rate of return for equities? It seems fairly simple for something like a savings account -- during inflationary periods, a bank offers higher nominal interest rates to compensate for inflation. For something like stocks, I'm not so sure. I'm trying to separate the effects of inflation from the degree of risk; is that even a valid statement? For instance, I imagine inflation could manifest itself through increased dividend payments, which, if reinvested, would have the overall effect of increasing the value of a portfolio. But I am also wondering how inflation effects the price of the actual equity. Does a stock that was $10 today tend to drift upward toward $11 to keep pace with inflation, or does that imply an intrinsic value that simply can't be determined in a vacuum? Equities are a claim to real assets, so there is an element of inflation-hedging involved in equities, which can be especially pronounced with leveraged businesses. However, it is minute compared to the negative effects that inflation has on equities: increased business risk and increased borrowing costs (nominal and real interest rates go up). Thus, unexpected rise in inflation should have a net negative effect on the value of a business. You can't separate the effects of inflation from the degree of risk, since uncertainty in prices is one of the major risks that businesses face.
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Mar 29, 2009 00:42
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Kobayashi posted:Thanks. If you don't mind a followup question, what would be the general strategy if one simply wants to beat inflation? Less risky investments, like a money market account? A money market account will barely beat inflation before taxes, and will underperform inflation after taxes (unless it's in an IRA). On the other hand, money market and short-term bonds are really the only reasonable way to keep up with inflation over the short-term (other than I-bonds, which also pay next to nothing). There is no general strategy, as it depends on whether the goal is to hedge or to beat. If you want to beat inflation, an equity-heavy portfolio is one way to go. Equities don't respond well to inflation, so your expectation of beating inflation is based on the equity risk premium. This is a reasonable strategy if you can afford the risk. If you want to hedge inflation, then TIPS would be one way, although the CPI-U obviously will not perfectly match your personal inflation rate. A mixture of TIPS, commodity futures, and real estate would probably be ideal for a longterm inflation-hedging portfolio. If you have millions, your options will expand (like managed timber). But again, these are longterm strategies. Really, I think the best way to go for individuals of average wealth is a reasonable chunk of equities (like 40-50%), about 5% in commodity futures, 25-30% in TIPS, and the rest in short-term bonds/cash-like securities. This is pretty much my portfolio.
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Mar 30, 2009 23:23
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Kobayashi posted:I'm really just trying to internalize some of these concepts for myself. I know that one wants to move into safer investments as one gets older. I would characterize this as "preserving capital," and not necessarily the same thing as beating inflation. But then I started to wonder if the former implies the latter. Going by your answer, I don't think that's the case. Thanks again, that helps to give me a sense of what might happen if I pulled some of the different levers in a hypothetical portfolio. The idea of preserving capital is in regards to its real value, and so inflation certainly needs to be accounted for. Retirees are exposed to serious inflation risks, and they also cannot deal with too much volatility in their portfolios. As a result, they need to consider locking in a stream of income from real-returning securities (like TIPS and I-bonds). Short-term bonds and money markets also do a reasonable job of keeping up with inflation, while providing the immediate liquidity that TIPS and I-bonds do not have. And a small portion of their wealth could still be in equities (globally diversified), for diversification purposes, which hopefully outpaces inflation over time. There is no magic formula, as we need to simultaneously address many different risks.
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Mar 31, 2009 03:10
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Kobayashi posted:My first question is, how exactly do taxes come into play during the IRA -> Roth conversion? If I had a fictional $10k in a TIRA and my fictional flat tax rate was 25%, would I end up with $7500 in the Roth, or would the full $10k go into the Roth with a bill for $2,500 for me to pay out of pocket? $10K goes into the Roth with a bill for $2,500 to pay out of pocket. However, the first option ($7,500 going into Roth, and $2,500 withheld) is an option that the custodian will offer: DON'T DO THIS. The withheld amount would actually be considered an early distribution if you are under 59.5 which is subject to penalties. Paying out of pocket is the only reasonable to handle the conversion. Kobayashi posted:Second, does a conversion count against the annual Roth contribution limits? No. Kobayashi posted:Finally, is there any time limit to the conversion, e.g., can I just leave it in a TIRA until next year if I think converting will blow my '09 MAGI? Could I convert part of the TIRA now, and do the rest later? Conversions must be done by 12/31 of the tax year that you want it to count for. This is in contrast to contributions which can be done until tax filing deadline. You can do it all at once or in increments throughout the year. What MAGI are you worried about "blowing"? The MAGI requirement is to determine whether you are eligible for the Roth conversion. Once you meet that requirement, you can convert to Roth beyond the MAGI requirement.
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Apr 10, 2009 01:50
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