No politics- How’s your 401K doing for you?

[ArrestMeRedZ]

Rather than a significant investment in bond funds that pay almost nothing, I like the bucket method.

The only times in the last 100 years or so a 4% initial withdrawal rate, subsequently adjusted upward for inflation, has failed is when someone retired and started collecting just before a major market downturn. Selling stocks to fund IRA/401K distributions in a major down market was the killer.

If you can avoid selling for 2 to 3 years after a major downturn you can historically ride it out. You can do this by having cash, or the equivalent of cash in a "bucket" that can cover 2 to 3 years of necessary distributions. If possible, adjusting your spending down temporarily after a major downturn could accomplish the same objective.

Putting 40% of your retirement funds into a "safe" bond fund that returns 2-3% makes absolutely no sense to me. You are losing at least 5% to average stock returns. Not only are you guaranteed a low return, you face a great risk of losing capital if interest rates rise. Other than short term government bond funds for money i will need in the near future, bond funds play no role in my portfolio.

My biggest fear during my lifetime is another renewed bout of inflation. Just like my parents never forgot the Great Depression, and saved accordingly, I'll never forget 18% mortgages. Money is not lost in a down market unless you sell. Money is lost when a market becomes inflationary if it is invested in bonds or other fixed interest instruments.

Disclaimer: I have no financial training or expertise other than an engineering economics class I took in 1971. Take my advice with a grain of salt.

 

[javacontour]

Regarding the start early, I've encouraged all my kids to start as soon as they can. My youngest started when she turned 18. Starbucks offers a 401(k) with a match. I told her to, at the very least, get the full company match. Don't leave free money on the table.

I suggested half in an S&P500 index and the other half in a targeted retirement date fund.

I also suggested that with every raise, she put 1/3rd of it into increasing her contributions. I.E if she got a 3% raise, she would bump up her contributions by 1% I.E. if she was putting in 10% pre-raise, she would put in 11% after the raise.

She's doing just that.

The other kids, as we are a blended family, have been advised in the same fashion, but I'm not sure if they are doing as I suggest.

Since your money doubles about every 7 years, give or take, it pays to start early.

At some point, the earnings on what you have put in far exceed your contributions. That's the magic here.



Originally Posted by JeffKeryk
Originally Posted by Mr Nice

Just trying to say you have to shelter money as you approach retirement age and not rely 100% on the stock market. Most 65 year old folks don't have time to recoup their losses if they only have Social Security to count on for living expenses.

You would be surprised at how poor of a job the average American adult (not Wolf) does at planning for retirement. They are so tight on money from bad financial decisions they made for decades leading up to retirement age.


This is perhaps the best advice in this entire post.
My best advice is start young. Start now. Pay yourself first.
If you are lucky, your biggest problem will be what to do with all your excess portfolio.
As Mr. Nice points out, the majority of people realize too late their decisions were short term; resulting in a poor financial position once they are no longer working.
I wish you luck. Unfortunately, depending on luck is a lousy strategy.

 

[Mr Nice]

Java,

I gave each of my sons $1000 to open up their Roth IRA to get the snowball rolling at 18 years old. They also contribute to their 401K at work.

Lots of parents do not talk to their kids about funding their retirement 40 years down the road.

 

[WhizkidTN]

Currently, I'm at +21.8% ROR for the year. My 27 year old daughter is at +35.7% for the year and contributing 18% to her plan (she also gets a match up to 6%). Very, very pleased!

 

[JeffKeryk]

I have a pet peeve about education.
No one should get outta 8th grade without an understanding of a savings account, checking account and credit cards.
And a basic understanding of what crefit is; a tool. Just like any tool used correctly it will work for you; used incorrectly and it will hurt you.

No one should get outta high school without an understanding of personal finance.
Time value of money, markets, indexes, inflation, market fluctuation.
Remember, everyone looks smart in a rising market.

I have used Calculus exactly 1 time in my career, and it was more discussion proof of concept more than anything else.
Give kids a fighting chance.

If I hear one more person say, "I will save when I am older" I will scream.

 

[KJSmith]

Originally Posted by ArrestMeRedZ


Putting 40% of your retirement funds into a "safe" bond fund that returns 2-3% makes absolutely no sense to me. You are losing at least 5% to average stock returns. Not only are you guaranteed a low return, you face a great risk of losing capital if interest rates rise. Other than short term government bond funds for money i will need in the near future, bond funds play no role in my portfolio.


I agree that 40% in a safe bond fund is a little conservative.... in this day and time.
Nothing wrong with that.
Younger folks who have time to recover could probably run a little more risk.

FYI, my current bond fund is running 8.08% YTD.

 

[ArrestMeRedZ]

Originally Posted by KJSmith
Originally Posted by ArrestMeRedZ


Putting 40% of your retirement funds into a "safe" bond fund that returns 2-3% makes absolutely no sense to me. You are losing at least 5% to average stock returns. Not only are you guaranteed a low return, you face a great risk of losing capital if interest rates rise. Other than short term government bond funds for money i will need in the near future, bond funds play no role in my portfolio.


I agree that 40% in a safe bond fund is a little conservative.... in this day and time.
Nothing wrong with that.
Younger folks who have time to recover could probably run a little more risk.

FYI, my current bond fund is running 8.08% YTD.


The YTD rate is because already low interest rates went lower since last January, and your bond values went up. If you feel interest rates will go lower still, then bond funds may be the right investment for you. I believe even a small risk of rising interest rates outweighs the current tiny yield of bond funds and they are, at current yields, a bad investment for both young and old investors alike. And, despite what we are told, few bond funds are really safe. If something happens and interest rates take off there will be a tremendous loss of capital.

 

[KJSmith]

I hear you.... but it is the couch potato way.

As of today, I am at 24.82% ytd total.
The 8.08% is really dragging me down.

I look forward to the day I turn this over to a professional and don't have to worry about any of it.

 

[ArrestMeRedZ]

With your return a pro would drag you down. I tried that for a couple of years and decided I could do better. You sound like you could do much better on your own.

 

[Astro14]

This is a good discussion - please avoid the political aspects of investing.

 

[4WD]

I understood the stock split

 

[PimTac]

One thought on bonds and fixed income investing in general, you should be diversified in bonds just as you would in stocks. Domestic and foreign, AAA and junk, government and corporate, etc etc.

 

[Amkeer]

One thing to remember that many forget is a gain is not realized until a sale is consummated. When everyone and there brother is either bragging about returns or investing in real estate guess what that means? The market is spent! I have seen this over and over again.

In 2008 we took our money and transferred it into a cash balance account for safety reasons. The next day the financial adviser calls us to find out why. We tell him wait and watch. That was at 12000 in the market. Fast forward to late 2008 early 2009 we started putting blocks back in. I told my wife to call the adviser up. The first words out of his mouth was average in. We laughed and told him no we were getting back in. that was at about 6000-7000.

You can't necessarily time the market but you can use good judgement and skill. Everyone has a different risk tolerance and timing. If you are at retirement age your risk is high as you have less time to make up for losses sustained. Using common sense and due diligence is a must. Don't rely on others. Sometimes cash is king.

Everyone makes stupid mistakes including me. You learn from your mistakes and vow to avoid repeating them. Its a continual learning process that hopefully once you figure out some of it you can share it.

 

[Mr Nice]

Originally Posted by KJSmith
Originally Posted by ArrestMeRedZ
Putting 40% of your retirement funds into a "safe" bond fund that returns 2-3% makes absolutely no sense to me. You are losing at least 5% to average stock returns. Not only are you guaranteed a low return, you face a great risk of losing capital if interest rates rise. Other than short term government bond funds for money i will need in the near future, bond funds play no role in my portfolio.

I agree that 40% in a safe bond fund is a little conservative.... in this day and time.
Nothing wrong with that.
Younger folks who have time to recover could probably run a little more risk.

FYI, my current bond fund is running 8.08% YTD.


Yes, younger folks need to be aggressive and not be afraid of the ups and downs.

I recommended and purchased QQQ and TQQQ for my sons IRAs and they both have 15% of each ETF..... the rest is made up of growth, S&P 500 and total US stock market ETFs.

Both are in their late 20's and have 30 more years in their careers and investment futures. They had no idea what IRAs were a decade ago when I helped to open both.

 

[JeffKeryk]

While we are all happy with our YTD gains, I try to take the good news in stride.
Please think long term.
You might guess that my portfolio, outside of retirement accounts, is lopsided towards tech, especially Silicon Valley (SEMI).
That group is up 118% YTD and 270% over 5 years. I bought as low as $13 for stocks valued at $300 today.
I would never do this in a retirement account; it is gambling.
Being so heavily weighted in 1 sector drives my Schwab and Fidelity teams crazy, by the way...
Please remember, the last 10 years have been extraordinary.

Long term people, long term.

 

[KJSmith]

Originally Posted by ArrestMeRedZ
With your return a pro would drag you down. I tried that for a couple of years and decided I could do better. You sound like you could do much better on your own.


My wife retired last Feb.
Her money is managed by the same folks mine will be.

Its a slightly different game.
I am sure many people here are very capable... at this point in their life.

What happens when you get older and not as sharp mentally?
Are you going to wait until then to pick a manager?
Someone else, without emotional attachment, can make the right decisions for me.

I am going to go about the last adventure without those kind of worries.
( not that I won't be watching)

on edit:
Scott Burns has a theory on management also.

Its called the dead cat theory (only because his cat died).
He says a dead cat can pick a diversified stock fund/bond fund that will last 30yrs....just as long as they don't charge more than 1%.

 

[AdmdeVilleneuve]

It should have been a good to great year for about all BITOGers reading this thread. A simple Fidelity or Vanguard S&P 500 Index fund is up over 30% YTD. A fantastic year, but I sense some unease among big names, like Warren Buffet, mentioned earlier. Dr. Michael Burry, featured in the 2010 book "The Big Short," and the 2015 biographical movie, with the same name, was featured in a Bloomberg article last September. It is worth a look.
https://bloomberg.com/news/articles...s-why-index-funds-are-like-subprime-cdos

Wishing that all of the BITOG family have a great Holiday Season and New Year. Hopefully we can all meet back here next year and discuss what a great year 2020 was for our investments.

 

[Astro14]

Originally Posted by JeffKeryk
I have a pet peeve about education.
No one should get outta 8th grade without an understanding of a savings account, checking account and credit cards.
And a basic understanding of what crefit is; a tool. Just like any tool used correctly it will work for you; used incorrectly and it will hurt you.

No one should get outta high school without an understanding of personal finance.
Time value of money, markets, indexes, inflation, market fluctuation.
Remember, everyone looks smart in a rising market.

I have used Calculus exactly 1 time in my career, and it was more discussion proof of concept more than anything else.
Give kids a fighting chance.

If I hear one more person say, "I will save when I am older" I will scream.


Amen.

Financial illiteracy is a huge issue and affects the overwhelming majority of Americans.

Upwards of 95% in my experience. This illiteracy cuts across income and socioeconomic lines.

"When I am older" is a rationalization enabled by that ignorance, and a plan doomed to failure.

The preponderance of my (really, our, Mrs. Astro is part of the team) net worth is the result of appreciation on investment made decades ago. I add a considerable amount to my retirement account every year, but at 9 years, perhaps less, from retirement, my additions will only account for a small percentage of the projected total.

My Dad used to say, "People don't plan to fail, but they do fail to plan."

 

[Sam_Julier]

Originally Posted by JeffKeryk
While we are all happy with our YTD gains, I try to take the good news in stride.
Please think long term.
You might guess that my portfolio, outside of retirement accounts, is lopsided towards tech, especially Silicon Valley (SEMI).
That group is up 118% YTD and 270% over 5 years. I bought as low as $13 for stocks valued at $300 today.
I would never do this in a retirement account; it is gambling.
Being so heavily weighted in 1 sector drives my Schwab and Fidelity teams crazy, by the way...
Please remember, the last 10 years have been extraordinary.

Long term people, long term.


I so agree. So many people cannot orient their thinking to a long term perspective. To the concept of "long term total return".

I have a couple of younger friends that regularly ask me questions about investing. I ask them: Would you be happy with a 9.72% annual rate of return since July 1, 1970? Most will answer, heck yes! Well that's the return of the Vanguard Wellesley fund.

Then I tell them that the fund keeps an allocation of 66% Bonds and 33% stocks. This will always surprise them. The reason for my example is to teach them that even bonds held over the long haul enjoy the magic of compounding.

 

[wings&wheels]

Good enough where I've instructed our investment folks to take some of the gains and move to less aggressive vehicles. If I feel I reached a good place with an investment, I usually take some of it off the table.