Where to invest my money?

Thanks for above. All my options are with Fidelity as this is employer 401k. All great spartan/index fundswith super low ER.

Currently I'm in the bogleheads 3 fund:

Fidelity 500 Index - 60%
Fidelity Intl Index - 30%
Fidelity Total US Bond - 10%

Going to do my due diligence research over the weekend on Extended Market, Small Cap, and Emerging Markets. IF I decide to take that tilt seen above, given my options with employer I'll be looking at something along lines of:

Fidelity 500 Index - 45%
Fidelity Extended Market Index - 10%
Fidelity Small Cap Index - 5%
Fidelity Total International Index - 25%
Fidelity Emerging Market Index - 5%
US Total Bond Index - 10%

All index funds with very low/Vanguard-ish ER. Appreciate the insight above, definitely giving me something to think about.

 

The problem with the Trinity study is it has success defined as >0 at the end of a defined period, making the results invalid for longer retirements. My personal goal is to have a lot more of a cushion than that.
Thus, I will have a larger cushion than "necessary" and expect to only withdraw 2.5-3%. Obviously, this will cost me some of my life working, but I actually like working so it isn't a big deal to me. Plus my expenses are low.

I am probably more risky in my investments than I would suggest for others.

For the OP, make sure you max you tax deferred first then just drop it in total us stock, total international, and bond in a mix that works for you. You can tilt later once you learn more.

Sent from my iPhone using SDN mobile app

 

Is that really what the chart shows?

I see that chart and all I get is that it is better to be in growth stocks than in the whole sp500, for that time period they decided to pick.

 

The "Beta" of that chart is 0.8. Growth stocks have performed well but rarely have a Beta lower than 1.0.

____________________

This portfolio was created using the Black-Litterman method of efficient frontier portfolio creation. I carefully selected low-cost Vanguard ETFs that work well together. To perform a long-term analysis (since Jan '99), I found all of the matching Vanguard Index Funds. I then created a portfolio that represents the current world allocation representing these categories. Using the Zephyr AllocationADVISOR software, I targeted a portfolio that historically has roughly 80% (.80 beta) of the risk of the S&P 500 Index. The Vanguard ETF portfolio that you see above is the result of this methodology. Read "How to Create Your Ideal Diversified Investment Portfolio" to fully understand the concepts behind this portfolio design.

 

Withdrawal Rate Strategies to Manage Retirement Income
Withdrawal Rate Rules Will Help You Manage Your Money in Retirement

6 Rules to Make Your Retirement Savings Last

This is not a sure thing. If you are going to use these rules, you have to be flexible; if things don't go well, you may have to make some adjustments and take out less later.

 

The 3% rule. Truth be told, there’s an even easier strategy to use to make sure you don’t outlive your assets. Simply withdraw 3% year in and year out. “Three percent could be viewed as a more conservative and simpler version of the well-known ‘4% rule,’” wrote Inglis.


New retiree withdrawal rate: Goodbye 4%, hello age divided by 20

 

The table below is from the Trinity study. For me personally I am assuming a 30 year retirement with 30% allocation to stocks. That's how I come up with a 2.5-3% withdrawal rate:

 

I like this site and the resultant tables best.


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This doesn't really make sense. If you are withdrawing 4% per year (maybe 3 now?) your balance should keep going up and never run out.

 

Depends on the return, to withdraw an inflation adjusted 4% of original money, you need to earn a post tax inflation adjusted >4% to grow your money.


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It depends on how much you want to live off in retirement and how long your retirement will be. If you have a 2.5% withdraw rate like Blade, almost any allocation will last for the duration of the retirement. If you want a higher withdraw rate (I.e. >4.5%) or have a longer retirement period (like the FIRE types, >30 years), a higher stock asset allocation is needed to insure not out-living your retirement funds. This can be seen in the graph I showed above. However, My biggest issues with the Trinity study is it doesnt account for the longer retirements, changing tax rates, inflation, and social security benefits

The problem with the Single Premium Immediate Annuity is it suffers from poor returns unless you beat the Actuary (i.e. Much better returns the longer you live). It is thought that these should be purchased in your 70s or 80s so you don't outlive your best egg. If you purchased one in your 50s, the premium will be low since the company is pricing it based off your life expectancy. I think WCI did a good analysis of the returns of purchased at various ages. I think the biggest benefit of the SPIA is to protect investors from selling investments in a down market. Essentially you are "pensionizing" a portion of your retirement funds

 

Completely agree about the short retirement window of the Trinity study. I plan on however a 40+ year retirement. However, the way I am hedging against the sequence of returns risk is by maintaining my ability to go back to part time work or decrease my withdraw rate. I like the Table from Big ERN at early retirement now

The Ultimate Guide to Safe Withdrawal Rates – Part 1: Introduction

Everything you ever wanted to know about safe withdraw rate

 

The bolded is really the only option. The only practical way to do this is to stay some measure of part time. Translation: You won't be totally rid of us old fart grandfathers for a very long time.

btw you might like

 

Your actions show you believe less diversification is better (growth stocks with a low beta only), but you are saying more diversification is better (such as the sp500, beta of 1).

Then you add that it is the rare stock that fulfills this low beta growth stock criteria, blowing away any questions whether it is just a handful of stocks that create that chart.

I'm enjoying the irony.

Viva la diversification!

 

For me personally I'll be long dead and decayed 30 years post retirement. So, I'm very comfortable with a 2.5 percent withdrawal rate over 30 years. I can see how others with an earlier retirement and less savings may need to bet more on stocks vs bonds and even resume working part time. I want to caution against the notion that everyone after age 65 has the health necessary to keep working in our field. I sure hope you do but it's no guarantee. Hence, one should keep working until the nest egg needed for retirement is acquired. For safety sake I would use age 90-95 for life expectancy.

It's a good discussion and I appreaciate the posts.

 

I'm sorry if my posts aren't clear or the links don't explain the allocation. Doze set me straight on investing about 5 years ago. I believe in a diversified low risk (relative portfolio). My portfolio has a Beta less than 0.80. And I'm currently less than 50 percent in equities.

I do buy stocks because I enjoy the game. I keep stock picking to 3 percent of my portfolio. I'm really not very good at it and I'd say my returns from individual stocks are lower than buying a Growth ETF from Vanguard. But, I enjoy the process and it keeps me in the game day to day.

I've read about a dozen books on investing most of which were recommended by Doze. I'm well informed but in the end a diversified portfolio like Doze is all you need. My portfolio is overly complicated but I enjoy tinkering around the edges. I do Analysis on my portfolio weekly and use Morningstar X ray monthly. The software from Fidelity, Morningstar or personal capital will allow detailed analysis of your portfolio.

Get Started | Personal Capital

 

Doze,

I enjoyed reading this chapter and wanted your opinion on the glide path approach at retirement.

The Ultimate Guide to Safe Withdrawal Rates – Part 19: Equity Glidepaths in Retirement

 

I enjoyed this graph: Great food for thought

 

Haven't spent a lot of time reading about withdrawal strategies. Not there yet.. My gut is that I will wind up with 30-40% equities on the day that I can't or choose not to earn an income anymore. I suspect that this will be within ten years. Very part time in the next few years.

Saw this quote on a finance board somewhere. I think it is appropriate.

"The future is unknown, both the markets and your personal needs. I feel it pointless running more and more and more numbers through more and more complicated black boxes, as if the resulting conclusions will be more exact.
Save as much as you can, not the minimum some advisor tells you. Takes rational withdrawals in retirement, and adjust as the world turns. Nothing is promised as a certainty."

 

As long as you guys carry your weight and show up to work, when you work. No problem. But, I will tell you that I will not support "senior" guys in our group who CHOOSE to slack off and damage our brand. Indeed we will probably need to deal with one or two senior partners (as in older as we are equal shares) sooner than later, whom have quite clearly checked out, yet continue to milk the cow.

That being said, I also know many older docs who CHOOSE to continue to show up and work hard. These guys are welcome anytime and are role models for us all for how to be down the road. It is a choice.

 

Blade. Are your withdrawal rates assuming complete depletion of assets? I've always assumed a 3-4% withdrawal rate but leaving my entire balance to the next generation.... I'll need to see an estate planner at some point, perhaps in the next few years, but back to the point, I've always assumed 3% withdrawal would maintain principal balance.

 

So what's the upside of an increasing percentage of bonds over increasing representation of dividend aristocrats? Bonds will lose you money as interests rates rise and have a terrible yield currently while strong dividend blue chips will pay dividends over 2.5%, will continue in a down market without you ever needing to sell shares, and have dividend growth rates higher than inflation.
Nothing is risk free of course but I don't see the upside of low-yield bond investing.
I own some bonds but only so that I can sell them and buy stock if the market drops.
I mean if bond yields increase significantly then buying loads of bonds will make sense, but I don't see the point with current yields.

 

I invest monthly in a "three fund" style ETF portfolio of vanguard funds. Try not to pay attention to the market and invest every month around payday.

40% VTI (Total US market)

40% VSUX (Total international market)

20% BND (Total bond)

Has averaged 14.5% ROR per year over the past two years.

 

All very reasonable.

 

I agree with this to an extent. The dividends likely will keep coming in a recession for most blue chips (not all, GE which was one of the bluest of blue chippers, cut theirs in 2008) keeping your income relatively stable. However when you open up the account and its 50% less than was a year ago, there is a very high risk of panicking and selling resulting in permanent capital loss.

 

I'd prefer fixed deposit in a trusted bank.It gives you more interest than an ordinary savings account and you can withdraw the money whenever the period ends. Investing your money on share market can sometimes give you a huge profit but it also increases the risk of losing your investment.

 

If you can find a savings account that beats inflation, let me know. This is a losing formula for investing, especially early in one's working career. A small step above just stuffing money under your mattress

 

You are correct. I've got a lot of money in CDs with Ally Bank. I think their software is the very best available online. For me, the "losing formula" maintains my allocation as I substitute CDs for short Term Bonds. I evaluate my entire portfolio as ONE so even though the Bond/CD side may not be keeping up with Inflation the entire portfolio is with an average return of 8%; in addition, my "risk" is substantially lower than the market (lower Beta) with higher alpha on the equity side. Plus, I have CASH to invest when the market has a correction. We are over due for a 5-10% pullback.

Online Banking, CDs, Money Market, Savings & Checking | Ally

So, for some 100% equity is the only way to play the game but the evidence is clear that the risks are higher while the returns are only marginally greater than an 80/20 or 60/40 portfolio. That said, if you have 30 years to invest then I don't see any issue with 100% or 90/10 for your portfolio.

 

It's all about Risk vs Reward and "winning the game" for the long run. Equities are very volatile and as 2008 has proven you can lose 45% of your value in a year. We don't know when the next correction will hit. Will it be 2018? Maybe 2019? But, it will come and it could be 20% or more. The Shiller PE is very high right now compared to historical values so future returns may be lower with higher volatility.

A lower allocation of stocks reduces returns but also reduces volatility. As you approach retirement a 30-40% allocation to equities seems prudent because one has less time to recover from a major market downturn. The extra cash/short term bonds allows one to ride out the storm and even take advantage of the downturn if the Shiller PE is below 15.

Shiller PE Ratio

S&P 500 Price to Book Value

 

I'm assuming a 2.5-3% withdrawal rate for 30 years with 30% allocation to equities. At a 2.5% withdrawal I'll leave a nice cushion for my kids/grandkids to inherit a good sum of money. In addition, I prefer to maintain my equity exposure to less than 50% at all times during retirement even if I use the Glidepath method as discussed in this thread.

Most of the evidence points to a 3.0-3.25% withdrawal rate as being a safe approach during retirement. I've seen numbers as high as 3.5% if one's equity exposure is in the 60-70% range but that's too high an exposure for me.

The Ultimate Guide to Safe Withdrawal Rates – Part 19: Equity Glidepaths in Retirement

 

But recent research has shown that Vanguard (and many other providers of target date funds) actually got it wrong, at least for the post-retirement glidepath. The glidepath of equity weights should ideally start to increase (!) again once you retire. Michael Kitces wrote about this topic (on his blog here and here and in an SSRN working paper joint with Wade Pfau) and proposed to keep the minimum equity share at or around the retirement date before starting to raise the equity weight again during retirement.

 

The bottom line is that 3% is now the new 4% rule for withdrawal rates at retirement. For people like SETHCO who are willing to swing for the fences a 4.5% withdrawal rate is possible provided that equity exposure is maintained at near 100% and he/she is willing to go back to work at age 60-65 if the money starts to run out.

For me, I will not be returning to work once I fully retire.

 

Inflation rate is around 2-2.25% the past few years. Only the 5 year CD from Ally is keeping up with inflation.

Current US Inflation Rates: 2006-2017


Ally Bank Reviews | Rates, Tips & Ratings | Everything Ally

 

Ally has a no penalty 11 month CD for 1.5%... which is decent enough. Need to drop 25k.

All these investments threads are great btw.

 

Definately believe in the 60% FTE status vs total retirement.

 

For the last few decades bonds- defined as short-intermediate term high quality fixed income, did two things for one's portfolio:

1. They dampened the volatility of a portfolio and provided a store of value to buy stocks when they went on sale.
2. They could reasonably be counted on to provide a positive real return for that component of the portfolio.

Number 1 is still there.
Number 2 is not.

I own lots of CDs and low yielding Treasury bonds and munis knowing full well that they will underperform inflation. There simply is no other way to control equity risk. As my ability and willingness to earn an income diminish, I just am not willing to risk having to work like this indefinitely. I am waiting for TIPs to get cheaper to convert a substantial chunk of my short term fixed income to an intermediate or long term TIPs ladder.

 

What do you think of Nuveen? NUV or NZF? Municipal bond fund with a 5.77% yield and .89 div rate. As a muni bond it's real yield is much hire due to tax advantages. A little riskier, but has done very nicely as apart of my portfolio.

 

EE bond outperforms all the other options up to average inflation of 2.5%. At that point and above, the 20-year TIPS outperforms all other investments. The EE Bond outperforms the I Bond up to an inflation rate of 3.0%, and just barely under-performs at 3.5%.

Let's say you are 42 years old and planning to retire at age 62. You could begin buying $10,000 a year in EE bonds now, and at age 62, you'd have $20,000 a year in tax-deferred income for 20 years. Or if you have a new baby, you could buy $10,000 a year in EE bonds for 4 or 5 years and have $20,000 a year for college costs 20 years down the line. (EE bond proceeds used for education costs are federally tax-free, up to certain income limits.)

The only issue with EE bonds is your ability to hold them 20 years. If you are sure you can, then they are a good, sensible addition to your super-safe asset allocation.

Yes, EE Bonds Are A Good Investment, But If You're Interested, Buy Them Before May 1 | Seeking Alpha

 

My strategy is to used fixed income for safety. both of these closed end funds have credit quality risk, duration risk, call risk, and closed end funds often employ leverage. Take a look on how they did during the financial crisis. They dropped like 20% while stocks dropped 40%. Is this what you want to be selling when stocks tank and you want to buy them? Risk is best rewarded on the equity side. Not fixed income. Your goal should be to squeeze out every particle of return for the least amount of risk from your portfolio as a whole. These type investments offer too little return for too much risk.

 

That means EE bonds pay an effective rate of interest of 3.5% if held for 20 years. Is 3.5% interest rate per year for 20 years enough gain for you to buy and hold EE bonds? If you cash that EE bond in even one day before 20 years then POOF there goes the return.

 

I thought you'd dislike them. And you are right... they def. carry more risk.

 

This has been a super interesting thread to read. I'm currently a medical student, but I want to start gaining some experience with stock investing. I have ~$1000 sitting around and would rather use this money to start learning the trade. I don't care much if I lose it, I just want to learn. Where do you guys think I should begin?

 

The Four Pillars of Investing: Lessons for Building a Winning Portfolio Hardcover – International Edition, April 26, 2002
by William J. Bernstein (Author)


Hurdle 1: Even if you can invest like Warren Buffett, if you can't save, you'll die poor.
Hurdle 2: Finance isn't rocket science, but you'd better understand it clearly.
Hurdle 3: Those who ignore financial history are condemned to repeat it.
Hurdle 4: We have met the enemy and he is us.
Hurdle 5: The financial services industry wants to make you poor and stupid.

Rational Expectations: Asset Allocation for Investing Adults (Investing for Adults Book 4) Kindle Edition


The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk (Professional Finance & Investment)
Oct 13, 2000
by William J. Bernstein

The Bogleheads' Guide to Investing
Aug 4, 2014
by Taylor Larimore and Mel Lindauer[/QUOTE]

 

“There are a few investment managers, of course, who are very good – though in the short run, it’s difficult to determine whether a great record is due to luck or talent. Most advisors, however, are far better at generating high fees than they are at generating high returns. In truth, their core competence is salesmanship. Rather than listen to their siren songs, investors – large and small – should instead read Jack Bogle’s The Little Book of Common Sense Investing.” – Warren Buffett, Chairman of Berkshire

The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits) Kindle Edition

All About Asset Allocation, Second Edition (Professional Finance & Investment) Paperback – June 21, 2010
by Richard A. Ferri (Author)

 

You don't learn by opening a brokerage account and buying something and obsessively checking the price, and then wondering if you should have bought something else... You learn by reading and treating finance and investing as an academic discipline worthy of serious study. White coat investor, Bogelheads, Anything written by William Bernstein, (a physician turned financial writer), Larry Swedroe, Rick Ferri. For now, Hold on to your cash. Maybe payoff a debt.