Let's talk about investing! Stock market, ETF, etc.

[Bonez3]

Would you recommend starting to do bulk of extra investment funds in 457 starting now or take those funds and invest in my own account?

 

I don't know what I'm doing for most part, but market is infallible right now.

[tshile]

if you don't know what you're doing i'd put your money in your 457. i've never had a 457, it sounds very similar to a 401k/ira. you'll be putting money in funds managed by people that are designed to spread your risk. you should have an adviser available to consult with, they can help you.

 

i'd be careful about bulk funding the account though. you might want to split it up and invest a bit every other wednesday for 6 weeks, or 6 months, or whatever sounds reasonable for you situation. look up dollar cost averaging. that's basically what i'm suggesting you do.

 

if you don't know what you're doing, but think the market is infallible, then i would suggest you only buy stocks with money you're comfortable losing. i'm not saying you can't make money doing stocks, i'm just refusing to give advice on what to do with stocks. people who say what you just said normally get their ass handed to them by the market

 

[Burgold]

12 minutes ago, Bonez3 said:

Would you recommend starting to do bulk of extra investment funds in 457 starting now or take those funds and invest in my own account?

 

I don't know what I'm doing for most part, but market is infallible right now.

If you don't know what you're doing be careful. Learn a little bit. It's very hard to time a bull market or know when it will end. At least read the reports and do some basic self-education. What comes up can come down, but it's also true that even during the Great Depression some companies went up.

 

That said, I do encourage investment. Put in what you can afford. I believe in being a long term investor and that means trying to find really strong companies rather than surfing bubbles. It also means doing a fair amount of homework.

 

If you really don't know what you are doing and want to  get in more quickly buy an S&P ETF. You'll track the market. Historically, you'll do well that way especially, if you have a long enough window to ride the ups and downs.

Edited January 3, 2018 by Burgold

[Sacks 'n' Stuff]

37 minutes ago, Bonez3 said:

I don't know what I'm doing for most part, but market is infallible right now.

No it isn’t.

[techboy]

44 minutes ago, Bonez3 said:

Would you recommend starting to do bulk of extra investment funds in 457 starting now or take those funds and invest in my own account?

 

I don't know what I'm doing for most part, but market is infallible right now.

 

The research is very clear. Trying to time the market is suboptimal. Picking individual stocks is suboptimal.  

 

If you don't know what you're doing, you should buy some mix of broadly diversified, very low cost stock index funds, and broadly diversified, very low cost bond funds. Then you should rebalance when your allocation gets out of whack.

 

If you DO know what you're doing, you should do exactly the same thing. The research shows that even the experts can't beat the market consistently or predictably. It's a sucker's game.

 

I won't repeat myself further, but if you want to read more I posted a bunch of stuff on page one of this thread.

[Springfield]

I didn’t follow techboy’s advice, not because I didn’t think it sound, it’s perfectly sound.  It’s just boring.  Lost 40% of my money and then got it back.  That’s fun.  Now I’ll probably lose 40% again, not fun.  Who doesn’t like to gamble?

 

 

(this is not my 401k, which is maxed out)

[tshile]

Yeah the stuff techboy talks about is, according to research, the best way to (on average) do as well as can be expected.

 

It's also boring.

 

Quality ETF and index funds are definitely great for investing.

 

Stocks are great for gambling

 

[Springfield]

SVXY and VMIN are essentially how I made all of my money back.  ETFs, but they’ve been STRONG.  I really wonder if they’ll eventually tank.

[techboy]

 

1 hour ago, Springfield said:

I didn’t follow techboy’s advice, not because I didn’t think it sound, it’s perfectly sound.  It’s just boring.  Lost 40% of my money and then got it back.  That’s fun.

 Now I’ll probably lose 40% again, not fun.  Who doesn’t like to gamble?

 

 

(this is not my 401k, which is maxed out)

 

1 hour ago, tshile said:

Yeah the stuff techboy talks about is, according to research, the best way to (on average) do as well as can be expected.

 

It's also boring.

 

Quality ETF and index funds are definitely great for investing.

 

Stocks are great for gambling

 

 

I get it, and there is nothing wrong with taking play money (like any other entertainment expense) and gambling with it in the stock market, any more than there is anything wrong with taking some money to Vegas, as long as limits are set.

 

That's why, although I did post on the first page (only when I was summoned), I have stayed out of this thread, although I will admit that it still annoys a little me that this thread is titled "investing" when it really should be "gambling". 

 

However, this...

 

10 hours ago, Bonez3 said:

Question 2) Don't think I can open an IRA if I have 403B if under 50, is that right? Would it even be worth it?

 

and the subsequent talk of 457B and such is not talking about gambling. This is talking about actual investing, and in this case, boring is also best.

 

And, for what it's worth, my methods may be boring but checking my portfolio balance isn't. 

 

[Springfield]

Techboy, by all means, I am glad you’re here because you probably know more about this than most.  I am happy to read whatever your write on the subject.

[tshile]

30 minutes ago, techboy said:

That's why, although I did post on the first page (only when I was summoned), I have stayed out of this thread,

You should post about long term index and etfs you like and have selected.

 

There's people that would participate in that.

[Corcaigh]

My retirement and after tax funds are based on just four total market funds. But I'm a simple soul.

 

I do have a different mix in my retirement and non-retirement accounts.

 

VBTLX    Vanguard Total Bond Market Index Fund Admiral Shares
VTABX    Vanguard Total International Bond Index Fund Admiral Shares
VTSAX    Vanguard Total Stock Market Index Fund Admiral Shares 

VTIAX    Vanguard Total International Stock Index Fund Admiral Shares

[techboy]

29 minutes ago, tshile said:

You should post about long term index and etfs you like and have selected.

 

There's people that would participate in that.

 

Well, I mean, I could, but you're right... It's boring. There's not really much to say. My portfolio is pretty close to this...

 

1 minute ago, Corcaigh said:

My retirement and after tax funds are based on just four total market funds. But I'm a simple soul.

 

I do have a different mix in my retirement and non-retirement accounts.

 

VBTLX    Vanguard Total Bond Market Index Fund Admiral Shares
VTABX    Vanguard Total International Bond Index Fund Admiral Shares
VTSAX    Vanguard Total Stock Market Index Fund Admiral Shares 

VTIAX    Vanguard Total International Stock Index Fund Admiral Shares

 

... except I don't like international bonds because they are higher expense and I don't see them as adding any additional safety (which is the role of bonds in a portfolio). If I want more risk and return, I'll just up the stocks.

 

The only difference is that in my portfolio I use a couple of S&P 500 index funds with a completion index to turn them into total market funds (because of limited choices in my 403B and 457B), and I sprinkle in a true commercial real estate fund from TIAA, which actually directly invests in CRE. That one's not available to most people, though.

 

And really, that's the problem most people face when looking for investing advice. There's a tendency to look at magazines or websites, and there's only so many ways they can write "Buy low cost, broadly diversified, passive funds". That also isn't very exciting, and won't attract advertisers (who want to sell high cost funds, of course), so they tend to run with "THE TEN HOTTEST NEW FUNDS" instead.

[Corcaigh]

2 hours ago, techboy said:

 

... except I don't like international bonds because they are higher expense and I don't see them as adding any additional safety (which is the role of bonds in a portfolio). If I want more risk and return, I'll just up the stocks.

 

 

Yeah ... the international bond is only 20 % of the total bond holding, and the expense rate is not bad ... 0.12% vs 0.05%. IMO it adds a little worthwhile diversification and currency hedge. FWIW, the international bond fund has provided a higher return than the (US) Total Bond Fund over the time I've held it.

Edited January 4, 2018 by Corcaigh

[techboy]

6 hours ago, Corcaigh said:

 

Yeah ... the international bond is only 20 % of the total bond holding, and the expense rate is not bad ... 0.12% vs 0.05%. IMO it adds a little worthwhile diversification and currency hedge. FWIW, the international bond fund has provided a higher return than the (US) Total Bond Fund over the time I've held it.

 

There are many people I respect that hold a splash of international bonds for just the reasons you state. Vanguard has included them in their Target Retirement funds, which I highly recommend and would probably be using myself if my various accounts offered them.

 

I certainly don't see them as any great mistake... It's just thst bonds aren't for return in Modern Portfolio Theory. They are for safety, and provide ballast and a place to rebalance from if (when?) we have another 2008 or 1929 and stocks plummet.

 

International Bonds have a slightly higher return because there is a slightly higher risk of default (or much higher for a small part of that fund). Again, if I want return, I just up the stocks. 

 

Part of my reasoning too is that I live in the US and if the US DOES default, I think I (and the world, probably) will have bigger problems than my portfolio balance.

 

If I lived overseas, though, I'd probably do some in international.

 

I still might... I've been considering them for a while, and once I retire I might roll my accounts into an IRA and just lump it all into a Target fund anyway, so my wife doesn't have to worry about it if something happens to me.

Edited January 4, 2018 by techboy

[Bonez3]

Thanks everyone, I do have a healthy fear of the market. But I like asking for trouble to, hence the statement. I think I'm gonna get in a go slow, do it the right way per se. It will kinda go against the grain for me but sounds like the right way. Read an internet pop up with 10 best ETF's with low costs and will likely just dabble in them in the beginning (even though bitcoin is calling my name  )

12 hours ago, Springfield said:

SVXY and VMIN are essentially how I made all of my money back.  ETFs, but they’ve been STRONG.  I really wonder if they’ll eventually tank.

They'll tank once I get in, I'll keep you posted on my first purchase so you're in the know.

Edited January 4, 2018 by Bonez3

[Bonez3]

And 1 more question...

 

When, approximately not exactly, is the market gonna crash? It is right??

[techboy]

1 hour ago, Bonez3 said:

And 1 more question...

 

When, approximately not exactly, is the market gonna crash? It is right??

 

Nobody knows. If people knew, they'd sell now (to avoid the crash), and that would cause the crash.

 

That's one of the reasons trying to time the market is a sucker's game.

 

The best approach is to just keep in the market. 

[Springfield]

1 hour ago, Bonez3 said:

And 1 more question...

 

When, approximately not exactly, is the market gonna crash? It is right??

 

I agree with techboy.

 

Its best to keep your money in the market through a crash.  There has never been a crash that didn’t rebound to well above its prior peak.  It’s hard though, when you watch your portfolio drop so fast, so quickly.  Your first instinct is to stop the bleeding.

[Bonez3]

10 minutes ago, techboy said:

 

Nobody knows. If people knew, they'd sell now (to avoid the crash), and that would cause the crash.

 

That's one of the reasons trying to time the market is a sucker's game.

 

The best approach is to just keep in the market. 

You're right, you are boring 

 

my 457 has about 9 funds (mostly Vanguard, some T Rowe)  to make % in, just research and choose best or just go equal with all? 

[techboy]

1 minute ago, Bonez3 said:

my 457 has about 9 funds (mostly Vanguard, some T Rowe)  to make % in, just research and choose best or just go equal with all? 

 

Okay, I don't normally get this far into the weeds, but here's the basic process:

 

Step 1: Decide on your split between stocks and bonds. This should be based on your need, ability, and willingness to take risk, as well as your time horizon. Younger people that need more money in retirement tend to have more stocks, and it's usually a good idea to scale that back as you get older and closer to retirement. 

 

It's generally recommended not to go more aggressive than 80/20 stocks to bonds, because the returns don't go up much beyond that, but the risks increase much more, and so the Sharpe ratio (which is a rough way of determining reward as a unit of risk) gets a lot lower. Also, you don't have anything to rebalance with if stocks drop dramatically, which if you are young you should think of as stocks going on sale.

 

If you're still working, you probably don't want to go less than 60/40 though, unless you're especially risk averse. Retirees often go 50/50 or even lower.

 

There are any number of rules of thumb to help decide (age in bonds, age-10 or age-20 in bonds), etc. One way to think of it is how you would react to a huge drop in your portfolio value, for example 50%. So a 50% drop in stocks means a 40% drop in portfolio value in an 80/20. Could you handle that? The warning here, most recently experienced in 2009, is that the mental exercise is often far different than the actual reality. A lot of people panicked and sold out at the bottom then, and that is disasterous, so it's probably best to be a little conservative until you go through a drop and you KNOW.

 

Step 2: Decide on US/International split. These two are not correlated, and another aspect of Modern Portfolio Theory (and why Markowitz won a Nobel for it, largely) is that multiple uncorrelated assets, when rebalanced, earn a higher rate of return over time than just the average of their individual returns.

 

Also, many would argue that you don't really want to be tied into just one country (the US in this case), completely. On the other hand, US citizens do live in the US, buy with US dollars, and will probably retire in the US, so there's a good argument to overweight the US vs other countries. 

 

Vanguard did a write-up here: https://investor.vanguard.com/investing/investment/international-investing, but most people seem to recommend somewhere between 20% to 40% of stocks in international, though a good argument can be made for up to the actual market weight, which fluctuates as high as 60%.

 

Personally, I'm at about 66/33 US/International, but that's largely an artifact of trying to keep my percentages round numbers for convenience.

 

Step 3: Pick very low cost, broadly diversified, passive funds that accomplish that allocation.

 

For example, if you are a young investor that decides on an 80/20 stock split, with 40% of stocks international, you could use three funds that Corcaigh mentioned earlier:

 

20% VBTLX    Vanguard Total Bond Market Index Fund Admiral Shares

48% VTSAX    Vanguard Total Stock Market Index Fund Admiral Shares 

32% VTIAX    Vanguard Total International Stock Index Fund Admiral Shares

 

That gives you a VERY low cost exposure to the entire world of stocks.

 

I'd probably go 20/50/30 just for convenience, because there's no exact science to selecting percentages. The important thing is to pick something and stick with it.

 

This is easy to do in an IRA, because you can just open it at Vanguard. In a 401k/403B/457B etc., you might not have all of those choices, so you pick the lowest cost option that gets you there.

 

Most of those accounts, for example, have an S&P 500 index fund, which can stand in for the Total US market (the returns are almost the same). Or if you want to be anal you can buy a completion index in your IRA.

 

Step 4: Rebalance. I use the 5/25 rule, which says that if any of the funds get more than 25% off one way or the other, or 5% of the portfolio total, you sell/buy to put it back into alignment. This keeps you from fiddling too much. Honestly, I've never hit that, because I also aim new contributions to the one that's closest to being off, though the recent run up in foreign has gotten me close.

 

Example... 48% VTSAX mean that you would rebalance if it gets as high as 53% or as low as 43%. The 25% rule comes into play when you have smaller allocations. For example my 10% to CRE would get rebalanced at 7.5% or 12.5%.

 

Conclusion: This is the basic 3 fund portfolio that will get you where you need to be. There are ways to tweak it (for example with real estate), but that's beyond the scope of this post.

 

You can read more about it here: https://www.bogleheads.org/wiki/Three-fund_portfolio

 

 

 

 

 

[Bonez3]

Sorry Techboy, snowy day and really appreciate your time. I figured that last one was a little much, but thanks for useful input.

[tshile]

1 hour ago, Bonez3 said:

And 1 more question...

 

When, approximately not exactly, is the market gonna crash? It is right??

the fact that no one knows is why you should google: dollar cost averaging

 

it's a strategy of investing money. market timing is proven to be a fools game. it doesn't work. you can get lucky and get it right a time or two, but over the long haul you'll get wiped out more than you make off it.

 

the market will forever go up and down with corrections, crashes, runs, and just sideways stalling. 

[techboy]

Just now, Bonez3 said:

Sorry Techboy, snowy day and really appreciate your time. I figured that last one was a little much, but thanks for useful input.

 

Oh, I don't mind... I'm home on a snow day anyway.

 

I'm happy to help further as needed, but if you want even more specific and useful advice, read this:

 

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=6212

 

Then post in that forum. There are dozens of highly knowledgable posters in that forum, including academics and advisors, that give freely of their time to help people with setting up their investments

[techboy]

3 minutes ago, tshile said:

the fact that no one knows is why you should google: dollar cost averaging

 

Technically speaking, dollar cost averaging has a lower expected return than lump sum investing, because the reason you are investing in a risky asset like stocks is they have a higher expected return, so keeping money in cash or whatever over time and slowly investing in stocks, on average, will do worse.

 

On the other hand, most people can't avoid it because they invest each pay check anyway, and it does prevent regret if the lump sum investment happens to come before a market drop, so it can be psychologically useful to the risk averse.

 

It's not the panacea some make it out to be, though.

 

More here: https://www.bogleheads.org/wiki/Dollar_cost_averaging