Jump to content
Fantasy Football - Footballguys Forums

Personal Finance Advice and Education!


No. 16

Recommended Posts

22 minutes ago, jm192 said:

Going back to the Wife's 401K

Spent the day looking at everything.  There's a large cap blend, small cap blend, mid cap blend, a couple of bond fonds, International blend, and Emerging Markets.  

The expense ratios are high on everything except the large cap blend.  "Blackrock Equity Index fund J" it's called.  It has done a great job of tracking the S&P 500.  It has performed slightly better than VFIAX--the Vanguard equivalent.  And it has a lower expense ratio.  With everything else having significantly higher expense ratios than Index funds and ETF's I can get elsewhere--I'm considering placing 100% of this account into the large cap fund.  

My current investing plan calls for 45% Total US/Large Cap US stocks.  Her 401K will basically be all of it.  Is there some reason I'm missing that it would be bad to put all of our large cap stocks into this 1 fund at this point?  I guess I also have a little bit of pause because it's a relatively new fund and not something I've heard of or seen anywhere else.

I'm hoping to start a taxable account later in the year and that would obviously change the percentages.  

Depends on your mix and location of your allocation. Meaning, what do you have in other tax deferred and Roth accounts? But generally I'd have no problem putting everything in the black rock fund for the reasons you mention. It's a solid company. It wouldn't necessarily be "wrong" to go 100% in this fund even without other accounts. 

You're absolutely right to consider your funds collectively, including taxes.

  • Thanks 1
Link to comment
Share on other sites

On 7/8/2021 at 8:36 AM, Craig_MiamiFL said:

401k guys: From my understanding, deferrals must be received no later than the 15th business day after the month of deferral according to DOL. (Company is around 5k employees)

For reference, I've still yet to receive my contributions/deferrals from my 6.18.21 paycheck (and now 7.2.21 paycheck....which is at least understandable to me). And seems to be more and more irregular with my deferrals being received/posted. It is a couple thousand $$. Fortunately I don't have a big chunk built overall yet. Hoping it doesn't come to it but I fully plan to go to DOL if isn't received by July 23. It is my 3rd employer so I really have no attachment to them outside of a check.

For background this company changed 401k financial providers in May. Deferrals were about 10 business days to post (which IMO is slow) with old 401k provider and they passed it off as "waiting for 401k provider to post deferrals"....wasn't ideal but whatever. Now with new 401k company....it's even slower & 100% believe it is my company's delaying it and really just want it investigated so I'm getting a legit response. Eventually I'm going to leave this company and move the $$ to either other employers (where I don't have any issues with 457/HSA contributions posting on payday at all).

 

While I don't know your company, and there very well could be nefarious activity here, there could very well be an honest mistake.  We had an incident at my job (much smaller company) a few years ago where we (employees) noticed that the 401k contributions weren't being timely remitted.

We raised the issue, and it turns out the 401k contributions were indeed being remitted, but the 401k plan administrator was not properly investing the funds.  It was not the employer's fault, but the plan administrator.  Plan administrator was a small shop, not like a Fidelity or Vanguard or a major player.  Turns out they had a very manual process, where only a handful of their employees were responsible for entering the contributions and updating our online accounts.  Plan administrator looked into it and agreed, and ended up crediting our accounts for any lost investment earnings.  We have since changed plan administrators due to the screwup.  

Long story short - my opinion is don't go to the DOL until you've exhausted all other options internally within your company.  Maybe it's nefarious, but maybe it's not your employer's fault.  And the DOL doesn't #### around if you blow the whistle on the employer.  An employer of that size would be very, very stupid to #### around with your 401k contributions intentionally.

Edited by Steve Tasker
  • Like 1
Link to comment
Share on other sites

I've about decided to go 100% Stocks at this point.

Thinking 

65% Total US Stock Market

25% Foreign

5% Emerging Markets

5% Reits

Too aggressive?  Too much International?  I figured if I'm forgoing bonds, a bit more international is a bit of a hedge.  

I was planning on Tilting Small Cap value, but the more I read/hear about it--I'd rather not deal with years of underperformance hoping for the big payoff.   

Link to comment
Share on other sites

18 hours ago, jm192 said:

My current investing plan calls for 45% Total US/Large Cap US stocks.  Her 401K will basically be all of it.  Is there some reason I'm missing that it would be bad to put all of our large cap stocks into this 1 fund at this point?  I guess I also have a little bit of pause because it's a relatively new fund and not something I've heard of or seen anywhere else.

I assume since it's low fee it's a passive fund?  I do this with my wife's account since she has one really good fund and a bunch of crap.  When folded in with everything else it works fine.  (And since the S&P is doing so well her account looks awesome these days).

 

39 minutes ago, jm192 said:

I've about decided to go 100% Stocks at this point.

Thinking 

65% Total US Stock Market

25% Foreign

5% Emerging Markets

5% Reits

Too aggressive?  Too much International?  I figured if I'm forgoing bonds, a bit more international is a bit of a hedge.  

I was planning on Tilting Small Cap value, but the more I read/hear about it--I'd rather not deal with years of underperformance hoping for the big payoff.   

Are you 20 or 60?

Link to comment
Share on other sites

6 minutes ago, Sand said:

I assume since it's low fee it's a passive fund?  I do this with my wife's account since she has one really good fund and a bunch of crap.  When folded in with everything else it works fine.  (And since the S&P is doing so well her account looks awesome these days).

 

Are you 20 or 60?

33

Link to comment
Share on other sites

10 minutes ago, jm192 said:

33

I'm more conservative than many, so I wouldn't do it.  However, if you think you have a 30 year runway to retirement it isn't an outrageous choice.  If you think you'll be done at 50, though, that seems too aggressive.  (All IMO).

  • Like 2
Link to comment
Share on other sites

13 hours ago, jm192 said:

I've about decided to go 100% Stocks at this point.

Thinking 

65% Total US Stock Market

25% Foreign

5% Emerging Markets

5% Reits

Too aggressive?  Too much International?  I figured if I'm forgoing bonds, a bit more international is a bit of a hedge.  

I was planning on Tilting Small Cap value, but the more I read/hear about it--I'd rather not deal with years of underperformance hoping for the big payoff.   

I'm not the one to ask, but it seems fine to me. 

I've only been taking this stuff seriously for a few years, so maybe it's that I've literally just never seen a time when bonds looked attractive at all. 

But I've never heard a good answer to the question of why anyone would consider a bond until they are about 5 years away from retirement/needing the money.  Even then, I'm not sure I see the point. 

But again, that's probably just my ignorance. 

 

Link to comment
Share on other sites

1 hour ago, pollardsvision said:

I'm not the one to ask, but it seems fine to me. 

I've only been taking this stuff seriously for a few years, so maybe it's that I've literally just never seen a time when bonds looked attractive at all. 

But I've never heard a good answer to the question of why anyone would consider a bond until they are about 5 years away from retirement/needing the money.  Even then, I'm not sure I see the point. 

But again, that's probably just my ignorance. 

 

This is where I’m at. I think the idea that you need to have bonds is an antiquated one, personally, especially when you’re decades away from retirement. 

Link to comment
Share on other sites

16 hours ago, jm192 said:

I've about decided to go 100% Stocks at this point.

Thinking 

65% Total US Stock Market

25% Foreign

5% Emerging Markets

5% Reits

Too aggressive?  Too much International?  I figured if I'm forgoing bonds, a bit more international is a bit of a hedge.  

I was planning on Tilting Small Cap value, but the more I read/hear about it--I'd rather not deal with years of underperformance hoping for the big payoff.   

When you say foreign, what fund / specific class? Developed nations line VEA, or total like VXUS? VXUS is already 75% developed, 25% EM. so you might not need the EM if you're already getting it, unless you want to tilt a bit. But if you're doing 25% VEA, 5% VWO (or similar funds) you're actually tilting away from EM. which might be the goal and a perfectly fine plan. 

At 33 I wouldn't bother with bonds. 

2 hours ago, pollardsvision said:

I'm not the one to ask, but it seems fine to me. 

I've only been taking this stuff seriously for a few years, so maybe it's that I've literally just never seen a time when bonds looked attractive at all. 

But I've never heard a good answer to the question of why anyone would consider a bond until they are about 5 years away from retirement/needing the money.  Even then, I'm not sure I see the point. 

But again, that's probably just my ignorance. 

 

Bonds are supposed to act like a parachute if we hit down markets but I agree with you at the current rates.  My plan for retirement will be current year funds in cash, year +1 in VTIP or G fund.  Beyond that, all equities with about 10% in REIT. 

We keep my wife's Roth IRA in a modified version of Paul Merriman's 4 fund portfolio. We equal weight DM and EM, though I'm not entirely sure that's optimal. (If only we could tell the future) partly because I'm 20% the I fund which is developed nations.

Edit - 44, no bonds. (But the pension serves as fixed income)

Edited by -OZ-
Link to comment
Share on other sites

On 7/11/2021 at 10:11 PM, jm192 said:

Going back to the Wife's 401K

Spent the day looking at everything.  There's a large cap blend, small cap blend, mid cap blend, a couple of bond fonds, International blend, and Emerging Markets.  

The expense ratios are high on everything except the large cap blend.  "Blackrock Equity Index fund J" it's called.  It has done a great job of tracking the S&P 500.  It has performed slightly better than VFIAX--the Vanguard equivalent.  And it has a lower expense ratio.  With everything else having significantly higher expense ratios than Index funds and ETF's I can get elsewhere--I'm considering placing 100% of this account into the large cap fund.  

My current investing plan calls for 45% Total US/Large Cap US stocks.  Her 401K will basically be all of it.  Is there some reason I'm missing that it would be bad to put all of our large cap stocks into this 1 fund at this point?  I guess I also have a little bit of pause because it's a relatively new fund and not something I've heard of or seen anywhere else.

I'm hoping to start a taxable account later in the year and that would obviously change the percentages.  

I would (and do) do exactly as you are saying. Well done 

  • Like 1
Link to comment
Share on other sites

15 hours ago, jm192 said:

33

I would keep 20% bonds as a floor. It can be hard to do in a bull market such as now when stocks are up, but I’m convinced it’s the right move. 
 

“be fearful when others are greedy and to be greedy only when others are fearful”

  • Like 1
Link to comment
Share on other sites

1 hour ago, McBokonon said:

This is where I’m at. I think the idea that you need to have bonds is an antiquated one, personally, especially when you’re decades away from retirement. 

Risk adjusted returns go up when mixing in non alike asset classes.  

It always seems a mistake to have bonds when the market is grinding higher, like now.  It's not.

Edited by Sand
Link to comment
Share on other sites

16 hours ago, jm192 said:

I've about decided to go 100% Stocks at this point.

Thinking 

65% Total US Stock Market

25% Foreign

5% Emerging Markets

5% Reits

Too aggressive?  Too much International?  I figured if I'm forgoing bonds, a bit more international is a bit of a hedge.  

I was planning on Tilting Small Cap value, but the more I read/hear about it--I'd rather not deal with years of underperformance hoping for the big payoff.   

I'm 49 and at 70% total stock market, 15% international and 15% bond.  I don't think your mix sounds too arrgessive at this time

 

  • Like 2
Link to comment
Share on other sites

Random question:

When I got my mortgage on my house a few years ago, I opened a checking account with the lender for the sole purpose of auto-payments from that account (I can't remember what the benefit was at the time but it was worth it).  

I now have refinanced and have no use for that checking account.  Will my credit score take a hit for closing, or withdrawing 100% of funds (I have value of one previous payment in there)?  Is there any reason to keep it open?

Link to comment
Share on other sites

1 minute ago, Leeroy Jenkins said:

Random question:

When I got my mortgage on my house a few years ago, I opened a checking account with the lender for the sole purpose of auto-payments from that account (I can't remember what the benefit was at the time but it was worth it).  

I now have refinanced and have no use for that checking account.  Will my credit score take a hit for closing, or withdrawing 100% of funds (I have value of one previous payment in there)?  Is there any reason to keep it open?

No, opening and voluntarily closing a deposit account does not report on your credit report and, therefore, does not affect your credit score.

  • Like 1
Link to comment
Share on other sites

44 minutes ago, Juxtatarot said:


I'm 50 and am 90% equities, 10% cash.  I plan to go the rest of my life without changing that ratio too much.

I am curious as to why, my situation now is a little different in that I will be relying on a couple pensions for a big chunk of my retirement, but for someone your age this article that @Sand shared a while back makes a lot of sense to me. 

  • Like 2
Link to comment
Share on other sites

17 hours ago, jm192 said:

I've about decided to go 100% Stocks at this point.

Thinking 

65% Total US Stock Market

25% Foreign

5% Emerging Markets

5% Reits

Too aggressive?  Too much International?  I figured if I'm forgoing bonds, a bit more international is a bit of a hedge.  

I was planning on Tilting Small Cap value, but the more I read/hear about it--I'd rather not deal with years of underperformance hoping for the big payoff.   

Looks good to me.  I'm 43 and have been looking at how much my potential balance at retirement will be impacted by increasing my contributions.  Increasing my contribution $100 or $200 a month did not have a huge impact.  The only thing that greatly increased my balance was a higher rate of return.  Being aggressive at a young age can greatly impact your balance at retirement.

Link to comment
Share on other sites

52 minutes ago, bcat01 said:

Looks good to me.  I'm 43 and have been looking at how much my potential balance at retirement will be impacted by increasing my contributions.  Increasing my contribution $100 or $200 a month did not have a huge impact.  The only thing that greatly increased my balance was a higher rate of return.  Being aggressive at a young age can greatly impact your balance at retirement.

Right. The most I'll contribute any year (without winning the lottery) is less than 5% of our accounts. But, at some point, when you're close to your retirement goal, the risk of a market drop becomes huge. Not like last March, but like 2000-2006 and 07-13 (S&P 500 anyway). When you're buying 10-50% of your portfolio annually throughout that time period it doesn't hurt. But if you're only able to buy ~5% each year, that does.

Link to comment
Share on other sites

4 hours ago, pollardsvision said:

I'm not the one to ask, but it seems fine to me. 

I've only been taking this stuff seriously for a few years, so maybe it's that I've literally just never seen a time when bonds looked attractive at all. 

But I've never heard a good answer to the question of why anyone would consider a bond until they are about 5 years away from retirement/needing the money.  Even then, I'm not sure I see the point. 

But again, that's probably just my ignorance. 

 

A lot of people smarter than me advocate very strongly for bonds.  Every investing expert seems to think it's still the way.  A lot of them advocate for as high as 40% even in your 30's.  

I THINK it's a behavioral thing.  Everyone I've listened to/read argue that investing is 90% behavioral.  And most people overestimate their risk tolerance--and when your portfolio gets cut in half--human nature is to panic.  

I'm actually very confident in my ability to sit on my hands.  If it drops 50% next month--I'll still have the same number of shares and those shares will go back up in value.  

 

  • Like 2
Link to comment
Share on other sites

Just now, jm192 said:

A lot of people smarter than me advocate very strongly for bonds.  Every investing expert seems to think it's still the way.  A lot of them advocate for as high as 40% even in your 30's.  

I THINK it's a behavioral thing.  Everyone I've listened to/read argue that investing is 90% behavioral.  And most people overestimate their risk tolerance--and when your portfolio gets cut in half--human nature is to panic.  

I'm actually very confident in my ability to sit on my hands.  If it drops 50% next month--I'll still have the same number of shares and those shares will go back up in value.  

 

Yeah. I mean, even if you go with letting 20% of your portfolio rot in bonds, you can also just keep that in cash ready to deploy into equities if/when the market crash comes.

  • Like 1
Link to comment
Share on other sites

5 minutes ago, McBokonon said:

Yeah. I mean, even if you go with letting 20% of your portfolio rot in bonds, you can also just keep that in cash ready to deploy into equities if/when the market crash comes.

Agree. I’d rather have it in cash and jump in equities if there’s a crash. Look at Fidelity’s total bond fund. The yield is a little above 2% and in the past 19 years the fund is up 10%. The S&P over that 19 years has probably a similar yield but is up 400%. That’s a ridiculous amount to lose out on to hold bonds while young or even thinking about living 20 years past retirement. You could have moved your 20% cash into the market anywhere from April to September and still blown away the 19 year bond return in a year.

  • Thanks 1
Link to comment
Share on other sites

16 minutes ago, stbugs said:

Agree. I’d rather have it in cash and jump in equities if there’s a crash. 

Wouldn't bonds return better than cash? I keep my "cash" in bonds and then jump into equities when rebalancing or after a crash. Just as easy to do a reinvestment from a bond fund to an index fund as have cash parked and buy the index fund. 

Link to comment
Share on other sites

2 hours ago, pbm107 said:

I am curious as to why, my situation now is a little different in that I will be relying on a couple pensions for a big chunk of my retirement, but for someone your age this article that @Sand shared a while back makes a lot of sense to me. 

Actually, in your case you can be more aggressive than those without pensions as you have a floor to work with.  

I am at 65/35 right now (still a bunch of cash) and am good with that.  I keep telling myself that FOMO is real and chasing now is a bad idea.  I'll just take what the market gives and try not to worry about what could have been at 90/10 if we keep going up.

  • Like 2
Link to comment
Share on other sites

18 minutes ago, Runkle said:

Wouldn't bonds return better than cash? I keep my "cash" in bonds and then jump into equities when rebalancing or after a crash. Just as easy to do a reinvestment from a bond fund to an index fund as have cash parked and buy the index fund. 

Always debatable in a rising interest rate environment, if we're in one.  In 2018 I think the best asset class was cash.

But usually, yeah, cash is a 0% bond and tends to lag bonds that give off a bit of interest.

Link to comment
Share on other sites

23 minutes ago, Runkle said:

Wouldn't bonds return better than cash? I keep my "cash" in bonds and then jump into equities when rebalancing or after a crash. Just as easy to do a reinvestment from a bond fund to an index fund as have cash parked and buy the index fund. 

Yes, but there is kind of a false thought that bonds are completely safe. During the financial crisis, bonds got hammered (they don’t drop as much as stocks can). If your plan is to maximize the cash return then bonds can work as long as the plan is to take advantage of equity bear crashes. What we are trying to say is that cash can be better and maybe that’s since your more likely to invest the cash when a crash hits than sell you buns funds.

Link to comment
Share on other sites

1 hour ago, jm192 said:

A lot of people smarter than me advocate very strongly for bonds.  Every investing expert seems to think it's still the way.  A lot of them advocate for as high as 40% even in your 30's.  

I THINK it's a behavioral thing.  Everyone I've listened to/read argue that investing is 90% behavioral.  And most people overestimate their risk tolerance--and when your portfolio gets cut in half--human nature is to panic.  

I'm actually very confident in my ability to sit on my hands.  If it drops 50% next month--I'll still have the same number of shares and those shares will go back up in value.  

 

Totally agree on the behavior aspect.

But we must be listening to different experts. None of the people I listen to have anywhere near 40% in their 30s. They're pretty strongly against that much until retirement. My personal favorite, PM, doesn't even have that many bonds now and he's in his 70s.

  • Thanks 1
Link to comment
Share on other sites

17 minutes ago, Sand said:

Actually, in your case you can be more aggressive than those without pensions as you have a floor to work with.  

I forget which guy it was, but the point was made a while ago in one of my podcasts that people should have a safety net sufficient to cover basics / necessities, and a riskier portfolio to cover wants / dreams which you could live without. Ever since then I've tracked expenses by basics vs extras to ensure sufficient coverage for basics by safe assets when we retire.

Link to comment
Share on other sites

14 minutes ago, stbugs said:

Yes, but there is kind of a false thought that bonds are completely safe. During the financial crisis, bonds got hammered (they don’t drop as much as stocks can). If your plan is to maximize the cash return then bonds can work as long as the plan is to take advantage of equity bear crashes. What we are trying to say is that cash can be better and maybe that’s since your more likely to invest the cash when a crash hits than sell you buns funds.

Credit sensitive bonds certainly did as their spreads blew out. However, most people would be allocating to a government bond portfolio. Government bonds like Treasuries rallied during the financial crisis. They rally during most crises as people sell out of risk assets. 

  • Like 2
Link to comment
Share on other sites

4 hours ago, wilked said:

 

“be fearful when others are greedy and to be greedy only when others are fearful”

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves”

and

“If you looked at September 1986 to October '87, the market was unchanged. It had a thousand points up and a thousand points down and they only remember the down”

 

  • Like 2
Link to comment
Share on other sites

16 minutes ago, Desert_Power said:

Credit sensitive bonds certainly did as their spreads blew out. However, most people would be allocating to a government bond portfolio. Government bonds like Treasuries rallied during the financial crisis. They rally during most crises as people sell out of risk assets. 

Sort of.  

March 2 - 9, VTIP dropped like 3%, while VTI dropped like 8%. VTIP gained it back by April, I believe in response to the Fed adjusting rates. VTI was back at the March 2 value around mid May. Back to it's February high by August.  

Other ways to hold US treasuries may have worked better. Actually holding bonds directly would mean no real loss, but their value does decrease before maturity when rates rise and rise when rates fall. 

Link to comment
Share on other sites

24 minutes ago, Desert_Power said:

Credit sensitive bonds certainly did as their spreads blew out. However, most people would be allocating to a government bond portfolio. Government bonds like Treasuries rallied during the financial crisis. They rally during most crises as people sell out of risk assets. 

Yeah, I was just using Fidelity’s total bond as more of a total market type of index.

Link to comment
Share on other sites

3 minutes ago, -OZ- said:

Sort of.  

March 2 - 9, VTIP dropped like 3%, while VTI dropped like 8%. VTIP gained it back by April, I believe in response to the Fed adjusting rates. VTI was back at the March 2 value around mid May. Back to it's February high by August.  

Other ways to hold US treasuries may have worked better. Actually holding bonds directly would mean no real loss, but their value does decrease before maturity when rates rise and rise when rates fall. 

And actual bonds aren’t something you can get in and out of to take advantage of stock market dips, correct? We were solely suggesting that cash could be a simple option to be safe at a young age as well as have the easy ability to jump in and take advantage of a crash. 

Link to comment
Share on other sites

37 minutes ago, stbugs said:

And actual bonds aren’t something you can get in and out of to take advantage of stock market dips, correct? We were solely suggesting that cash could be a simple option to be safe at a young age as well as have the easy ability to jump in and take advantage of a crash. 

Cash would be the better way to use market timing, sure. 

Honestly I don't keep cash. I do have a margin account at 2% which I'll borrow from if/when the market drops 10%. Not the full amount available, but half at first and then keep buying some as the market drops. I'll limit the loan to 75% the amount available. Yeah that will be risky, but I prefer it to keeping cash on hand. (Again, with a decent fixed income I'm not going to need to sell off low)

Link to comment
Share on other sites

22 minutes ago, -OZ- said:

Sort of.  

March 2 - 9, VTIP dropped like 3%, while VTI dropped like 8%. VTIP gained it back by April, I believe in response to the Fed adjusting rates. VTI was back at the March 2 value around mid May. Back to it's February high by August.  

Other ways to hold US treasuries may have worked better. Actually holding bonds directly would mean no real loss, but their value does decrease before maturity when rates rise and rise when rates fall. 

Bold is exactly the point I was trying to make because rates generally fall during post-Volker crises. Bond funds should approximate those returns over time.

Link to comment
Share on other sites

7 minutes ago, Desert_Power said:

Bold is exactly the point I was trying to make because rates generally fall during post-Volker crises. Bond funds should approximate those returns over time.

Yes, but the only way the federal reserve interest rate falls now is to go negative. 

  • Like 1
Link to comment
Share on other sites

1 hour ago, -OZ- said:

I forget which guy it was, but the point was made a while ago in one of my podcasts that people should have a safety net sufficient to cover basics / necessities, and a riskier portfolio to cover wants / dreams which you could live without. Ever since then I've tracked expenses by basics vs extras to ensure sufficient coverage for basics by safe assets when we retire.

Very reasonable way to go and it's why pensions and SS can be so valuable.  Having a floor is a huge boon.

  • Like 1
Link to comment
Share on other sites

1 hour ago, stbugs said:

Yes, but there is kind of a false thought that bonds are completely safe. During the financial crisis, bonds got hammered (they don’t drop as much as stocks can). If your plan is to maximize the cash return then bonds can work as long as the plan is to take advantage of equity bear crashes. What we are trying to say is that cash can be better and maybe that’s since your more likely to invest the cash when a crash hits than sell you buns funds.

Which ones?  Intermediate bonds went down ~5%, Long bonds didn't budge.  Munis, corporates, and sovereign bonds got hammered.

A mix of the first three would have gotten one out of 2008 relatively unscathed.

  • Like 1
Link to comment
Share on other sites

4 hours ago, pbm107 said:

I am curious as to why, my situation now is a little different in that I will be relying on a couple pensions for a big chunk of my retirement, but for someone your age this article that @Sand shared a while back makes a lot of sense to me. 

I don’t plan to withdraw the principal to any of the equity portion after retirement. I’ll live off the cash portion plus social security when I get it. When the market is up, I’ll fund cash. When it’s down, I’ll ride things out.  
 

To the article’s point, I could get screwed if I retire right before one of the longest bear markets in U.S. history but I’m a naturally frugal person so I could deal with it if need be.

In the meantime I’m likely to earn significantly more by my high equity position. Overall I view it as worth the risk. Maybe I’ll change my mind at some point but this is what I’m planning for now.

Edited by Juxtatarot
  • Like 3
Link to comment
Share on other sites

35 minutes ago, -OZ- said:

Cash would be the better way to use market timing, sure. 

Honestly I don't keep cash. I do have a margin account at 2% which I'll borrow from if/when the market drops 10%. Not the full amount available, but half at first and then keep buying some as the market drops. I'll limit the loan to 75% the amount available. Yeah that will be risky, but I prefer it to keeping cash on hand. (Again, with a decent fixed income I'm not going to need to sell off low)

Still have way too much cash over here. Part of that is because we will likely get some work done on the outdoor area soonish to add a sunroom. Also want to use some of it to get a new rental unit or two.

Trying to bleed it into the market slowly, just hard with valuations so high.

Edited by Desert_Power
  • Like 1
Link to comment
Share on other sites

10 minutes ago, Desert_Power said:

Still have way too much cash over here. Part of that is because we will likely get some work done on the outdoor area soonish to add a sunroom. Trying to bleed it into the market slowly, just hard with valuations so high.

In this boat also, way cash heavy but having a hard time putting it all in when we are at all time highs.  Keep trying to tell myself that doesn't matter when it keeps climbing....just easier said than done.  Been putting like $3k/month in to eventually get it in there working for me

  • Like 1
Link to comment
Share on other sites

Bonds are useful as they can move inverse to stocks.  In tough economics times when stock are getting hit they typically rally.  2007 and 2008 are a good example (PIMCO total return fund returned 9% in 2007 and 4.82% in 2008).  Not great returns but compared to S&P not bad as S&P was up 3.8% in 2007 and down an eye watering 38% in 2008.  Having a piece of your portfolio in bonds helped to offset those bad S&P years.  Yes, you lose on upside but think worth holding some bonds for divesfication.

I am about 15% allocated to bonds at age 42, which honestly seems a little light but markets have moved so much recently that it is off kilter.  I have actually been investing more new funds into bonds recently (last year about 30% into bonds and probably about the same this year).   I think my ideal risk tolerance is probably 80% stock and 20% bonds at my age.  Most of my bond holdings are in individual muni bonds for tax reasons and govt. bond mutual funds held in 401k and other tax advantaged vehicles.  

I also keep a good six month emercency funds/cash cushion.  I don't count that towards my allocations.  

Edited by Redwes25
Link to comment
Share on other sites

2 hours ago, Sand said:

Which ones?  Intermediate bonds went down ~5%, Long bonds didn't budge.  Munis, corporates, and sovereign bonds got hammered.

A mix of the first three would have gotten one out of 2008 relatively unscathed.

I don’t know bonds well so I used the FTBFX Fidelity total bond fund as an example. The chart is hard to read over 20 years since the true bottoms/tops are smoothed a bit but it looks like it went down 15-20%.

Link to comment
Share on other sites

2 hours ago, -OZ- said:

Cash would be the better way to use market timing, sure. 

Honestly I don't keep cash. I do have a margin account at 2% which I'll borrow from if/when the market drops 10%. Not the full amount available, but half at first and then keep buying some as the market drops. I'll limit the loan to 75% the amount available. Yeah that will be risky, but I prefer it to keeping cash on hand. (Again, with a decent fixed income I'm not going to need to sell off low)

Interesting idea on the margin account. I’ve never used it although it seems like it would have been nice to use when I buying a lot from 10/2019 through 6/2020. I’m pretty aggressive and not too far away from retirement but I’ve avoided real speculation, shorting and leverage.

Link to comment
Share on other sites

43 minutes ago, stbugs said:

I don’t know bonds well so I used the FTBFX Fidelity total bond fund as an example. The chart is hard to read over 20 years since the true bottoms/tops are smoothed a bit but it looks like it went down 15-20%.

It's 40% corporate and 10% mortgage.  That's the part that vomited in '08.  The UST side was pretty stable.

Link to comment
Share on other sites

9 minutes ago, Andrew74 said:

I totally agree with being big in stocks for retirement, but I have to say many of you need to read up about bonds.  

Absolutely. My ignorance is part of the reason I don't do bonds. 

Keeping good cash reserves,  dollar cost averaging into stocks, and not putting anything into the market that you'd be upset about seeing drop 50% all makes sense to me.

But I start looking into bonds and immediately get a confused.

 

  • Like 1
Link to comment
Share on other sites

Just for the record, here is bond performance during SPX bear markets in 07-09 and 2020. Using Bloomberg Barclays index data, cumulative.

Taxable Bonds

Government: 14.36%, 5.29%

Credit: (3.79%), (11.12)

Securitized (mostly MBS): 8.18%, 0.81%

Aggregate: 7.18%, (0.94%)


Munis: 2.41%, (9.39%)

The pandemic was a really unusual bond market, just like everything else   It was a complete outlier vs historical bear market performance   

Off the top of my head, taxable bonds have had two negative calendar years in the last roughly 30 years.  Munis have never lost money two in consecutive years.   Caveat is who knows what the future brings.  

Simplistically you own everything but governments when the market/economy is doing well and only governments when they is a bear/market recession.  Munis are the same - own low quality in good times, but high quality (AA and AAA) when it goes south.  The only time I’d own cash over bonds for a meaningful period of time is if you think we’d be in a stagflationary environment.  

Link to comment
Share on other sites

I'm a big fan of Morningstar and they do a Diversification/Correlation study every year. Here are the key takeaways from the latest one:

 

x Despite the appeal of complex diversification methods that involve highly specialized asset classes, the simplest diversification strategies—such as adding Treasuries to an equity-heavy portfolio—have fared the best.
× Correlations often tend to increase during periods of market stress, making diversification tough to find when investors need it most. This pattern held true in early 2020 as correlations spiked across most asset classes in the coronavirus-driven market downturn.
× Cash and Treasuries continued to excel as portfolio diversifiers, and they held up far better than nearly any other asset class during the market downturn.
× Diversification benefits have been tough to find within the United States and international equity markets, but gold continued to prove its mettle as an excellent diversifier and a haven in times of crisis.
× Over the past 20 years, correlations have edged up for several asset classes, including commodities, corporate bonds, global bonds, high yield, REITs, and Treasury Inflation-Protected Securities. Investors seeking out the benefits of diversification must therefore choose carefully.
× Diversification strategies that worked in the past may not work in the future. Specifically, the past 20 years have been marked by declining interest rates and benign inflation. In a period of equity market weakness precipitated by rising yields, Treasuries and other high-quality bonds may be less reliable diversifiers, particularly given how low their yields are in absolute terms.

 

Their research finds that more and more, Bonds other than Treasuries are becoming more correlated to Equity than they were 20 years ago. HY bonds especially are not really a diversifier at all. 

  • Like 1
Link to comment
Share on other sites

22 hours ago, -OZ- said:

I forget which guy it was, but the point was made a while ago in one of my podcasts that people should have a safety net sufficient to cover basics / necessities, and a riskier portfolio to cover wants / dreams which you could live without. Ever since then I've tracked expenses by basics vs extras to ensure sufficient coverage for basics by safe assets when we retire.

Timely, the retirement answer man gets into this a little today. https://www.rogerwhitney.com/blog/386-retirement-withdrawal-strategies-the-safety-first-approach

More for your reading entertainment: https://www.kitces.com/blog/even-safety-first-retirement-income-strategies-are-probability-based-the-real-distinction-is-risk-transfer-vs-risk-retention/

  • Like 1
Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Restore formatting

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

  • Recently Browsing   0 members

    No registered users viewing this page.

×
  • Create New...