Discussion in 'Finance, Investments, and Careers' started by AZCB34, Apr 2, 2019.
If you’re in a target date fund you are diversified.
Agreed. The year selected might not even be beat for you depending on the target date fund. They are not all the same in terms of their asset allocation. For instance at age 65 (normal retirement age) so have 50% still invested in equities while others might only have 10%. Both are diversified, but with very different philosophies.
I mean diversifying further and places some money in more aggressive stock for now. I am only 36.
I wish I had been taught more about investing/retirement planning/personal finance when I was younger. I have been catching up in knowledge the past few years.
It wasn’t until joining this board and BIM introducing me to Dave Ramsey that I finally began to learn more about taking control of my finances, in terms of debt reduction.
When I first started my big-girl job out of college, an old timer talked to me about deferred compensation (457 plan) my company offered and told me to do it (on top of the mandatory retirement they take out automatically). I only threw in 25 bucks a paycheck in the beginning and slowly started to add more and now that I am 13 years into my career, it’s added up nicely. Wish I had put it in more when I was in my 20s, though. Time is so critical to this stuff and you wish you could go back to your younger days with the knowledge you have now.
I am a huge fan of index funds and that’s basically what my deferred comp is made up of (large cap, mid cap, small cap, international and some bonds). I am starting to read more by Jack Bogle (rip) and lurk on the boglehead forums. I also like to frequent reddit and go into their personalfinance and financialindependence forums. I also follow some personal finance blogs.
I threw in a couple hundred bucks with the Robinhood app just to try out some stocks. That stuff is a bit scary though haha so I haven’t added anymore money to it until I really feel comfortable.
I don’t want to be 65 and have nothing to fall back on.
While you clearly aren't doing much with individual stocks, my recommendation is to stick with your gameplan of index funds and avoid playing the stock game. I world rather hit for average instead of a homer and 3 strikeouts. Don't let that homerun delude you into thinking you can crush major league pitching.
I am sure you won't but I have seen too many people convince themselves they could pick stocks only to get crushed.
Oh definitely. Index funds is my game plan for sure. I’m perfectly fine hitting for average haha.
I get it but be careful. The target date fund (TDF) that you choose (or in which you may have been defaulted) should have represented your projected retirement date, and as a result it should already be pretty aggressive. It’s entirely possibly you want it to be more aggressive - and that’s obviously your prerogative. But the TDF is an asset allocation that’s being professionally managed and based upon a ton of research (albeit managing to the “average”). So investing alongside throws off that research and in some way negates the professional management. But as long as your eyes are open and you understand your TDF then doing some supplemental investing might benefit you.
Yup stocks are difficult even for professional money managers. That said if you’ve got a good advisor that uses institutional level analytics you may be able to find some value with actively managed mutual funds. As 34 said, you’re looking for consistency, not homeruns. While the index funds will give you market returns a skillful active manager should give you the experience of a .300 hitter. Lots of singles like an index but with a few more doubles sprinkled in.
I actually subscribe to Motley Fool Stock advisor. I made a killing via them the last few years but I realize that's becaues the market was going way up. The stocks I was in were mostly "growth" stocks which tend to do better in that sort of market. So I outperformed indexes and "safe" stocks but got out as soon as the market started to turn on the advice of my tehn brand new advisor from Fidelity. She basically said, you've done really well these last 2 years, i don't want you to lose that so get out of those stocks and into something safer. Because I had not been working I sold the stocks took the profits knowing I had low income that year and put it into a money market. I'm back in the market now with some of it but with index funds mostly. To be honest had I not sold some of those stocks are ahead of what I sold at, but most of them had sharp declines and have not yet recovered.
I felt like Motley Fool was really good in an up market but wasn't going to bet the farm on them in a down market.
At the end of the day if stock picking was easy everyone would be doing it so I'm not going to try. I figure I did quite well for awhile and probably got quite a bit lucky so quit while I'm ahead
Smart thinking. Stock picking is incredibly incredibly difficult.
Agreed. Target date funds are great for most common investors who don't spend their time in the markets. They will give you a broad market asset allocation that will give you a good amount of hedging (bonds) against risk assets during market downturns ...like the one we are likely to experience here soon. Imo. John Bogle had a great way of passive investing for 401ks... (Or investing in general) and that was to have your age in bonds. Ex. 40 yr old would carry 60/40 stock to bond ratio. This ensures you become less risky as catch up time decreases.
One thing that's been particularly frustrating for me in my portfolios is how much international equities have been dragging down my performance. It's really tough justifying keeping the exposure while international keeps causing me to underperform common US market benchmarks.
This chart illustrates why it's important to have international exposure, but you can see that since 2009 US equities have reigned supreme. InternationaI is definitely due for a run, and it did outperform in 2017. However, in 2018 and so far in 2019 international has lagged the US.
Most aggressive allocation funds or target dates funds that are not near the target year have 30% or more in international stocks so over the last decade many people's retirement accounts have significantly underperformed the S&P 500 if they used those types of managed products.
Has anybody scrapped international or paired down in their retirement accounts?
I'm sitting at about 20% international in my 401K and 25% in my Roth and both are 100% equities. (I'm 36 for perspective).
I totally **** canned my international holdings about 3 years ago in my 401K. I am in an Index fund, two growth funds and a small cap stock fund now. I ditched real estate holdings as well back then.
I think at your age, being really aggressive isn't a bad thing, which to me eliminates international exposure.
A couple of items of clarification:
You list “index fund” as if it’s a different asset class from “growth funds” or a “small cap stock.” An index fund is a different investment philosophy (passive market return verses attempts at active outperformance). So depending on the fund, an index could be a growth fund or small cap.
Also, international equity is the most aggressive of the broad asset classes. If someone has a long time horizon until retirement or wants to be aggressive historically they should likely be invested more heavily in international equity. It might seem counterintuitive but with the long bear market for international equities means at present you’re buying those stocks at a steep discount. And the reason you stay invested through all market cycles (again with a lengthier time horizon) is dollar cost averaging - you’re buying at different prices points which on average should result in a lower total cost than is likely compared to buying when the investment is in favor.
I largely agree with you. However, I would differentiate international into developed and emerging when saying that international is more aggressive than US.
I know you know the difference so the following is mainly for others. I wouldn't classify developed international which contains companies largely from Japan, UK, Canada, France, Germany and other developed countries as more aggressive than US equities.
Now emerging international, commonly referred to as emerging markets are much more aggressive with exposure to China, India, Russia, and Brazil.
I'm torn on whether total international is more aggressive than total US. They have very similar betas.
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