IRA Question

[Special K]

Originally posted by: Beattie

Originally posted by: hiromizu

Originally posted by: Special K

Originally posted by: Beattie

Originally posted by: mariok2006
FWIW, I suggest the VFIFX 2050 Target Retirement fund. Low expense ratio and well diversified. Just set it and forget it.

These targetted funds are pretty terrible.

Why do you say that?

Yea..please inform me ol' wise one.

For 2 reasons. First they use junk like bonds that underperform. Second they don't let you control what you are investing in. If you just bought the components of that type of fund, you'd be able to not buy the crap that underperforms and just stick to the good mutual funds and stuff.

That VFIFX fund for example only (aside from the fact that it doesn't have a long enough history to invest any long term money in to begin with) yielded like 1% a year. It also lost 2.93% ytd. You should be making closer to 12% every year.

http://quicktake.morningstar.c...untry=USA&Symbol=VFIFX

If you look at the Target Retirement 2050 fund using Morningstar Xray, it is only holding 9.85% bonds, and that is made up of Vanguard's Total Bond Market Index fund. If you look at the holdings of the Total Bond Market index fund, here is the credit rating profile:

Aaa 79.5%
Aa 5.4%
A 8.1%
Baa 6.9%
< Baa 0.1%

That doesn't look like a junk bond fund to me. Are you saying that the 9.85% of the portfolio that holds bonds is dragging down the returns of the entire fund?

Also, your statement about earning 12% per year is dubious. Do you honestly expect to make 12% every single year? The long term historical average for stocks is ~10%, but that does not mean each individual year returns 10%. The results are much more volatile than that.

 

[Beattie]

Originally posted by: Special K

Originally posted by: Beattie
For 2 reasons. First they use junk like bonds that underperform. Second they don't let you control what you are investing in. If you just bought the components of that type of fund, you'd be able to not buy the crap that underperforms and just stick to the good mutual funds and stuff.

That VFIFX fund for example only (aside from the fact that it doesn't have a long enough history to invest any long term money in to begin with) yielded like 1% a year. It also lost 2.93% ytd. You should be making closer to 12% every year.

http://quicktake.morningstar.c...untry=USA&Symbol=VFIFX

If you look at the Target Retirement 2050 fund using Morningstar Xray, it is only holding 9.85% bonds, and that is made up of Vanguard's Total Bond Market Index fund. If you look at the holdings of the Total Bond Market index fund, here is the credit rating profile:

Aaa 79.5%
Aa 5.4%
A 8.1%
Baa 6.9%
< Baa 0.1%

That doesn't look like a junk bond fund to me. Are you saying that the 9.85% of the portfolio that holds bonds is dragging down the returns of the entire fund?

Also, your statement about earning 12% per year is dubious. Do you honestly expect to make 12% every single year? The long term historical average for stocks is ~10%, but that does not mean each individual year returns 10%. The results are much more volatile than that.

I didn't say "junk bonds" I said, "junk like bonds" as in all bonds are junk for individual long term investing like you should be doing for retirement. Also, the stock market has made closer to 11.8% over it's lifetime, so yes averaging 12% is accurate. You are right however that the market hasn't been doing quite as well recently as it was before so if the growth is lower, that's expected. Losing almost 3% though is pretty bad.

Look, invest however you want but I truly believe that retirement investing is long term and that investing almost entirely in growth and aggressive growth funds over 20, 30, 40 or more years is completely safe and will give you the best return on your money.

 

[Special K]

Originally posted by: Beattie

Originally posted by: Special K

Originally posted by: Beattie
For 2 reasons. First they use junk like bonds that underperform. Second they don't let you control what you are investing in. If you just bought the components of that type of fund, you'd be able to not buy the crap that underperforms and just stick to the good mutual funds and stuff.

That VFIFX fund for example only (aside from the fact that it doesn't have a long enough history to invest any long term money in to begin with) yielded like 1% a year. It also lost 2.93% ytd. You should be making closer to 12% every year.

http://quicktake.morningstar.c...untry=USA&Symbol=VFIFX

If you look at the Target Retirement 2050 fund using Morningstar Xray, it is only holding 9.85% bonds, and that is made up of Vanguard's Total Bond Market Index fund. If you look at the holdings of the Total Bond Market index fund, here is the credit rating profile:

Aaa 79.5%
Aa 5.4%
A 8.1%
Baa 6.9%
< Baa 0.1%

That doesn't look like a junk bond fund to me. Are you saying that the 9.85% of the portfolio that holds bonds is dragging down the returns of the entire fund?

Also, your statement about earning 12% per year is dubious. Do you honestly expect to make 12% every single year? The long term historical average for stocks is ~10%, but that does not mean each individual year returns 10%. The results are much more volatile than that.

I didn't say "junk bonds" I said, "junk like bonds" as in all bonds are junk for individual long term investing like you should be doing for retirement. Also, the stock market has made closer to 11.8% over it's lifetime, so yes averaging 12% is accurate. You are right however that the market hasn't been doing quite as well recently as it was before so if the growth is lower, that's expected. Losing almost 3% though is pretty bad.

Look, invest however you want but I truly believe that retirement investing is long term and that investing almost entirely in growth and aggressive growth funds over 20, 30, 40 or more years is completely safe and will give you the best return on your money.

I see what you are saying now. I agree that bonds are a drag on long-term returns, and young people probably shouldn't have too high an allocation of bonds in their portfolio. It will make your portfolio more volatile, but that's not a big deal if you don't need the money for 40 years. For investors who are not near retirement, I think bonds only serve to calm people's nerves when the markets aren't doing so well, at the expense of sacrificing long-term returns.

On the other hand, some people claim that adding 10% bonds to a portfolio decreases the volatility significantly, yet has only a negligible impact on long-term returns. I am not sure if they are accurate or not. I know that adding more volatility to a portfolio does not automatically increase it's rate of return, but all of the scatter charts I have seen only examined the risk/return tradeoff of various style weightingings of stocks - i.e., the overall portfolio was still 100% stocks, and they did not examine the impact of bonds on the portfolio's return and volatility.

Even still though, the target retirement fund is only holding ~10% bonds, which isn't *that* high. Plus, each individual Vanguard fund has a minimum investment of at least $3000. Someone just starting out would most likely have to start with a Vanguard Target Retirement fund before they would accumulate enough money in their portfolio to buy each of the funds individually.

 

[IHateMyJob2004]

Roth-IRA

Buy S&P 500 index fund

Or better yet, but BRK-B if hte funds are sufficient.

 

[DaveSimmons]

Originally posted by: Beattie

Originally posted by: Beattie
These targetted funds are pretty terrible.

For 2 reasons. First they use junk like bonds that underperform. Second they don't let you control what you are investing in. If you just bought the components of that type of fund, you'd be able to not buy the crap that underperforms and just stick to the good mutual funds and stuff.

That VFIFX fund for example only (aside from the fact that it doesn't have a long enough history to invest any long term money in to begin with) yielded like 1% a year. It also lost 2.93% ytd. You should be making closer to 12% every year.

http://quicktake.morningstar.c...untry=USA&Symbol=VFIFX

You do realize the market is down in general this year? (Good) Index funds follow their markets which means some short-term dips but long-term performance that's usually better than that of stock-picker active funds.

All of the funds in Target xxx are index funds worth having, with the possible exception of the bond fund. Yes, if you have $15,000+ to start you can buy VFINX, VEXMX, VEURX, VEIEX, etc. separately and control the ratios a bit better, but
a) most people in ATOT don't have that much to start
b) that takes several years in a Roth IRA

Older investors can also reduce the amount of bond fund shares by picking a year that's after when you'll really retire, such as 2050 when you'll retire in 2035. Unfortunately they only offer up to 2050 so the OP can't do this.