My 401K........how much to invest yearly?

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edro

Lifer
Apr 5, 2002
24,326
68
91
I just went to a Merill Lynch retirement seminar at work the other day.

The adviser there told everyone that if they don't have a Roth IRA, they should do their 401k only to the matching point, and put the rest in a Roth.

He said that we do not know the tax situation when you retire, so your 401K and Roth IRA should be about the same level.

I wish our company did a Roth IRA match.
 

BigJelly

Golden Member
Mar 7, 2002
1,717
0
0
Originally posted by: edro
I just went to a Merill Lynch retirement seminar at work the other day.

The adviser there told everyone that if they don't have a Roth IRA, they should do their 401k only to the matching point, and put the rest in a Roth.

He said that we do not know the tax situation when you retire, so your 401K and Roth IRA should be about the same level.

I wish our company did a Roth IRA match.

wouldn't that defeat the purpose of the Roth IRA ;)
 

imported_Lothar

Diamond Member
Aug 10, 2006
4,559
1
0
Originally posted by: Special K
I read a good rule of thumb was 120 - age as a percentage invested in stocks for someone who is young and looking to take on a fair amount of risk, so I guess I could have 96% in stocks?

Forget that nonsense formula.
The formula recommended by Benjamin Graham(and also recommended by Warren Buffet) is 75% stocks:25% bonds. Never have less than 25% in one component, but you can change (ex to 60:40, 50:50, or even 25:75) when market conditions require it.

Personally, I would never be in more than 85% stocks.
90% is pushing it.
 

Special K

Diamond Member
Jun 18, 2000
7,098
0
76
Originally posted by: Lothar
Originally posted by: Special K
I read a good rule of thumb was 120 - age as a percentage invested in stocks for someone who is young and looking to take on a fair amount of risk, so I guess I could have 96% in stocks?

Forget that nonsense formula.
The formula recommended by Benjamin Graham(and also recommended by Warren Buffet) is 75% stocks:25% bonds. Never have less than 25% in one component, but you can change (ex to 60:40, 50:50, or even 25:75) when market conditions require it.

Personally, I would never be in more than 85% stocks.
90% is pushing it.

Are you sure having that much % in bonds is good for someone so young? I found this thread at FW link and of all the young people that posted, I think the highest % of bonds was 15%, and the lowest was about 2%. I'm not saying your advice is necessarily bad, just that there's so many different strategies out there and it's hard for a beginner to decide which one to go with.

FWIW, that "120 - age" formula was taken out of Investing for Dummies by Eric Tyson.
 

alrocky

Golden Member
Jan 22, 2001
1,771
0
0
Originally posted by: edro
I just went to a Merill Lynch retirement seminar at work the other day. The adviser there told everyone that if they don't have a Roth IRA, they should do their 401k only to the matching point, and put the rest in a Roth.

He said that we do not know the tax situation when you retire, so your 401K and Roth IRA should be about the same level.
You may invest at much as $15,500 and $4,000 in a 401(k) and an IRA respectively for 2007. By following his suggestion you're limiting your 401(k) to only $4,000. Regardless of your future tax situation [regarding a 401(k) vs a ROTH IRA] it is to your advantage to defer as much income as possible. The advisor gave pretty piss poor information.

I'm afraid to ask what other tidbits he gave that passed as financial advice.

--- edit: typo

 

alrocky

Golden Member
Jan 22, 2001
1,771
0
0
Originally posted by: Special K
there's so many different strategies out there and it's hard for a beginner to decide which one to go with.
suggested max equity exposure
Max Equity Exposure....... Max loss
20%.......................................5%
30%.....................................10%
40%.....................................15%
50%.....................................20%
60%.....................................25%
70%.....................................30%
80%.................................... 35%
90%.................................... 40%
100%........................... ...... 50%
Data provided by Author Larry Swedroe on Morningstar's Vanguard Diehard's Forum

1970-2006 Stock:Bonds ratio and market drop
compare the worst month, year, 2 year, 3 year & 5 year period for each 10% stock increment - the higher the percentage of stock you held, the greater your portfolio balance dropped for each "worst" period.

Vanguard Stock:Bonds returns charts

R. Ferri on Asset Allocation
A look back in history shows that most Americans handle stock market risk well, right? Wrong! Most people fold under pressure and bail out of bear markets. A majority of long-term investors duck and run during a prolonged market crisis. Most individual investors sold stocks during the crash of 1929, the deep bear market of 1973-74, and again on Black Monday in 1987. Despite a lot of brave talk, the fact is Joe and Jane average investor cannot handle a lot of financial risk. The next prolonged bear market will not be different.
 

imported_Lothar

Diamond Member
Aug 10, 2006
4,559
1
0
Originally posted by: Special K
Originally posted by: Lothar
Originally posted by: Special K
I read a good rule of thumb was 120 - age as a percentage invested in stocks for someone who is young and looking to take on a fair amount of risk, so I guess I could have 96% in stocks?

Forget that nonsense formula.
The formula recommended by Benjamin Graham(and also recommended by Warren Buffet) is 75% stocks:25% bonds. Never have less than 25% in one component, but you can change (ex to 60:40, 50:50, or even 25:75) when market conditions require it.

Personally, I would never be in more than 85% stocks.
90% is pushing it.

Are you sure having that much % in bonds is good for someone so young? I found this thread at FW link and of all the young people that posted, I think the highest % of bonds was 15%, and the lowest was about 2%. I'm not saying your advice is necessarily bad, just that there's so many different strategies out there and it's hard for a beginner to decide which one to go with.

FWIW, that "120 - age" formula was taken out of Investing for Dummies by Eric Tyson.

And there in lies the problem.
Benjamin Graham and Warren Buffet are credible voices on Wall Street.
Eric Tyson is not.

Read "The Intelligent Investor".
http://www.amazon.com/Intellig...&qid=1185594083&sr=1-1
 

alrocky

Golden Member
Jan 22, 2001
1,771
0
0
Originally posted by: Lothar
Read "The Intelligent Investor".
http://www.amazon.com/Intellig...&qid=1185594083&sr=1-1

The Intelligent Investor with Jason Zweig's Commentary on Chapter 4, starting page 101:

"basic decision is how much to put in stocks and how much to put in bonds and cash... Graham... never mentions the word "age." Many people stop investing precisely because the stock market goes down. Psychologist have shown that most of us do a very poor job of predicting today how we will feel about an emotionally charged event in the future... it's hard to resist bailing out into the "safety" of bonds and cash. Instead of buying low and holding their stocks, many people end up buying high and selling low, and holding nothing but their own head in their hands. Because so few investors have the guts to cling to stocks in a falling market, Graham insists... a minimun of 25% bonds.

Why not 100% Stocks? For a tiny minority of investors a 100% stock portfolio may make sense... if you:... [JZ then lists those criteria] Anyone who paniced in the last bear market is going to panic in the next one-and will regret having no cushion of cash and bonds."

See also JZ's Commentary on Chapter 8 starting page 213.

---

Bernstein's The Four Pillars of Investing
Malkiel's A Random Walk Down Wall Street
Ferri's All About Asset Allocation
Belsky & Gilovich Why Smart People Make Big Money Mistakes


From W. Bernstein's The Four Pillars of Investing:

Market Crash --- Bull Market
Good ................ Bad ....... Young Saver
Bad .................. Good ...... Retiree

"A young person saving for retirement should get down on his knees and pray for a market crash, so he can purchase his nest egg at fire sale prices."

 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Personally, I put in 15.5k/yr + 50% employer matching. I am 100% stocks and will be until I am 10 yrs from retirement, then I'll step down ~5% per year. It's stupid to invest in bonds, they are a portfolio drag on long-term investing. I am a complete buy/hold guy unless I see a major drop coming, I get out of equities, move into stable investments, then rebuy after what I think is the bottom. It's worked pretty well for me over the last 7 years, averaging a 15% annual net return.

People forget that as long as you can buy and hold and not worry about crashes you can wait out any temporary economic cycle. Time is a diversification technique that works as a perfect compliment to diversification itself. I have yet to see a solid unrefuted study that shows that over a 30 year period a portfolio of stocks/bonds is better than straight stocks. I have only seen evidence to the contrary.
 

Special K

Diamond Member
Jun 18, 2000
7,098
0
76
Originally posted by: LegendKiller
Personally, I put in 15.5k/yr + 50% employer matching. I am 100% stocks and will be until I am 10 yrs from retirement, then I'll step down ~5% per year. It's stupid to invest in bonds, they are a portfolio drag on long-term investing. I am a complete buy/hold guy unless I see a major drop coming, I get out of equities, move into stable investments, then rebuy after what I think is the bottom. It's worked pretty well for me over the last 7 years, averaging a 15% annual net return.

People forget that as long as you can buy and hold and not worry about crashes you can wait out any temporary economic cycle. Time is a diversification technique that works as a perfect compliment to diversification itself. I have yet to see a solid unrefuted study that shows that over a 30 year period a portfolio of stocks/bonds is better than straight stocks. I have only seen evidence to the contrary.

That link that alrocky posted makes it seem as though combining 20% bonds with 80% stocks leads to lower drops when the market is down (compared to 100% stocks) with only a very slight drop in returns:

link

I'm not saying it's correct, just another example of how much conflicting advice there is out there :confused:
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: Special K
Originally posted by: LegendKiller
Personally, I put in 15.5k/yr + 50% employer matching. I am 100% stocks and will be until I am 10 yrs from retirement, then I'll step down ~5% per year. It's stupid to invest in bonds, they are a portfolio drag on long-term investing. I am a complete buy/hold guy unless I see a major drop coming, I get out of equities, move into stable investments, then rebuy after what I think is the bottom. It's worked pretty well for me over the last 7 years, averaging a 15% annual net return.

People forget that as long as you can buy and hold and not worry about crashes you can wait out any temporary economic cycle. Time is a diversification technique that works as a perfect compliment to diversification itself. I have yet to see a solid unrefuted study that shows that over a 30 year period a portfolio of stocks/bonds is better than straight stocks. I have only seen evidence to the contrary.

That link that alrocky posted makes it seem as though combining 20% bonds with 80% stocks leads to lower drops when the market is down (compared to 100% stocks) with only a very slight drop in returns:

link

I'm not saying it's correct, just another example of how much conflicting advice there is out there :confused:

Naturally you're going to lose less during a down market, as your bonds provide solid footing for a portfolio. However, who gives a crap? I don't look at my 401k weekly and say "OMG, I JUST LOST $500! QUICK, RUN TO BONDS!"

Over the long run, once you consider *all* aspects of returns, including waiting out all economic cycles, stocks will always return higher returns. Beta is a function of short-term volatility of a stock compared to the market. Unsystematic risk is reduced through diversification, leaving systematic risk. That risk is eliminated through long-term inter-cyclical investing.

I don't know one guy I work with who is long bonds in their normal portfolio unless they see a large market correction on the horizon.
 

Special K

Diamond Member
Jun 18, 2000
7,098
0
76
Originally posted by: alrocky
Special K,

(FUSEX) 0.09% LB - Spartan US Equity Index
(PSVIX) 0.86% SG - Allianz NFJ Small-Cap Value
(BIIEX) 1.12% F-LV - Brandes Institutional International
(WATFX) 0.47% bond - Western Asset Core Bond

(VEXMX) 0.25% MB - Vanguard Extended Market Index
(NAESX) 0.23% SB - Vanguard Small-Cap Index
(VISVX) 0.23% SV - Vanguard Small-Cap Value Index

(VGTSX) 0.32% F-LB - Vanguard Total International Stock Index
(VFWIX) 0.40% F-LB - Vanguard FTSE All-World ex-US Index

(VBMFX) 0.20% bond - Vanguard Total Bond Market Index

----

(FUSEX) - 50%
(PSVIX) - 15%
(BIIEX) - 25%
(WATFX) - 10%

A rough percentage allocation if you want 4 funds in your 401(k). Also listed are Vanguard funds for your ROTH IRA which would replace PSVIX or BIIEX. (PSVIX and BIIEX appear to be your best choices within your 401(k) for small cap and foreign, but if you're opening a ROTH IRA, you can replace one of them; one of the three Vanguard funds for small cap or either of the two for foreign.) Note the expense ratios of the Vanguard funds are quite low. Suggest you post your choices at the diehards.org forum and ask for their recommendation. FUSEX is the only fund that I can strongly suggest you get for your 401(k).

A good rule of thumb is to save and invest as much as you can - you'll thank yourself at retirement!

I actually logged into my Fidelity account today and noticed that one of the fund choices is different from what the printed booklet said. That Duncan-Hurst fund has been replaced with the Vanguard Small Cap Growth Index Instl (VSGIX). The expense ratio is only 0.08%. Do think that would make a good addition to the sample spread you listed above?
 

ebaycj

Diamond Member
Mar 9, 2002
5,418
0
0
Originally posted by: vi_edit
General opinion is to max out your match on your 401k, then max out your Roth IRA. If you still have money left over, go back and add more to your 401k.

nah, it's best to do the following

1. Max your match on Roth 401k (if it is available and your company matches roth401k funds)
2. Max your match on 401k.
3. Max your Roth IRA.
4. Max your Roth 401k (if you have it available to you)
5. Max your 401k.

 

Orsorum

Lifer
Dec 26, 2001
27,631
5
81
Originally posted by: Jadow
Originally posted by: SSSnail
Quick question, do I have to pay any taxes if I withdraw the retirements from another country? Will I run into any problems withdrawing it?

In a 401k you will need to pay regular income taxes on your withdrawls. Any accounts wiht "Roth" in front of them you won't. You can't avoid the taxes just be moving out of the country, or every retiree would do it!

That's not entirely true. If you have a company match on a Roth 401(k) contribution the company match WILL be taxed as OI when you pull it out.
 

Orsorum

Lifer
Dec 26, 2001
27,631
5
81
Originally posted by: Reel
To throw another cog into this thread, can you please comment on Roth 401(k) options (in reference to investment orders)? That is something available to me now that I switched jobs. I have traditionally done up to match in 401(k) then max Roth. Does this change things?

Also, is the match on Roth 401(k) a lower cash amount in the account since they are matching an after tax value?

Thanks. :)

My employer matches the percentage of base salary, regardless of type of account. You're still going to get taxed on their contribution when it's withdrawn.
 

imported_Lothar

Diamond Member
Aug 10, 2006
4,559
1
0
Originally posted by: LegendKiller
Personally, I put in 15.5k/yr + 50% employer matching. I am 100% stocks and will be until I am 10 yrs from retirement, then I'll step down ~5% per year. It's stupid to invest in bonds, they are a portfolio drag on long-term investing. I am a complete buy/hold guy unless I see a major drop coming, I get out of equities, move into stable investments, then rebuy after what I think is the bottom. It's worked pretty well for me over the last 7 years, averaging a 15% annual net return.

People forget that as long as you can buy and hold and not worry about crashes you can wait out any temporary economic cycle. Time is a diversification technique that works as a perfect compliment to diversification itself. I have yet to see a solid unrefuted study that shows that over a 30 year period a portfolio of stocks/bonds is better than straight stocks. I have only seen evidence to the contrary.

The golden rule "never put all your eggs in one basket" applies here.

We can all say stories of our successes but I'm quite sure many who entered the 2000 bear market with 100% stocks haven't recovered.
Sun Microsystems was $38.72 in 12/31/99...the stock is still sitting at $5-6 today. How long more should those people keep holding in hoping it would reach it's $35+ price?
Cisco, VA linux, Juno, Qualcomm, and many more among them.

Everyone suggests buy low, sell high.
In reality most people end up buying high and selling low.

Studies have shown that MOST people(except maybe yourself and a tiny minority of principled investors) hit the "sell" trigger button during a bear market, and push the "buy" trigger button during a bull market.

I would never recommend to anyone who hasn't survived a bear market to go in with 100% stocks.

I also see no reason why "age" should determine how much risk one should take.

BTW...I know people who are in 85/90% stock:15/10% bond ratio and they still beat your 15% average returns over 7 years. Clamoring about your returns and claiming that it's been working pretty well for you proves nothing here.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: Lothar
Originally posted by: LegendKiller
Personally, I put in 15.5k/yr + 50% employer matching. I am 100% stocks and will be until I am 10 yrs from retirement, then I'll step down ~5% per year. It's stupid to invest in bonds, they are a portfolio drag on long-term investing. I am a complete buy/hold guy unless I see a major drop coming, I get out of equities, move into stable investments, then rebuy after what I think is the bottom. It's worked pretty well for me over the last 7 years, averaging a 15% annual net return.

People forget that as long as you can buy and hold and not worry about crashes you can wait out any temporary economic cycle. Time is a diversification technique that works as a perfect compliment to diversification itself. I have yet to see a solid unrefuted study that shows that over a 30 year period a portfolio of stocks/bonds is better than straight stocks. I have only seen evidence to the contrary.

The golden rule "never put all your eggs in one basket" applies here.

We can all say stories of our successes but I'm quite sure many who entered the 2000 bear market with 100% stocks haven't recovered.
Sun Microsystems was $38.72 in 12/31/99...the stock is still sitting at $5-6 today. How long more should those people keep holding in hoping it would reach it's $35+ price?
Cisco, VA linux, Juno, Qualcomm, and many more among them.

Everyone suggests buy low, sell high.
In reality most people end up buying high and selling low.

Studies have shown that MOST people(except maybe yourself and a tiny minority of principled investors) hit the "sell" trigger button during a bear market, and push the "buy" trigger button during a bull market.

I would never recommend to anyone who hasn't survived a bear market to go in with 100% stocks.

I also see no reason why "age" should determine how much risk one should take.

BTW...I know people who are in 85/90% stock:15/10% bond ratio and they still beat your 15% average returns over 7 years. Clamoring about your returns and claiming that it's been working pretty well for you proves nothing here.

1. When using diversified funds with low expense ratios you aren't putting all of your eggs in one basket, considering your buying hundreds of stocks that couldn't be further from the truth. I don't *ever* recommend buying individual securities for anybody but the most experienced investor. The portfolio effect and large numbers will negate any stinkers and the long-run nature of buy and hold will ensure that you ride out any cyclical events. The returns of a 100% stock fund with a buy and hold strategy will always be superior to bonds in the long run, always.

2. Which is why I always recommend that they do buy and hold and not sell. Notice that? Education is the key.

3. Age plays a key factor in all investment decisions. How could you possibly say otherwise? There is not one investment professional tool I have seen that doesn't consider time and the value of it in compounding returns and setting investment horizons, decisions, and terminal value needed. In the CFA exams writing the horizon and the different periods an investor goes through throughout their life is key to determining risk and return needed to meet expectations. Not only that but it is essential to set risk tolerances of the investor, naturally when you get closer to retirement you want less risk, thus you switch more to bonds as time goes on to preserve principal. I cannot see how you are even giving investment advice if you don't know this. It's a focal point of any financial professional education.

4. Sure, others can beat my return, but for my Sharpe Ratio I am quite content with my return. I don't go balls to the wall and I invest carefully with my funds. I think 15% is pretty fricking good for the risk in my portfolio, especially considering that I hold no bonds at all.

Sometimes my return is more, sometimes less, I adjust to different events and achieve a decent long-term return and I have been doing that for the past 5 years.
 

child of wonder

Diamond Member
Aug 31, 2006
8,307
176
106
My wife and I currently put 10% into our 401ks. Her job matches 50% up to 3% and my job is 50% up to 4%. So 14% of my income and 13% of hers is going into retirement (including the company matches).

We're hoping to lower those to simply meet what our companies will match and then max out a Roth IRA. Our hope is for me to unofficially retire at 59 but still do some consulting work (10 hours a week or so) and let my investments grow for another 4.5 years until my wife turns 59.5. Then we'll both completely stop working.

From what I've heard the best advice is to max your company's match on 401k, then max out a Roth IRA, then put whatever else you can into 401k. The younger you can start, the better.

"There is no power greater in the universe than compound interest."
 

imported_Lothar

Diamond Member
Aug 10, 2006
4,559
1
0
Originally posted by: LegendKiller
3. Age plays a key factor in all investment decisions. How could you possibly say otherwise? There is not one investment professional tool I have seen that doesn't consider time and the value of it in compounding returns and setting investment horizons, decisions, and terminal value needed. In the CFA exams writing the horizon and the different periods an investor goes through throughout their life is key to determining risk and return needed to meet expectations. Not only that but it is essential to set risk tolerances of the investor, naturally when you get closer to retirement you want less risk, thus you switch more to bonds as time goes on to preserve principal. I cannot see how you are even giving investment advice if you don't know this. It's a focal point of any financial professional education.

Your conditions determine how much risk you can take, not your age.

An 89 year old with $3 million, an ample pension, and a gaggle of grandchildren would be an idiot to move most of her money into bonds. She already has plenty of income and her grandchildren (who will eventually inherit her stocks) have decades of investing ahead of them.

Likewise, a 25 year old who is saving for his wedding and a house down payment would be foolish to dump all his money in stocks.
Any financial professional giving that kind of advice should find another profession.

Once again, age makes no absolute difference.
You determine how much risk you can take yourself based on your well being(ex: living in pensions, rolling in it, lots of responsibilities etc...), not by "120-age" fake mathematics.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: Lothar
Originally posted by: LegendKiller
3. Age plays a key factor in all investment decisions. How could you possibly say otherwise? There is not one investment professional tool I have seen that doesn't consider time and the value of it in compounding returns and setting investment horizons, decisions, and terminal value needed. In the CFA exams writing the horizon and the different periods an investor goes through throughout their life is key to determining risk and return needed to meet expectations. Not only that but it is essential to set risk tolerances of the investor, naturally when you get closer to retirement you want less risk, thus you switch more to bonds as time goes on to preserve principal. I cannot see how you are even giving investment advice if you don't know this. It's a focal point of any financial professional education.

Your conditions determine how much risk you can take, not your age.

An 89 year old with $3 million, an ample pension, and a gaggle of grandchildren would be an idiot to move most of her money into bonds. She already has plenty of income and her grandchildren (who will eventually inherit her stocks) have decades of investing ahead of them.

Likewise, a 25 year old who is saving for his wedding and a house down payment would be foolish to dump all his money in stocks.
Any financial professional giving that kind of advice should find another profession.

Once again, age makes no absolute difference.
You determine how much risk you can take yourself based on your well being(ex: living in pensions, rolling in it, lots of responsibilities etc...), not by "120-age" fake mathematics.

It all depends on what the 89 year old wants to do? Principal protection? Wealth accumulation? Maximum Return? All questions that can and will result in different investment strategies, this isn't an on/off switch, it's a rational formulation of a strategy, something you seem to not understand. I can think of at least 4 different reasons why that person would be long bonds.

How would a 25 year old, that could be as far as 35-years from retirement, not benefit from 100% stocks? That's at least 3 economic cycles that they could weather in a buy/hold strategy that would garner maximum returns. If they were using some of their accumulated wealth to purchase that house then even bonds would be foolish, as the comission rates on purchasing bonds can be outrageous. I have 8 CFA charterholders in my group, every fricking one of them is 100% stocks (even a 48 year old), Why? Because they are investment professionals and they realize that diluting your portfolio for short-term volatility protection while diluting your return is not just the wrong decision, but it's plain stupid. What's ironic is my group sells bonds and deals with the debt side of things all day, every day. Yet, not one would consider going long bonds. I guess we all should leave our profession then, because naturally, somebody like you knows much more than people who actually work in this area.

Age makes a significant difference in determining the timeframe in which the person can weather economic cycles. If you can sustain short-term cyclical hits to your portfolio on a buy/hold strategy to gain maximum returns in equities, then you should do so. I have yet to see one study that disagrees with this and intellectually it's a correct conclusion. Of course age isn't the *only* consideration in the investment decision, the uses and sources, different investment stages, types of income...etc are very important. However, age (and estimated retirement) is still one of the most important factors in determining an investment horizon.If you have anything to the contrary, please present it.

 

imported_Lothar

Diamond Member
Aug 10, 2006
4,559
1
0
Originally posted by: LegendKiller
It all depends on what the 89 year old wants to do? Principal protection? Wealth accumulation? Maximum Return? All questions that can and will result in different investment strategies, this isn't an on/off switch, it's a rational formulation of a strategy, something you seem to not understand. I can think of at least 4 different reasons why that person would be long bonds.

How would a 25 year old, that could be as far as 35-years from retirement, not benefit from 100% stocks? That's at least 3 economic cycles that they could weather in a buy/hold strategy that would garner maximum returns. If they were using some of their accumulated wealth to purchase that house then even bonds would be foolish, as the comission rates on purchasing bonds can be outrageous.

Age makes a significant difference in determining the timeframe in which the person can weather economic cycles. If you can sustain short-term cyclical hits to your portfolio on a buy/hold strategy to gain maximum returns in equities, then you should do so.

age isn't the *only* consideration in the investment decision, the uses and sources, different investment stages, types of income...etc are very important.

There are many factors in someone's life that are more important than age.
The rational formulation of strategy is something those who post the "120-age" formula don't seem to understand. They just think it's an "on/off" switch based on age and nothing else.
You don't just automatically assume "since I'm 25 I should be in 100% stocks" or "since I'm 89 I should be in 100% bonds".

A 25 year old planing to buy a house in 5 years should dump all his money in 100% stocks rather than some in bonds, CD's and cash equivalents? :confused:
5 years is not long enough to weather an economic cycle. If the market goes kaput, his "buy a house in 5 years" goal will suddenly become "buy a house in 10-15 years".
There are some bond comission rates that are outrageous. There are some that aren't.
There are some stock prices that are outrageous. There are some that aren't.
There are some index funds with outrageous expense ratios. There are some that aren't.

I agree.

Well then...It seems you've agreed with my viewpoint. There's no need to continue arguing then.
The "120-age" formula posted on the intrawebs doesn't take into account any of those things you mentioned and many more.
If anyone has found another secret "120-age" formula I'm missing that takes all those things into account then by all means post it here.
 

Special K

Diamond Member
Jun 18, 2000
7,098
0
76
Originally posted by: LegendKiller
Originally posted by: Special K
Originally posted by: LegendKiller
Personally, I put in 15.5k/yr + 50% employer matching. I am 100% stocks and will be until I am 10 yrs from retirement, then I'll step down ~5% per year. It's stupid to invest in bonds, they are a portfolio drag on long-term investing. I am a complete buy/hold guy unless I see a major drop coming, I get out of equities, move into stable investments, then rebuy after what I think is the bottom. It's worked pretty well for me over the last 7 years, averaging a 15% annual net return.

People forget that as long as you can buy and hold and not worry about crashes you can wait out any temporary economic cycle. Time is a diversification technique that works as a perfect compliment to diversification itself. I have yet to see a solid unrefuted study that shows that over a 30 year period a portfolio of stocks/bonds is better than straight stocks. I have only seen evidence to the contrary.

That link that alrocky posted makes it seem as though combining 20% bonds with 80% stocks leads to lower drops when the market is down (compared to 100% stocks) with only a very slight drop in returns:

link

I'm not saying it's correct, just another example of how much conflicting advice there is out there :confused:

Naturally you're going to lose less during a down market, as your bonds provide solid footing for a portfolio. However, who gives a crap? I don't look at my 401k weekly and say "OMG, I JUST LOST $500! QUICK, RUN TO BONDS!"

Over the long run, once you consider *all* aspects of returns, including waiting out all economic cycles, stocks will always return higher returns. Beta is a function of short-term volatility of a stock compared to the market. Unsystematic risk is reduced through diversification, leaving systematic risk. That risk is eliminated through long-term inter-cyclical investing.

I don't know one guy I work with who is long bonds in their normal portfolio unless they see a large market correction on the horizon.

Do you have any tips or advice for asset class breakdown, i.e. percentage of large value, large growth, small value, etc? Do you prefer index funds or actively managed funds?
 

jupiter57

Diamond Member
Nov 18, 2001
4,600
3
71
Originally posted by: Savij
If you don't put in at least the company match then you are an idiot. Past that, put into your 401k until it hurts.

Agreed!
I forget what my Co.'s percentage match is, but they only put in a max of $37.00 weekly (IIRC), I add an extra $100.00 to that.
Though I have a Union pension paid in full, I like to think of my 401K as a great investment, (Minimum 37% return, FTW!)
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: Special K
Originally posted by: LegendKiller
Originally posted by: Special K
Originally posted by: LegendKiller
Personally, I put in 15.5k/yr + 50% employer matching. I am 100% stocks and will be until I am 10 yrs from retirement, then I'll step down ~5% per year. It's stupid to invest in bonds, they are a portfolio drag on long-term investing. I am a complete buy/hold guy unless I see a major drop coming, I get out of equities, move into stable investments, then rebuy after what I think is the bottom. It's worked pretty well for me over the last 7 years, averaging a 15% annual net return.

People forget that as long as you can buy and hold and not worry about crashes you can wait out any temporary economic cycle. Time is a diversification technique that works as a perfect compliment to diversification itself. I have yet to see a solid unrefuted study that shows that over a 30 year period a portfolio of stocks/bonds is better than straight stocks. I have only seen evidence to the contrary.

That link that alrocky posted makes it seem as though combining 20% bonds with 80% stocks leads to lower drops when the market is down (compared to 100% stocks) with only a very slight drop in returns:

link

I'm not saying it's correct, just another example of how much conflicting advice there is out there :confused:

Naturally you're going to lose less during a down market, as your bonds provide solid footing for a portfolio. However, who gives a crap? I don't look at my 401k weekly and say "OMG, I JUST LOST $500! QUICK, RUN TO BONDS!"

Over the long run, once you consider *all* aspects of returns, including waiting out all economic cycles, stocks will always return higher returns. Beta is a function of short-term volatility of a stock compared to the market. Unsystematic risk is reduced through diversification, leaving systematic risk. That risk is eliminated through long-term inter-cyclical investing.

I don't know one guy I work with who is long bonds in their normal portfolio unless they see a large market correction on the horizon.

Do you have any tips or advice for asset class breakdown, i.e. percentage of large value, large growth, small value, etc? Do you prefer index funds or actively managed funds?

It depends on your familiarization of investment decisions, what your risk level is, how much time you have...etc.

I'm personally more of an index fund guy, with some mutual funds mixed in and a little bit of "play" funds so I can pick individual securities, short, or use option strategies. Within my different funds, I am a contrarian value investor, thus I seek out companies that aren't as hot at the moment. I am lightly weighted in growth, more heavily weighted in international and emerging market. I haven't done my annual rebalancing yet (I do it in Nov) and I don't have my sheet with me, but my tough breakdown is this...

30% value
20% internation/EM
15% Mid-cap
15% small-cap
10% growth
10% large-cap