Retirement-Era |OT| How to Invest For Retirement

[Keyboard]

Total US stock indexes include REITs so you already have that exposure.

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I think I last read it was around 4%, so some theorists think people could use more. 5%-20% of portfolio is what I've usually seen recommended.

Not required as Bogleheads champion the 3-fund portfolio.

lol dude that's what babies are for.

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Worst is when parents setup a social media account for them.

You're supposed to take a selfie in front of a house and force everyone to congratulate you to fill the emptiness in your life. You made it! Where's the trophy?

 

[Valus]

Hi all, new to investing and probably have some dumb questions even after reading through the thread.

I currently have a 401k plan through my employer and am putting enough in for the match. I have an emergency fund stashed away.

Next year I'm going to come into a sizeable amount of cash and would like some advice on how to invest it and turn it into more money.

Right now I'm considering a Roth since I like the idea of not being taxed later. I am not a risk taker and would prefer to have it set up pretty safely. Any advice?

I also don't understand how people like MMM retired at 30 and say you can retire in less than 10 years. It sounds like a rare 1% of the people type deal to me. Like even if you save a ton of cash and invest a bunch of it, most of it you can't touch till you're 60+ anyway right? So how are these people making money in the 30s-50s just off their investments?

 

[filkry]

I also don't understand how people like MMM retired at 30 and say you can retire in less than 10 years. It sounds like a rare 1% of the people type deal to me. Like even if you save a ton of cash and invest a bunch of it, most of it you can't touch till you're 60+ anyway right? So how are these people making money in the 30s-50s just off their investments?

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Yeah, I think MMM can sometimes come across a little disingenuous. He and his wife both had high paying tech jobs and IIRC made a good amount on real estate investments that worked out. He always says you can do the same with less money if you reduce your budget further, but he definitely had significant advantages.

As for not touching it till your 60s, you can only put so much money per year in tax-free/tax-deferred accounts anyway. So the rest has to go in regular accounts/holdings which you can sell/use dividend money from any time. So if you retire at 30 you're tapping into those kinds of accounts, which are less efficient but still making you money.

 

[moblin]

A lot of the "early retirement community" rhetoric comes across as multi-level marketing stuff; "disingenuous" is a good word. There are plenty of stories of brilliant young people who went to swanky prep schools, then elite colleges, landed a lucrative job immediately and had all sorts of other advantages that almost all of us never had access to. It's more depressing than it is motivating, honestly. Their version of the retirement calculator, which MMM has posted a few times, is embarrassingly absurd.

However, there is plenty of genuinely good advice bouncing around amongst those types (investing early, investing often, seeking low-fee index funds, living below your means, etc.). You just have to grit your teeth and be able to sort through the fantasy talk.

 

[Piecake]

Hi all, new to investing and probably have some dumb questions even after reading through the thread.

I currently have a 401k plan through my employer and am putting enough in for the match. I have an emergency fund stashed away.

Next year I'm going to come into a sizeable amount of cash and would like some advice on how to invest it and turn it into more money.

Right now I'm considering a Roth since I like the idea of not being taxed later. I am not a risk taker and would prefer to have it set up pretty safely. Any advice?

I also don't understand how people like MMM retired at 30 and say you can retire in less than 10 years. It sounds like a rare 1% of the people type deal to me. Like even if you save a ton of cash and invest a bunch of it, most of it you can't touch till you're 60+ anyway right? So how are these people making money in the 30s-50s just off their investments?

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Roth IRAs have a maximum contribution limit of 5500 a year. I am guessing your sizable amount of cash is likely more than that, so you are likely going to be investing in a taxable account as well.

As for what investments to invest in, you just need to really ask yourself whether or not you would be the type of person to sell in a panic if there is a market downturn in 10 or so years.

If no, then invest in the Total Stock Market and Total International Stock Market Index fund

If yes, better invest in some bonds because at least when you do panic and sell all your stocks you won't be completely fucked. Just partially fucked.

As for MMM, He and early retirement people like him are using the 4% rule.

http://money.cnn.com/2016/04/20/retirement/retirement-4-rule/index.html

That article explains it in further detail, but you can also play around with this calculator to check it out for yourself

http://www.fourpercentrule.com/

I honestly haven't looked too much into strategies when you retire because I am quite a long ways from that, but it looks like if you manage to get an return of like 5.6% and have a good chunk saved up, that can last you a long while. Obviously, that's a calculator and shit can happen, but that should give you a general idea.

As for not touching it until you are 60+, I googled this https://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

 

[SillyGoose]

So my 401k plan allows me to use this index fund.

https://imgur.com/a/54r8q

Is this a good move for someone just starting out? When choosing a retirement plan there was a huge list so I was kind of intimidated. Seems like this one was the best index fund. I'm in my twenties.

Also I'm confused about all these other plans that weren't in the list but on vanguard's site. Why can't I choose this one for example?

https://personal.vanguard.com/us/FundsSnapshot?FundId=0540&FundIntExt=INT&ps_disable_redirect=true

Do you need $10k to buy in? Do y'all invest through your 401k exclusively or do you also use other plans like this?

Thank you.

 

[Keyboard]

401K funds are restricted to what your workplace offers. Not every workplace has the same funds, and their fees (expense ratios) may vary.

First fund you posted has a $100,000,000 buy-in. I don't think that is right. Double-check funds listed or screenshot/post them here, and we can help you out. You need to look at fund's portfolio (name or symbol) + expense ratios.

Reading about it. It tracks the S&P 500, so it's a large cap of 506 companies as of today. To truly capture total stock market, you need 3000+ companies. That's not to say S&P 500 is bad as it makes up 70%+ of total stock market index.

 

[SillyGoose]

Oh damn you're right sorry. I meant this one

https://imgur.com/a/54r8q

Also it says it's risk level 4. Should I be concerned?

 

[Keyboard]

Ratings are a quick guide based on a system of 5.

1 <conservative> to 5 <volatile>. This is a stock index fund, so expect volatility.

I would take it. Low expense ratio 0.02%.

Excellent choice. You're just starting out, so no need for concern on volatility. Retirement is far away.

Are there other options like extended markets or an total international stock fund in there, so you can diversify your portfolio?

 

[SillyGoose]

There's an international index one with .09 maintenance, and a bond one that's .04 maintenance. Right now it's all in the first index fund.

 

[Keyboard]

You can ignore bonds for now as most people follow the advice of stocks until 40 (for some 50 years old) and then think about bonds then.

Is it also from vanguard?

 

[SillyGoose]

Ok, yes it's all vanguard

 

[Keyboard]

Consider adding it in the future. You can read some earlier posts here (there's one talking about CAPE and international equities on why you should consider international). As for how much, that's up to your comfort level. Vanguard thinks Internationals will have a bullish 2018 where as Bogle still thinks US stocks are better than international.

0.09 is under the recommended 0.20 expense ratio guideline.

There's an argument that S&P 500 relies on international companies, so investing in it is already "diversified", but you will miss out on smaller/midsize companies in their bull years. For instance, Emerging Markets had a great year, and if you had a total international fund, you benefited from it since you invested in everything.

 

[SillyGoose]

Alright, thanks for the advice. I might throw 10 percent into the international one. I'll do some more reading though. Thank you again!

 

[Keyboard]

Piecake has consistently advised adding 50/50 between total stock + total international indexes.

Up to you if you want to follow that. I suggest international stocks consist at least 20%-33% of portfolio.

There are many arguments suggesting putting more in international although you don't have to know specifics.

All you need to know is your portfolio needs to capture the whole stock market.

 

[FliX]

A lot of the "early retirement community" rhetoric comes across as multi-level marketing stuff; "disingenuous" is a good word. There are plenty of stories of brilliant young people who went to swanky prep schools, then elite colleges, landed a lucrative job immediately and had all sorts of other advantages that almost all of us never had access to. It's more depressing than it is motivating, honestly. Their version of the retirement calculator, which MMM has posted a few times, is embarrassingly absurd.

However, there is plenty of genuinely good advice bouncing around amongst those types (investing early, investing often, seeking low-fee index funds, living below your means, etc.). You just have to grit your teeth and be able to sort through the fantasy talk.

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I disagree, the basic principle is quite sound and simple.
The more of your regular income you can squirrel away the more you can invest and build a nest egg.
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Granted there probably is a cutoff point on the low end where people legitimately cannot save because they are struggling to make ends meet. Where that threshold is will obviously depend on many factors and personal circumstance. However many (most?) people can easily trim fat and save more than they currently do.

Of course assuming you avoid lifestyle creep it is much easier to save 50% of your income when you are making six figures.

 

[filkry]

Of course assuming you avoid lifestyle creep it is much easier to save 50% of your income when you are making six figures.

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When I was in grad school and my partner made 1/3 the money she makes now, I thought "how would we ever spend more money than this."

Now we spend about 3x what we did in a year. Part of that was moving to a much more expensive country/city, but most of it is increased spending on restaurants, toys, and going to two insurance-requiring vehicles from zero. Lifestyle creep is real.

 

[moblin]

The math certainly makes sense if you assume that your living expenses will remain relatively constant throughout your lifetime, but I would argue that's a poor assumption to make given the uncertainty around taxation, health care, housing, etc. in the long term. Using that metric, someone saving half of their $30K take-home pay should be able to "retire" in roughly 16 years. For someone expecting to live for decades, abandoning a regular income with under $400K to your name (using MMM's ROR assumptions) is far too risky a prospect for me to accept.

I definitely agree with more general points about lifestyle creep and writers like Michael Kitces have made compelling cases for living more frugally as a young professional, but I'm very wary of "save x% and you'll be able to retire on y date, it's really that simple!"

 

[Piecake]

The math certainly makes sense if you assume that your living expenses will remain relatively constant throughout your lifetime, but I would argue that's a poor assumption to make given the uncertainty around taxation, health care, housing, etc. in the long term. Using that metric, someone saving half of their $30K take-home pay should be able to "retire" in roughly 16 years. For someone expecting to live for decades, abandoning a regular income with under $400K to your name (using MMM's ROR assumptions) is far too risky a prospect for me to accept.

I definitely agree with more general points about lifestyle creep and writers like Michael Kitces have made compelling cases for living more frugally as a young professional, but I'm very wary of "save x% and you'll be able to retire on y date, it's really that simple!"

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I think there is also an underlying assumption (possible explicit - I am not an early retiree dude) that is crucial to be flexible and the understanding that most people will still make some sort of income throughout their lives out of the desire to avoid boredom and feel productive.

65 Retirees also face the same uncertainties around taxation, healthcare and housing. Certainly it is more risky for early retirees because they are looking at a longer time frame, but when you retire you are also going to be doing the 4% rule or some sort of fixed withdrawal.

When I was in grad school and my partner made 1/3 the money she makes now, I thought "how would we ever spend more money than this."

Now we spend about 3x what we did in a year. Part of that was moving to a much more expensive country/city, but most of it is increased spending on restaurants, toys, and going to two insurance-requiring vehicles from zero. Lifestyle creep is real.

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It is much much harder to eliminate an expense from your life rather than just avoid it all together. You are going to have a tough time getting rid of those costs because that is now your lifestyle, but a person who never had those expenses and consistently refuses to indulge in them is going to have a much easier time of avoiding lifestyle creep and saving a lot of money.

 

[FliX]

The math certainly makes sense if you assume that your living expenses will remain relatively constant throughout your lifetime, but I would argue that's a poor assumption to make given the uncertainty around taxation, health care, housing, etc. in the long term. Using that metric, someone saving half of their $30K take-home pay should be able to "retire" in roughly 16 years. For someone expecting to live for decades, abandoning a regular income with under $400K to your name (using MMM's ROR assumptions) is far too risky a prospect for me to accept.

I definitely agree with more general points about lifestyle creep and writers like Michael Kitces have made compelling cases for living more frugally as a young professional, but I'm very wary of "save x% and you'll be able to retire on y date, it's really that simple!"

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As pie mentioned. Unless you are a member of the early retirement internet police, being flexible is key. Most people you find on MMM et al. would be perfectly fine with substituting their passive income in off years.you have to remember in order to make up for a really bad year you would not need to have your high paying full time job to make ends meet as your foundation of passive income is still there. Also loads of people will take the flexibility of moving. I for one plan on primarily traveling once I am FI. And in bad years I will be quite happy to spend my time in Thailand rather than Zurich where cost of living will be much cheaper to weather out the storm, or I will spend a month longer at my parents in the summer.
Overall the 4% rule should give you plenty of cushion. and if that is too risky for you aim for the 3% rule and work how ever many years more. It will be impossible to avoid risk entirely. And if your dream is to 100% only sit on the beach drinking margaritas and never lifting a finger again, then no number is safe.

 

[CreepingFear]

Question. Lets say I put 6% of my income in 401k and I am matched by employer. Does that count as 6% or 12% when using the 20% of income retirement savings 50/30/20 rule? Also, if just 6%, I would have to find another 14% to save for retirement, correct?

 

[FliX]

Question. Lets say I put 6% of my income in 401k and I am matched by employer. Does that count as 6% or 12% when using the 20% of income retirement savings 50/30/20 rule? Also, if just 6%, I would have to find another 14% to save for retirement, correct?

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I would not count the match in my savings rate.

 

[Walter White Walker]

Question. Lets say I put 6% of my income in 401k and I am matched by employer. Does that count as 6% or 12% when using the 20% of income retirement savings 50/30/20 rule? Also, if just 6%, I would have to find another 14% to save for retirement, correct?

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I've seen it argued both ways. If it were me I'd count the employer match as gravy on top of what I'm saving. If 20% is your target than save that amount yourself.
You never know - the employer could quit matching at which point you're going to have to figure out how to get to 20% so you might as well just get used to it now.

 

[Piecake]

Question. Lets say I put 6% of my income in 401k and I am matched by employer. Does that count as 6% or 12% when using the 20% of income retirement savings 50/30/20 rule? Also, if just 6%, I would have to find another 14% to save for retirement, correct?

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I would just also note that it makes a whole lot of logical sense to try to invest as much as you possibly can for retirement as early as possible. If you do that, you will actually need to save less for retirement because of the magic of compound interest.

So don't just pat yourself on the back once you hit that 20%. See if you can/want to do better.

 

[ZackieChan]

I plan to retire to Thailand around 55, but will still work when I want (hopefully as a mediator rather than an attorney) and run "passive income" type businesses on the side. Not sure who would fully retire at such a young age - I would be unbelievably bored.

Also, if you're not saving enough on the money you're making, there's two solutions - earn more or spend less. Side gigs, downsizing, geographic arbitrage, etc. are all valid ways to save more money. You just need to think outside the box sometimes.

 

[hockeypuck]

Question. Lets say I put 6% of my income in 401k and I am matched by employer. Does that count as 6% or 12% when using the 20% of income retirement savings 50/30/20 rule? Also, if just 6%, I would have to find another 14% to save for retirement, correct?

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You're supposed to be saving 50%+.

Post-tax.

No items.

Spoiler

Fox only. Final Destination.

 

[filkry]

It is much much harder to eliminate an expense from your life rather than just avoid it all together. You are going to have a tough time getting rid of those costs because that is now your lifestyle, but a person who never had those expenses and consistently refuses to indulge in them is going to have a much easier time of avoiding lifestyle creep and saving a lot of money.

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I agree 100%, we really screwed up on this one. When we first moved we had only one small income and were poor enough to feel negative over it. We overcorrected when we got a second income. Luckily, the toy spending has gone way down since we kind of "saturated" ourselves - we eventually both got all the things we ever wanted, more or less. We still operate out of an allowance for both personal and restaurant spending, so at least that is capped and we can taper it off over time. And the vehicles, while unfortunate, are really hard to get around without in Southern California - I biked until I got back problems and my physical therapist told me to stop. Even then, we bought a cheap used motorcycle and a cheap used car, so we try to keep things under control.

 

[SillyGoose]

My wife and I use a shared credit card to keep our monthly finances in check. It's easy to keep track of what we spent during the month on daily expenses. But yeah a car is quite the money suck.

 

[CreepingFear]

I would not count the match in my savings rate.

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I've seen it argued both ways. If it were me I'd count the employer match as gravy on top of what I'm saving. If 20% is your target than save that amount yourself.
You never know - the employer could quit matching at which point you're going to have to figure out how to get to 20% so you might as well just get used to it now.

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I would just also note that it makes a whole lot of logical sense to try to invest as much as you possibly can for retirement as early as possible. If you do that, you will actually need to save less for retirement because of the magic of compound interest.

So don't just pat yourself on the back once you hit that 20%. See if you can/want to do better.

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You're supposed to be saving 50%+.

Post-tax.

No items.

Spoiler

Fox only. Final Destination.

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Thanks everyone. The biggest hurdle I face is rent. It's insane in California, which is why I am planning to move back to Illinois. I am starting to understand the value of money. I don't know how my mother managed to raise a child with her income.

 

[visvim]

I plan to retire to Thailand around 55, but will still work when I want (hopefully as a mediator rather than an attorney) and run "passive income" type businesses on the side. Not sure who would fully retire at such a young age - I would be unbelievably bored.

Also, if you're not saving enough on the money you're making, there's two solutions - earn more or spend less. Side gigs, downsizing, geographic arbitrage, etc. are all valid ways to save more money. You just need to think outside the box sometimes.

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I retired at 29. Power of software development :P

I did get bored so I started a new company and act as a sort of overlord now. It's like work, but not quite like work. I like it.

 

[ZackieChan]

I retired at 29. Power of software development :P

I did get bored so I started a new company and act as a sort of overlord now. It's like work, but not quite like work. I like it.

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Yep. Wish I had taken a different path when I was younger! I'd be doing the same.

 

[Deleted member 6215]

I also don't understand how people like MMM retired at 30 and say you can retire in less than 10 years. It sounds like a rare 1% of the people type deal to me.

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MMM is about cutting all the crap spending out of your life, something that is available to everyone and not limited to "1%" type people. Once you start paying attention to how you're spending your money and reducing your need to consume, the ability to retire early becomes much more attainable. For example, his biggest target is the car and the payments and all the associated costs that go along with it. Three years ago I sold my new car and got something used that was nearly as nice for 1/4 of the cost: goodbye stupid car payment. Then I starting trying to use it as little as possible, biking to work and to the store whenever I could: less money spent on gas, less money spent on repairs, better health for me (and less healthcare costs) and better for the environment. The benefits complement each other and add up in a big way over time.

I definitely agree with more general points about lifestyle creep and writers like Michael Kitces have made compelling cases for living more frugally as a young professional, but I'm very wary of "save x% and you'll be able to retire on y date, it's really that simple!"

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Yes, and I'd say that MMM is much more about challenging modern lifestyle assumptions than it is about giving precise investment advice.

 

[Deleted member 13131]

It's important to note that MMM has substantial rental property income. He "retired" but still has income. Without that, he would not be retired.

Most of us are probably going to have some sort of income after retirement, and it makes sense to plan around that. But I think it's a big factor that's sometimes overlooked in his success.

 

[Walter White Walker]

It's important to note that MMM has substantial rental property income. He "retired" but still has income. Without that, he would not be retired.

Most of us are probably going to have some sort of income after retirement, and it makes sense to plan around that. But I think it's a big factor that's sometimes overlooked in his success.

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He's also said that he has six figures coming in from his blog. Also his wife has had a successful Etsy shop for like the last 2 1/2 years. If he's still claiming they're retired that would be rather disingenuous.

 

[Deleted member 13131]

He's also said that he has six figures coming in from his blog. Also his wife has had a successful Etsy shop for like the last 2 1/2 years. If he's still claiming they're retired that would be rather disingenuous.

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He's defined "retirement" as being free from work you don't want to do. I think that's a fair definition, and I do think he offers some good advice. But yeah, his idea of retirement is different from what we generally think of as retirement.

 

[TheTrinity]

Yeah, I don't want to get onto the whole "It doesn't count because he's not really retired" thing. I think there are plenty of criticisms to make of MMM, but not this one. The power of being retired is that you have the opportunity to take risks that you wouldn't have been able to previously. Like right now, I could probably start independently contracting and do fine after some period of startup, but it's not a risk I feel I can take right now. When I'm 'retired' I'll probably try it, because it's no big deal if it fails.

His blog pretty much runs itself at this point and he rarely writes new posts. I think the other stuff he would definitely consider (and I would agree) that it's more like a hobby that happens to make money. Work takes on a different perspective when you don't actually need it for the income. You do what you feel like doing, and you can just stop whenever you want to.

This thread is titled in regards to 'Retirement' because that's a term that people know and understand. But it's really about freedom. Retirement is a state of mind and as long as you consider yourself as financially free and doing what you want, I'm happy to call you retired.

 

[Deleted member 13131]

Yeah, I don't want to get onto the whole "It doesn't count because he's not really retired" thing. I think there are plenty of criticisms to make of MMM, but not this one. The power of being retired is that you have the opportunity to take risks that you wouldn't have been able to previously. Like right now, I could probably start independently contracting and do fine after some period of startup, but it's not a risk I feel I can take right now. When I'm 'retired' I'll probably try it, because it's no big deal if it fails.

His blog pretty much runs itself at this point and he rarely writes new posts. I think the other stuff he would definitely consider (and I would agree) that it's more like a hobby that happens to make money. Work takes on a different perspective when you don't actually need it for the income. You do what you feel like doing, and you can just stop whenever you want to.

This thread is titled in regards to 'Retirement' because that's a term that people know and understand. But it's really about freedom. Retirement is a state of mind and as long as you consider yourself as financially free and doing what you want, I'm happy to call you retired.

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To be clear, I was not raising it as a criticism. Rather, it's a key part of the story of why he was able to retire when he did - he had significant ongoing income. Full stop. You can't talk about his retirement strategy without it because he would not have retired without it.

Part of MMM's advice is to recognize that we're likely to also have some form of income in retirement, and to plan around it. Rather than save for a giant target to depend on in retirement, it makes sense to incorporate any plans you might have for income. Which is good advice and something that was a revelation to me in my own retirement planning.

 

[Bumrush]

How do you guys in here handle re-balancing? I've always rebalanced when I purchase (I DCA every quarter on the 1st, so I have time to make course corrections) but wanted to see if you recommend another approach.

Thanks, by the way! Great thread as always.

 

[FliX]

How do you guys in here handle re-balancing? I've always rebalanced when I purchase (I DCA every quarter on the 1st, so I have time to make course corrections) but wanted to see if you recommend another approach.

Thanks, by the way! Great thread as always.

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I also only re balance by buying. most of my investment 401k, HSA, IRA, run on auto pilot, every now and then when I have a sizable chunk of money to invest manually I will re-balance by buying more of what I am low on and less of what I am high on.

 

[Deleted member 13131]

I also only re balance by buying. most of my investment 401k, HSA, IRA, run on auto pilot, every now and then when I have a sizable chunk of money to invest manually I will re-balance by buying more of what I am low on and less of what I am high on.

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This is what I do as well. I review my positions every January, and then re-balance by shifting contributions around. I'm more of a steady investor vs. big lumps, so I'll shift for a while until I hit the balance I want. For example, I decided I was too heavy on international funds in my kids' 529 (they started out 50/50 DOM/INT, and I want to move 70/30 or less). So for the past couple years I've only contributed to the US index. They're about balanced now, so I might tweak it again when I review in the next couple months.

For me it's just easier than dealing with the anxiety of selling when re-balancing.

 

[TheTrinity]

Yeah, for the foreseeable future I'm pretty sure I'll only rebalance through purchases. It's only purpose is to keep your risk profile the same as what you originally decided so I'm not too concerned if it gets out of balance.

 

[Bumrush]

This is what I do as well. I review my positions every January, and then re-balance by shifting contributions around. I'm more of a steady investor vs. big lumps, so I'll shift for a while until I hit the balance I want. For example, I decided I was too heavy on international funds in my kids' 529 (they started out 50/50 DOM/INT, and I want to move 70/30 or less). So for the past couple years I've only contributed to the US index. They're about balanced now, so I might tweak it again when I review in the next couple months.

For me it's just easier than dealing with the anxiety of selling when re-balancing.

Click to shrink...

I also only re balance by buying. most of my investment 401k, HSA, IRA, run on auto pilot, every now and then when I have a sizable chunk of money to invest manually I will re-balance by buying more of what I am low on and less of what I am high on.

Click to shrink...

Yeah, for the foreseeable future I'm pretty sure I'll only rebalance through purchases. It's only purpose is to keep your risk profile the same as what you originally decided so I'm not too concerned if it gets out of balance.

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Thanks guys. This is what I do and it's relatively anxiety free so I'll stick with it

 

[PopcornMegaphone]

How do you guys in here handle re-balancing? I've always rebalanced when I purchase (I DCA every quarter on the 1st, so I have time to make course corrections) but wanted to see if you recommend another approach.

Thanks, by the way! Great thread as always.

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You should re-balance once a year at a set time and when there is a significant shift in the market. A signifigant shift is where your portfolio allocations are off over 5%. Vanguard did a study on this: https://www.vanguard.com/pdf/ISGPORE.pdf

Here's the summary:

As a result, we conclude that for most broadly diversified stock and bond fund portfolios (assuming reasonable expectations regarding return patterns, average returns, and risk), annual or semiannual monitoring, with rebalancing at 5% thresholds, is likely to produce a reasonable balance between risk control and cost minimization for most investors. Annual rebalancing is likely to be preferred when taxes or substantial time/costs are involved.

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The buying strategy seems to be more high maintenance and may induce market timing.

 

[Bumrush]

You should re-balance once a year at a set time and when there is a significant shift in the market. A signifigant shift is where your portfolio allocations are off over 5%. Vanguard did a study on this: https://www.vanguard.com/pdf/ISGPORE.pdf

Here's the summary:



The buying strategy seems to be more high maintenance and may induce market timing.

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Thanks! I'll read through this after work.

 

[TylerD]

This has been a fantastic year financially and personally. Completely eliminated my debt, met our goal of savings for a house down payment, my retirement portfolio is up 35% including contributions which I have been able to aggressively increase, overall net worth is up 44%, got engaged and paid off the engagement ring with no interest over 4 months.

My plan now, is to pour money into our "rainy day fund" until my job ends at the end of June 2018. One of our customers has already expressed interest in bringing me and another one of my coworkers on. I'll probably take a couple of months off between jobs.

 

[TheTrinity]

The buying strategy seems to be more high maintenance and may induce market timing.

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Just to clarify, it's strictly through buying for me at this point because the portfolio isn't yet large enough that it can't be rebalanced through that method. And of course don't make specific 'rebalancing' purchases. What I mean is that I make buys on the exact same timing that I always would but just adjust what I buy depending on the current situation. I mean, this is down to the level of buying 3 shares of X instead of Y because the allocation is off the target by 0.5%. This seems pretty normal to me.

 

[AndyD]

Am I summarizing correctly that a target mutual fund is made up of certain other index funds and changes over time are re-balances to meet the targets?
For example Vanguard 2050, VFIFX is made up of: 54% VTI, 36% VXUS, 7% VTBIX and 3% BNDX?
https://personal.vanguard.com/us/fu...NT&FundId=0699&ps_disable_redirect=true#tab=2

In that case it seems to make more sense to buy those individual ETFs and rebalance myself rather than target no? The cost is lower that way. And the work on a regular basis seems minimal.

 

[Keyboard]

You can do that.

Some people don't want to spend time in managing several individual funds, and that's OK, too!

Cost is the consistent factor in eating away earnings.

 

[Deleted member 13131]

Am I summarizing correctly that a target mutual fund is made up of certain other index funds and changes over time are re-balances to meet the targets?
For example Vanguard 2050, VFIFX is made up of: 54% VTI, 36% VXUS, 7% VTBIX and 3% BNDX?
https://personal.vanguard.com/us/fu...NT&FundId=0699&ps_disable_redirect=true#tab=2

In that case it seems to make more sense to buy those individual ETFs and rebalance myself rather than target no? The cost is lower that way. And the work on a regular basis seems minimal.

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Correct. With the caveat that target date funds can have any mutual fund in them, including actively managed, so you have to look at the composition and fees - I've seen some expensive ones. Though since it's Vanguard, you're good.

They're good one-stop shopping if you don't want to manage the composition of your portfolio over time, and have access to good low cost funds. The downside is, when you sell them you can't distinguish what you sell. Take the scenario of a stock market crash right after you retire. In that case, you might prefer to move your withdraws to bonds, since they would be more stable, rather than sell your stock index funds when the market was in a crash. With target date funds, you can't do that.

You might consider just going the EFT route as you said, re-balance along the way by using a target date fund that aligns to your retirement timeline as a guideline.

 

[PopcornMegaphone]

Just to clarify, it's strictly through buying for me at this point because the portfolio isn't yet large enough that it can't be rebalanced through that method. And of course don't make specific 'rebalancing' purchases. What I mean is that I make buys on the exact same timing that I always would but just adjust what I buy depending on the current situation. I mean, this is down to the level of buying 3 shares of X instead of Y because the allocation is off the target by 0.5%. This seems pretty normal to me.

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I understand, and as long as the fees are reasonable, what you are doing might not be wrong. I will say, that I think the more people actively manage/tweak their portfolio the worse they tend to do. Additionally, it can be a bit of a waste of time with little upside.

Personally, I think implementing a 3-fund portfolio and re-balancing once a year unless the market moves your portfolio off by 5% is the healthiest and least time consuming option.

That said, if your portfolio is super small I can understand your POV. It's just a habit you should be looking to drop.