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Retirement-Era |OT| How to Invest For Retirement
- Thread starter TheTrinity
- Start date
- OT
Thank you.
Sorry, I'm new at this.
The ideal portfolio would 50/50 in these two? Look for diversification?
No, I'd probably pick one or the other. VTI is basically a weighted ETF of the entire US stock market (meaning that VOO, which is an ETF of the 500 largest US companies is a huge part of VTI). Basically VTI gives you exposure to some of the smaller companies outside the S&P 500. If you want to diversify outside of that you can look at VXUS which is an ETF of the rest of the world's markets, sans the US.
If you really want to just set and forget and never touch it again, you should look into a target date fund, that is synchronized with your expected retirement year. This will automatically adjust your investments as you get older so you don't have to (increasing allocation to safer ones with regular interest payouts or dividends as you get older and your risk tolerance goes down). The tradeoff with this as opposed to picking the funds yourself is a slightly higher expense ratio, but if you don't know anything about the markets and don't really want to learn, it's probably the best option.
Most brokerages have Target Date Retirement Funds that you can use in a Retirement account. You just pick the one with the year closest to your anticipated retirement date and their portfolio will automatically shift towards more conservative as you get closer to retirement.
My 401k is 100% a target date fund, while my taxable brokerage account is mostly VOO.
Thanks for the advice. This looks to be more fitting in my retirement goals.
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target date fund through retirement or some more manual split of index funds/bonds/cash buffer (in case of need to ride out a bear period)?
if a target date fund gets you 90% of the benefit without the manual overhead of managing drawdown strategies that would be good, but I don't want to leave returns on the table (within reason)
A well managed manual split will outperform a target date fund over time, both on paper and simply due to expense ratios being lower. Target date funds often have an allocation of bonds and other safe investments even early in your career which will normalize your returns somewhat, meaning less drawdowns, but also less booms.
The thing is doing things manually will inherently add risk and responsibility. You'll need to research when to shift investments around, and how often to do so. You'll have to follow the markets to make sure the investments you choose continue to be good choices.
Personally, since I follow the market, and do some trading even outside of my retirement vehicles, I feel comfortable doing things manually, and I have outperformed the target date fund my 401k defaulted to originally by 1-2% per year on average, not counting the expense ratio difference. But I'd say for someone with no experience in financials, and no interest in learning, a target date fund is probably a better choice.
plus once retired how quickly will I tire of doing all that adjusting - its kinda fun to keep on top of at the moment but I don't wanna be doing that when I'm 70 if I can help it. Move from this bucket to that bucket etc.
I'd probably still have a 2 year buffer in cash or similar and keep an eye on the market to not take too much out, but more light touch stuff
This feels like a gap in the market too - we're used to pensions administered by someone else and when they're annuities thats fine. But I'd maybe pay a (small) admin fee for someone to do a guyton-klinger or other dynamic withdrawal strategy with me only having basic levers to pull
I'd probably still have a 2 year buffer in cash or similar and keep an eye on the market to not take too much out, but more light touch stuff
This feels like a gap in the market too - we're used to pensions administered by someone else and when they're annuities thats fine. But I'd maybe pay a (small) admin fee for someone to do a guyton-klinger or other dynamic withdrawal strategy with me only having basic levers to pull
When I retire, I'm not looking to be a "millionaire" just maybe like 500K at the end - hopefully the house is paid off at that time.
I probably can work in my 60s, maybe early 70s if I want to be a millionaire. Fingers crossed that I can maintain my health.
I probably can work in my 60s, maybe early 70s if I want to be a millionaire. Fingers crossed that I can maintain my health.
I have a small regular pension coming - still not sure the amount because they tell me eg 10k per year but is that 10k now (and will be maybe 15k when I retire), or 10k in 15 years time (which will be worth a lot less)? Still trying to find out. But that, plus our state pensions gives us a baseline meaning we hopefully need a little smaller of a top up which I think we can get to - also targetting maybe 500k which isn't ideal but some of those years were building up the fixed pension and the others were just shit schemes and I was ignorant)
step one is to push for retirement with a reasonable amount (and not having to work too long with higher income so I can maybe ramp down a little and work longer in return)
step two is make sure my kids don't start their journey blind like I did, and they start putting at least something away as soon as possible when they start working
step one is to push for retirement with a reasonable amount (and not having to work too long with higher income so I can maybe ramp down a little and work longer in return)
step two is make sure my kids don't start their journey blind like I did, and they start putting at least something away as soon as possible when they start working
thoughts on VXUS? I have my roth IRA set to VTI/VXUS 75:25 split (I contribute to VOO with personal stocks). My 401K is also set by my employer to Vanguard's 2060 retirement target. All of these are similar so I'm wondering if I should diversify more (I have SCHX and SCHD with personal stocks as well as some other smaller ETFs)
What kinds of thoughts? It's exactly what it says on the tin. World stock market, cap-weighted, excluding US securities. Pair it with VTI, and you basically get the cap-weighted world stock market.
Currently the capitalization of the US market is about 50% bigger than that of the rest of the world, so a split of 60% VTI and 40% VXUS would approximately capture the full world stock market at their cap weights. That's also basically what VT is.
Or, since you mentioned that you're in Vanguard Target Retirement 2060, that's VTTSX. If you check the "Portfolio Composition" section, you'll notice that it holds VSMPX (institutional-class mutual fund version of VTI) and VTIAX (mutual fund version of VXUS) in a roughly 60-40 split.
The level of international inclusion in a portfolio has always been a heated conversation: it's how people who hate picking stocks pick fights. Very few people argue in favor of holding ex-US at greater than global cap weight, but quite a few prefer to overweight domestic, for a variety of reasons (mostly involving vaguely waving their hands at a chart of returns over the past ten years, prompting the other side of the argument to whip up a chart over a longer timescale and resume the vague gesturing).
Keep in mind that VOO and SCHX are extremely close to being the same thing. Technically the former is an S&P500 tracker while the other isn't, but they're very similar and have extremely close correlation. Holding both isn't going to cause problems or anything, but don't assume that it's giving you any real diversification.
I carry some VXUS as well for non-US exposure but I'm heavily overweight US because I think most economic and demographic factors heavily favor the US economy going forward. Europe is stagnant and has very few mega cap companies in sectors that are poised for growth, China is a mess and it's demographics are going to crater in the next few decades etc. India is where most of the ex-US growth is likely to come from imo.
Thank you for your inputs
This video got me fucked up:
View: https://youtu.be/JlgMSDYnT2o
Obviously we don't know what will happen in the future, but due to inflation (which I think will run slightly higher than the historical average in the future), it will dramatically hurt the real world returns from bonds, making them more inherently risky than stocks.
The key thing here is that I don't think I will be phased by 40%+ draw downs to equities so I'm less likely to make any drastic decision that would hurt the overall performance of my portfolio from a long term perspective. I don't really get emotional when it comes to making selling decisions investing. My experience with crypto and stocks that have been manipulated by shorters have battle tested me 🤣.
I'm about 15 years away from early retirement target. My current allocation to total bond funds is 4.1% across my total portfolio and I currently have my 401K contributions set to 25% purchase of bonds. I was originally going to target 10% bonds total for my entire portfolio and then possibly shift to 20% for retirement. Contemplating if only having 5% or no bond allocation is the best move. I'm still leaning towards just getting to 10% allocation and then maintaining that in retirement (rather than increasing it 20%+).
Any thoughts? After viewing this video, would you consider changing your long term strategy?
View: https://youtu.be/JlgMSDYnT2o
Obviously we don't know what will happen in the future, but due to inflation (which I think will run slightly higher than the historical average in the future), it will dramatically hurt the real world returns from bonds, making them more inherently risky than stocks.
The key thing here is that I don't think I will be phased by 40%+ draw downs to equities so I'm less likely to make any drastic decision that would hurt the overall performance of my portfolio from a long term perspective. I don't really get emotional when it comes to making selling decisions investing. My experience with crypto and stocks that have been manipulated by shorters have battle tested me 🤣.
I'm about 15 years away from early retirement target. My current allocation to total bond funds is 4.1% across my total portfolio and I currently have my 401K contributions set to 25% purchase of bonds. I was originally going to target 10% bonds total for my entire portfolio and then possibly shift to 20% for retirement. Contemplating if only having 5% or no bond allocation is the best move. I'm still leaning towards just getting to 10% allocation and then maintaining that in retirement (rather than increasing it 20%+).
Any thoughts? After viewing this video, would you consider changing your long term strategy?
I'll have to watch the video later but I wonder if it's going to validate my "strategy" of just putting off holding any bonds until... eventually. And not really transitioning to bonds so much as eventually adding a small pool to draw on during market dips in retirement.
Various mixed thoughts.
I generally agree with Felix's position that people associate "risk" and "volatility" too strongly.
A tangential point I'd make, which the Anarkulova research sort of touches on, is the role of Social Security. Obviously Social Security isn't a bond, but rather, more like an annuity. However, a huge inflation-resistant annuity can arguably replace much of the function of bonds in a retirement portfolio.
Obviously it's difficult to guess how that will change over time, but you could say the same about a bond allocation. (I do think that the "Social Security might not exist" thing gets overstated. Even if no policy changes are made and the trust depletes, Social Security can cover a much bigger portion of most people's expenses than they realize, and there's a lot of political friction to entirely eliminating it.)
A major feature of the research is its observation that reliance on American market data results in an effectively-tiny sample size: a century and change from a single country simply isn't very many economic cycles, and United States data in particular might have a lot of survivorship bias.
I agree with this line of thought, but I'm skeptical of how usefully their kitchen-sink-of-country-data addresses the issue. I have three concerns here:
1-The extra data might not be usefully representative. The United States has a strange position in worldwide financial markets: it has an extraordinarily outsized bond market, its currency has a lot of global coupling and an unusual scheme for monetary policy, and its domestic stock market is much more diversified than those of small economies. It's not obvious that blending in "what would happen if your domestic stock allocation behaved like the Latvian stock market" improves the prediction of future American markets.
2-Depending on the question being asked, anti-survivorship bias might reduce actionability. I think this is highlighted by the study's implicit ultra-low safe withdrawal rate. How much utility is there, really, in modeling smooth trajectories through situations where the world is cast into complete chaos, and the institutions are all toppled? What makes me especially skeptical is that none of those past calamities happened in a societies where a huge fraction of the older folks were leaning hard into broad stock market allocations. Even if we want to pursue a "retirement planning as apocalypse insurance" approach, I can't help but think that "WWII but everyone has a 401(k)" might imply different market dynamics than actual WWII. (And this is a general question mark around historical data, including older data from the US. Different asset classes can behave differently in situations where their relationships with investors are different.)
3-Nearly all of the datasets end at the close of 2019, but they begin across a wide sprawl of years dating back to the 1890s, all the way up into 2018. Maybe I'm just missing something, but I can't help but wonder if it systematically over-weights characteristics of the post-GFC economic cycle, despite diversifying these characteristics across different country's exposures to them.
Another qualm I have with the study is, I feel like it's a bit muddled as to what it's trying to simulate. It's doing enough income/savings-rate simulation to perturbate the results, but I'm not sure that it's doing enough to be a useful aggregate-whole-lives simulation versus pure wealth-building and retirement-withdrawal simulations. It seems like it might be non-usefully muddying the waters. For example, it uses an interesting empirically-derived model for income volatility, but an arbitrary and (IMO) weakly-justified model for savings rate (basically "Vanguard says this is what people throw at 401k accounts").
(I'd further state that all of these kinds of studies have representativeness issues for individuals due to withdrawal patterns - and especially ability to tolerate reduction - being so diverse.)
In conclusion, ¯\_(ツ)_/¯
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