Investing megathread extravaganza

[DaFace]

A place to talk about investing stuff.

[DaFace]

Originally Posted by petegz28

The target fund is a mix of stocks, bonds and cash. The asset allocation is proportionate to what they deem is "right" for your current age. As you get closer to retirement the fund will become more and more conservative.

The SP500 fund is just that. It's 100% stocks. Most people fall in love with the return of the SP500 and lose site of proper asset allocation.

The downside is if you go 100% SP500 you are in nothing but stocks. So if the SPX goes down 20% you go down 20% because you have nothing else to cushion or otherwise stabilize your portfolio.

I will give you a hint: 90% of people with proper asset allocation will rarely outperform the SP500 unless you are very young and pretty much in all stocks.

Yeah, there's nothing wrong with index funds over a target date fund, but you need to know a bit about what index funds you've got. Schwab actually has target date index funds, which are kind of the best of both worlds IMO, but you can do basically the same thing on your own with just a handful of index funds.

Google around about a "three fund lazy portfolio" to give you the gist.

[RunKC]

Originally Posted by petegz28

The target fund is a mix of stocks, bonds and cash. The asset allocation is proportionate to what they deem is "right" for your current age. As you get closer to retirement the fund will become more and more conservative.

The SP500 fund is just that. It's 100% stocks. Most people fall in love with the return of the SP500 and lose site of proper asset allocation.

The downside is if you go 100% SP500 you are in nothing but stocks. So if the SPX goes down 20% you go down 20% because you have nothing else to cushion or otherwise stabilize your portfolio.

I will give you a hint: 90% of people with proper asset allocation will rarely outperform the SP500 unless you are very young and pretty much in all stocks.

That’s what I thought, but here’s my thing. If the S&P crashes and goes down the tubes by 50% aren’t we all screwed no matter what? Your managed fund is going down with it.
Sure you’ve got some bonds and a few international assets, but A large portion of my target fund is in stocks.

December is a great case study. It was the worst performance in a decade. The S&P went from 2,924 to 2,4447 (16.25% drop). Hell my target fund dropped more! It went down 17%!

I guess that’s why I’m such a big fan of this possibility. We went though hell after 9/11, 2008 and as recently as last December and it always bounces back stronger every single time. In almost 100 years, the S&P has done nothing but go up.

Meanwhile my target fund barely moves.

[DaFace]

Originally Posted by RunKC

That’s what I thought, but here’s my thing. If the S&P crashes and goes down the tubes by 50% aren’t we all screwed no matter what? Your managed fund is going down with it.
Sure you’ve got some bonds and a few international assets, but A large portion of my target fund is in stocks.

December is a great case study. It was the worst performance in a decade. The S&P went from 2,924 to 2,4447 (16.25% drop). Hell my target fund dropped more! It went down 17%!

I guess that’s why I’m such a big fan of this possibility. We went though hell after 9/11, 2008 and as recently as last December and it always bounces back stronger every single time. In almost 100 years, the S&P has done nothing but go up.

Meanwhile my target fund barely moves.

Portfolio diversification is a tried and true approach. If you're young and want to throw out widely-accepted recommendations and go all-in on stocks, go for it - you might get lucky. But no serious financial advisor would ever suggest that in the long-term.

[RunKC]

Originally Posted by DaFace

Portfolio diversification is a tried and true approach. If you're young and want to throw out widely-accepted recommendations and go all-in on stocks, go for it - you might get lucky. But no serious financial advisor would ever suggest that in the long-term.

Yeah for sure. I’m not elaborating well enough.

What if you move your highest position to the S&P index fund and have a similar % as your target fund in the same (or similar) bonds and international assets?

That’s the general idea. Not sure if it will work, but it’s an interesting thought.

[DaFace]

Originally Posted by RunKC

Yeah for sure. I’m not elaborating well enough.

What if you move your highest position to the S&P index fund and have a similar % as your target fund in the same (or similar) bonds and international assets?

That’s the general idea. Not sure if it will work, but it’s an interesting thought.

Sure, that's exactly what the three-fund portfolio is all about. THe only difference is that you have to update the allocations every once in a while.

I've gotten super lazy and just do the Schwab target index fund for most stuff these days, but I used to do something like 70% S&P index, 15% International stock index, and 15% bond index (in my mid-30s). As you get older, it should shift a bit toward more bonds and fewer stocks.

[SuperBowl4]

Invest in LEAD

[MahiMike]

Originally Posted by RunKC

Owning feels like such a sham.

You could always just burn your cash on renting the rest of your life. OMG.

[Nightfyre]

Originally Posted by RunKC

So I use Fidelity and they sold me their target managed fund for my Roth IRA.

My question is, why would I do that and not just get an S&P low cost Index Fund, specifically the Fidelity version FXAIX?

Here’s the comparison:

Fidelity managed target fund-average life of return to date is 7.70%. It’s got an expense ratio of 0.75%

Fidelity S&P FXAIX-average life of return to date is 13.22%. It’s expense ratio is 0.02%

It also seems like a large portion of the target fund is made up of the S&P anyway.

That seems like one hell of a huge difference. Any downside to this in your minds?

Target funds have a mix of bonds to reduce volatility based on the target date of the fund. The mix shifts more towards bonds as the target date gets closer, resulting in a higher expense ratio. So less risk is why there is a lower return.

[Rain Man]

Originally Posted by MahiMike

You could always just burn your cash on renting the rest of your life. OMG.

On that note, I didn't pay attention to the Trump tax changes as they relate to mortgage interest. But my impression is that the mortgage interest deduction won't apply to a lot of people any more since the standard deduction is higher. It seems like that would decrease home values, but I haven't noticed it when looking at sales. Anyone got any theories?

[Discuss Thrower]

Originally Posted by Rain Man

On that note, I didn't pay attention to the Trump tax changes as they relate to mortgage interest. But my impression is that the mortgage interest deduction won't apply to a lot of people any more since the standard deduction is higher. It seems like that would decrease home values, but I haven't noticed it when looking at sales. Anyone got any theories?

It's probably a big reason why NYC's housing market has been riggity riggity riggity wrecked.

[Buehler445]

Originally Posted by RunKC

So I use Fidelity and they sold me their target managed fund for my Roth IRA.

My question is, why would I do that and not just get an S&P low cost Index Fund, specifically the Fidelity version FXAIX?

Here’s the comparison:

Fidelity managed target fund-average life of return to date is 7.70%. It’s got an expense ratio of 0.75%

Fidelity S&P FXAIX-average life of return to date is 13.22%. It’s expense ratio is 0.02%

It also seems like a large portion of the target fund is made up of the S&P anyway.

That seems like one hell of a huge difference. Any downside to this in your minds?

You could split out some and put some in an S&P ETF, but I wouldn't do all of it.

Originally Posted by Rain Man

On that note, I didn't pay attention to the Trump tax changes as they relate to mortgage interest. But my impression is that the mortgage interest deduction won't apply to a lot of people any more since the standard deduction is higher. It seems like that would decrease home values, but I haven't noticed it when looking at sales. Anyone got any theories?

Yeah. My theory is that housing purchases aren't driven by Schedule A Mortgage Interest deductions.

[Rain Man]

Originally Posted by Discuss Thrower

It's probably a big reason why NYC's housing market has been riggity riggity riggity wrecked.

I'm looking it up, and it seems like the effect would be large on homes over $750,000 and on homes that are at the lower end of the national price range. I could do the math to figure out an estimate on the low end, but the general rule is that the lower the price, the more negative the impact.

So logically it seems like you'd see declines in prices at the low end and high end of the scale, and little or no impact on homes in the middle of the range (which is probably the $300-600k range).

[EPodolak]

Originally Posted by RunKC

So I use Fidelity and they sold me their target managed fund for my Roth IRA.

My question is, why would I do that and not just get an S&P low cost Index Fund, specifically the Fidelity version FXAIX?

Here’s the comparison:

Fidelity managed target fund-average life of return to date is 7.70%. It’s got an expense ratio of 0.75%

Fidelity S&P FXAIX-average life of return to date is 13.22%. It’s expense ratio is 0.02%

It also seems like a large portion of the target fund is made up of the S&P anyway.

That seems like one hell of a huge difference. Any downside to this in your minds?

Since it's inception in '88 looks like that S&P fund is 10.3%. But I can't see any advantage paying that much more in expenses for the target fund - it's a significant difference. I invest in a Vanguard S&P ETF and a separate Vanguard Bond ETF, re-allocate as I see fit over the years. Unless you have a stomach for volatility and potentially losing your shirt at a bad time, at least temporarily as in '08, don't go all in on a pure stock fund.

[ChiliConCarnage]

Originally Posted by Rain Man

On that note, I didn't pay attention to the Trump tax changes as they relate to mortgage interest. But my impression is that the mortgage interest deduction won't apply to a lot of people any more since the standard deduction is higher. It seems like that would decrease home values, but I haven't noticed it when looking at sales. Anyone got any theories?

Supply/demand.

https://fred.stlouisfed.org/series/HOUST

The 10 yr dropping has helped prop home sales back up also this year

Edit: runkc, Fidelity surely has index target date funds. Switch to one of those. You still won’t get 13% but neither will the S&P 500 over the next decade most likely. You won’t get jack shit like holding the s&p from ‘00 to ‘10 either while international outperformed

[petegz28]

Little tidbit that will surely go unnoticed but is definitely worth noting.....


The 2yr & 5yr bonds are no longer inverted. I have been watching that over the last few days and today (lsat night) they reverted.