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Bill Dufour
04-26-2018, 9:09 PM
Off Topic: I just found out about one year ago about "index Funds". These are mutual funds that invest in stock market indexes, like the "dow jones" and do not try to beat the market by buying and selling different companies. This means they can charge charge much lower fees and still make good money.
I switched from my old fund charging almost 1% a year to a different company charging about 0.08%. Doesn't sound like much but overtime it really adds up. These could easily cost you $500,000 over 20-30 years.
I am really too old for it to matter that much but I will save/make about $2,000 a year from the switch at no cost to me. Wish I had done it when I first started my IRA.
Bil lD

John Sincerbeaux
04-26-2018, 9:49 PM
“These could easily cost you $500,000 over 20-30 years.”

Unfortunately, i know a few guys (who were newly retired in 2008) and LOST 3 times that amount in 20-30 days.
I doubt much of my portfolio will be in the stock market as near retirement.

julian abram
04-26-2018, 11:15 PM
I agree with your conclusion about index funds Bill. Thirty years ago I used to chase around the hottest mutual funds at the time which constantly changes. Of course there are thousands of mutual funds available for investors but the truth is 80% them do not meet the long term performance of the S&P or Dow Jones and charge higher fees to boot. I invested in passively managed, low fee index funds many years ago and have been very pleased with their performance even with the crash in 2007. Warren Buffet was asked what he would recommend for investments for his heirs after he passed. Index funds was his answer, good enough for me.

Mike Kreinhop
04-27-2018, 6:29 AM
I didn't have a retirement plan 15 years ago, even though I was tossing money into a few stocks, maxing out my Thrift Savings Plan (TSP) contributions, the U.S. Government's version of the 401k, and Savings Bond purchases through payroll deduction. After being frustrated with pitiful gains that were barely keeping up with inflation, I contacted a fee-only financial advisor to help me develop a sound retirement plan. I chose a fee-only advisor because he did not have any products to sell other than his advice.

After he reviewed my financial status, evaluated my tolerance to risk and my estimated time to retirement, he delivered his recommendation for my retirement plan. The plan did not include any individual stocks, but consisted of Exchange Traded Funds (ETF), index funds, bonds, and cash, with examples of each from Vanguard, Fidelity, and online brokers. The target portfolio considered the fixed choices available in the TSP and the types of funds available elsewhere to produce the desired market mix. He also recommended I sell my house in Northern Virginia as I was breaking even on the rental income after expenses and the proceeds of the sale would be used to boost my retirement investments. I decided to keep the house, but took the rest of his advice and sold all of the stocks and bought the ETFs he recommended through an online broker of my choice and set up an account with Vanguard for the fund purchases.

The fee-only advisor was a great choice, and I reached my initial investment target eight years later. My portfolio has since more than doubled, and as I near my retirement I am adjusting the market mix to lower my risk.

Bill, your point about the fees is valid. Some of my military coworkers invested in with one the firms that prey on young military personnel and have costs that are much higher than what you experienced. In most cases, the retirement account gains were siphoned off by the sales commissions and annual fees with little to show for the effort. The predatory actions, which included selling ridiculous term life insurance policies, were so bad that a class action suit against the firm resulted in a judgement for $12M in reimbursements and fines and about $4M for attorneys fees. Lesson captured (sometimes not learned)...be careful about free advice from someone with a product to sell.

Larry Frank
04-27-2018, 7:23 AM
My wife and I found a very good financial advisor 20 years ago and are very happy.

He has been very good at evaluating our risk tolerance and developing a plan that meets our goals. We have been retired for a few years and still happy with his advice.

Jim Becker
04-27-2018, 8:35 AM
Index funds can be an important part of a total investment portfolio plan. One does have to be careful, however, the closer they are to retirement because these funds shift with the market within their particular focus and that volatility is something that most advisors recommend moving away from at that point because for most folks, there is the need to retain value so it can provide a consistent retirement income going forward. More conservative, more bond-focused investments come into play at that point. It's true that index funds, etc., typically have a lower cost for maintenance and most don't have fees for trading since they are often run by the investment firm that offers them.

I do use index funds for a portion of my portfolio, but it's a small sum that I'm willing to take a little risk on for a particular reason. The rest, however...needs to be more insulated from the swings.

As has been mentioned, it's a best practice to work with a professional when making some of these decisions...most firms do that for free and the advise can be invaluable.

Andrew Joiner
04-27-2018, 10:46 AM
Great tip Bill. I read an interview with Charles Schwab in the early eighties. He was a rising "expert" in the field. He implied his company had the ability to "outperform the indexes" like all "experts" claimed back then. The interviewer asked slyly" where do you keep your families retirement money"?. He said index funds.

Index funds were new back then. The industry pushed/sold the high commision stuff. Now they are common along with ETFs, so there's lots of low cost choices.

Unfortunately, with most of the 401k's I've seen the index funds charge higher fees. In the open market or an IRA you have many truly "low cost" options.
It's surprising to see how much the different "branded" S+P 500 index funds cost to own! Your right Bill, this is HUGE for the investor to get educated on.

Yonak Hawkins
04-27-2018, 2:51 PM
Exchange Traded Funds (ETF)

I like ETFs, as well. Unfortunately, I don't know enough about them to know the fail risks, if any, but they seem safe enough (much safer than any individual stock, I would think) and yet active enough for one to take advantage of the vagaries of the stock market if one has the aptitude for trading.

Bill Dufour
04-27-2018, 3:13 PM
Great tip Bill. I read an interview with Charles Schwab in the early eighties. He was a rising "expert" in the field. He implied his company had the ability to "outperform the indexes" like all "experts" claimed back then. The interviewer asked slyly" where do you keep your families retirement money"?. He said index funds.

Index funds were new back then. The industry pushed/sold the high commision stuff. Now they are common along with ETFs, so there's lots of low cost choices.

Unfortunately, with most of the 401k's I've seen the index funds charge higher fees. In the open market or an IRA you have many truly "low cost" options.
It's surprising to see how much the different "branded" S+P 500 index funds cost to own! Your right Bill, this is HUGE for the investor to get educated on.

did not want to sound like a shill so I did not mention names but since you brought it up.. Schwab is having a special deal for the next month or two. no mimimum, no fees to set up an account. So that is where we set up are new accounts. I will roll over money from existing accounts to fund them.
To be honest the broker did not impress me. He did nothing the secretaries did all the paperwork while he sat in his office. Good location though in the same building as See's candy and right across the parking lot from a good Mexican restaurant.
Bill D

PS: Warren Buffet does not allow his employees to put their company paid retirement money into index funds.
I

Edwin Santos
04-27-2018, 5:49 PM
“These could easily cost you $500,000 over 20-30 years.”

Unfortunately, i know a few guys (who were newly retired in 2008) and LOST 3 times that amount in 20-30 days.
I doubt much of my portfolio will be in the stock market as near retirement.

The 2007-2008 bear market resulted in a 50% +/- decline in the S&P 500 but it happened over about 15 months. So if someone lost $1.5MM in 20-30 days they were starting with a large portfolio and must have hit the second dip in Jan-March 2009. And it was only a loss if they sold low.
There are also examples of people who invested heavily in the equity markets in mid 2009 and tripled their money 4-5 years. There will always be isolated horror stories and isolated Cinderella stories but by and large, anyone who has participated in the equity markets as a long term investor over the past 50-60 years has done very well in comparison to other asset classes or not investing at all.

Your point is well taken that the equity markets are not for the faint of heart or a safe short term investment, especially given the recent volatility. It's also not a good place for the impatient.
Edwin

Ralph Okonieski
04-27-2018, 7:20 PM
For low fees, consider Vanguard funds. They have some of the lowest of all fees.

I have no affiliation with them except for some investments.

Rich Engelhardt
04-28-2018, 12:57 PM
I do use index funds for a portion of my portfolio, but it's a small sum that I'm willing to take a little risk on for a particular reason. The rest, however...needs to be more insulated from the swings.There are indexed products that offer principal protection and more.
Some off protection on both principal and on earnings.
They cost, but, over time - - if one chooses wisely & is on the conservative side - - they still offer a great return.

roger wiegand
04-29-2018, 12:27 PM
I think you need to be very wary of the "don't invest in stocks as you near retirement" advice. Many of us intend (hope) to live on that money for 20 to 40 years in retirement and won't make it if we skew too far towards safe but low yielding bonds, or worse, savings accounts and CDs. While the balance should change over time and will vary a lot with what you have to invest, the time horizon for new retirees is plenty long to maintain a healthy proportion of stock funds, in the 40-60% range.

I choose only to invest in stock and bond index funds, as well as some ETFs that are also set up as index mimics. Trying to beat the smart guys with the inside knowledge is a losing game -- remember the house always wins over the long run, and almost always over the short run. One should have a balanced portfolio of index funds though, representing large cap, small cap, international, developing countries, bonds of differing risk and maturities, as well as real estate and commodity funds. About the only thing I would never bother with is gold.

Alan Rutherford
04-29-2018, 12:43 PM
It costs relatively little to manage a fund that, for example, mirrors the Dow Jones or the S&P 500 index. If what you want to do is ride along with one of those indices, that's the best way. On the other hand, you won't ever do better than the market - you'll do slightly worse by the percentage of your management fees no matter how small - and sooner or later you will get your butt kicked when the market drops. But that's what you signed up for.

In one of my former lives I was a computer programmer. I wrote a program for a mutual fund management company that had a family of index funds. My program used historical returns for about 12 indices and predicted the likely range of return for a given mix of their funds. With growth stocks and a short time horizon, you could make a lot or lose a lot in a year. With more conservative choices and/or longer time spans, things even out. For example, you could put 40% each in index funds for growth stocks and income stocks and 10% each in cash and gold indexes. My program could have told you the best, worst and most probable returns you could expect at any point in the future with that allocation based on history. Wish I still had it but it's theirs. A lot depends on sticking to your plan and re-balancing. That is sell and buy periodically as some rise and others fall to get back to the percentages you allocated to each index.

You can do asset allocation with any investments. Index funds are just one way to do it and they are a good one if you don't lose sight of what you are doing. Vanguard, as mentioned, has low-fee index funds. Fidelity is another one. Watch out for index funds that try to beat the index. Then it's no longer a true index fund and it takes more management and has greater risk.

Mark Carlson
04-29-2018, 3:06 PM
I think you need to be very wary of the "don't invest in stocks as you near retirement" advice. Many of us intend (hope) to live on that money for 20 to 40 years in retirement and won't make it if we skew too far towards safe but low yielding bonds, or worse, savings accounts and CDs. While the balance should change over time and will vary a lot with what you have to invest, the time horizon for new retirees is plenty long to maintain a healthy proportion of stock funds, in the 40-60% range.

I choose only to invest in stock and bond index funds, as well as some ETFs that are also set up as index mimics. Trying to beat the smart guys with the inside knowledge is a losing game -- remember the house always wins over the long run, and almost always over the short run. One should have a balanced portfolio of index funds though, representing large cap, small cap, international, developing countries, bonds of differing risk and maturities, as well as real estate and commodity funds. About the only thing I would never bother with is gold.

I do what Roger does. If you're interested in a good stock series on this very topic google "John Collins stock series".

Justin Foley
04-30-2018, 8:13 AM
Finally! Something I can actually contribute to. Former Vanguard employee here on the "Institutional" side. My job was working on employer-sponsored retirement plans for all different sized companies.

Out of all the funds I've had exposure to, I like their Target Retirement Funds the best. The funds contain an outstanding mix of index funds and are designed to take your approximate retirement year into consideration. As you get closer to retirement age, the fund managers shift the asset allocation of the fund to be more conservative. What's also great about them is the fund managers do the rebalancing for you, so it's basically the Ron Propeil version of funds ("set it and forget it").

Jim Becker
04-30-2018, 9:21 AM
I think you need to be very wary of the "don't invest in stocks as you near retirement" advice. Many of us intend (hope) to live on that money for 20 to 40 years in retirement and won't make it if we skew too far towards safe but low yielding bonds, or worse, savings accounts and CDs. While the balance should change over time and will vary a lot with what you have to invest, the time horizon for new retirees is plenty long to maintain a healthy proportion of stock funds, in the 40-60% range. mall cap, international, developing countries, bonds of differing risk and maturities, as well as real estate and commodity funds. About the only thing I would never bother with is gold.

I don't disagree, but folks have to manage the balance carefully so that it meets their individual needs. Some would say that my portfolio is skewed too much toward "growth" than is desirable for someone who's already retired (I was fortunate to be able to do that last fall at age 60-and-a-half) and some (relatively few, however) would say it's not aggressive enough. My mix has the more aggressive index stuff in the "Roth" piece of my portfolio since that's the last money I'd tap for retirement outside of specific things, such as funding my business startup a little. The rest is a little more balanced for my own personal comfort but still sitting squarely in the "Growth" category relative to the funds that are involved. As things progress, I'll make changes. Going back to my first sentence, the biggest mistake is to "invest and forget" which unfortunately many folks do. The second worst thing is to over-react and micro-manage...markets go up and down and so-called "corrections" are normal. Today's setback just leads to tomorrows gain the majority of the time.

Justin, I actually used the Vanguard targeted funds for the entire 21 years that I had my 401K going with my employer prior to retirement. That was a good decision on my part because they and their ilk (the targeted funds) are one of the only ways folks actually "can invest and forget" with relative reliability over time. I was in the 2020 fund all those years. (it changed a couple of times if I recall)

Mike Kreinhop
04-30-2018, 12:12 PM
Out of all the funds I've had exposure to, I like their Target Retirement Funds the best. The funds contain an outstanding mix of index funds and are designed to take your approximate retirement year into consideration. As you get closer to retirement age, the fund managers shift the asset allocation of the fund to be more conservative. What's also great about them is the fund managers do the rebalancing for you, so it's basically the Ron Propeil version of funds ("set it and forget it").

When asked at work for advice, I steer everyone towards the Target Retirement Funds, in both the Vanguard and the Government TSP. When I got serious about my retirement, these target funds weren't available. If they had been, then I would have put everything outside my TSP into the target year for my retirement. Now the TSP has similar target accounts called Lifecycle Funds made up of the five funds. Like Vanguard, the rebalancing is behind the scenes.

Terry Wawro
04-30-2018, 5:56 PM
Retirement investing is another thing I like to research and follow. Yes to low cost index funds. Vanguard, Fidelity and Schwab all offer them. I've been with Vanguard for over 25 years but I would be happy with any of the three.

A great source of information on passive investing using low cost index funds is at https://www.bogleheads.org/wiki/Getting_started.

Wade Lippman
05-06-2018, 9:31 PM
I have all my money in indexed ETFs. Anything else just seems foolish to me. Of course there is a question of what kind of index ETFs; you can get a wide variety. Personally I have 2/3rds S&P500 and 1/3rd NY Municipal Bonds. In 2008 my S&P500 lost almost half its value, but it has come back strong. The future may not be so kind, and your mix may be completely different.
https://finance.yahoo.com/chart/SPY#eyJpbnRlcnZhbCI6IndlZWsiLCJwZXJpb2RpY2l0eSI6MS wiY2FuZGxlV2lkdGgiOjEsInZvbHVtZVVuZGVybGF5Ijp0cnVl LCJhZGoiOnRydWUsImNyb3NzaGFpciI6dHJ1ZSwiY2hhcnRUeX BlIjoibGluZSIsImV4dGVuZGVkIjpmYWxzZSwibWFya2V0U2Vz c2lvbnMiOnt9LCJhZ2dyZWdhdGlvblR5cGUiOiJvaGxjIiwiY2 hhcnRTY2FsZSI6ImxpbmVhciIsInBhbmVscyI6eyJjaGFydCI6 eyJwZXJjZW50IjoxLCJkaXNwbGF5IjoiU1BZIiwiY2hhcnROYW 1lIjoiY2hhcnQiLCJ0b3AiOjB9fSwic2V0U3BhbiI6eyJiYXNl IjoiYWxsIiwibXVsdGlwbGllciI6MX0sImxpbmVXaWR0aCI6Mi wic3RyaXBlZEJhY2tncm91ZCI6dHJ1ZSwiZXZlbnRzIjp0cnVl LCJjb2xvciI6IiMwMDgxZjIiLCJjdXN0b21SYW5nZSI6bnVsbC wic3ltYm9scyI6W3sic3ltYm9sIjoiU1BZIiwic3ltYm9sT2Jq ZWN0Ijp7InN5bWJvbCI6IlNQWSJ9LCJwZXJpb2RpY2l0eSI6MS wiaW50ZXJ2YWwiOiJ3ZWVrIiwidGltZVVuaXQiOm51bGwsInNl dFNwYW4iOnsiYmFzZSI6ImFsbCIsIm11bHRpcGxpZXIiOjF9fS x7InN5bWJvbCI6IlNIWSIsInN5bWJvbE9iamVjdCI6eyJzeW1i b2wiOiJTSFkifSwicGVyaW9kaWNpdHkiOjEsImludGVydmFsIj oid2VlayIsInRpbWVVbml0IjpudWxsLCJzZXRTcGFuIjp7ImJh c2UiOiJhbGwiLCJtdWx0aXBsaWVyIjoxfSwiaWQiOiJTSFkiLC JwYXJhbWV0ZXJzIjp7ImlzQ29tcGFyaXNvbiI6dHJ1ZSwiY29s b3IiOiIjNzJkM2ZmIiwid2lkdGgiOjIsImNoYXJ0TmFtZSI6Im NoYXJ0Iiwic3ltYm9sT2JqZWN0Ijp7InN5bWJvbCI6IlNIWSJ9 LCJwYW5lbCI6ImNoYXJ0IiwiYWN0aW9uIjoiYWRkLXNlcmllcy IsInNoYXJlWUF4aXMiOnRydWUsInN5bWJvbCI6IlNIWSIsImdh cERpc3BsYXlTdHlsZSI6InRyYW5zcGFyZW50IiwibmFtZSI6Ik pHVks3NTFBUjEiLCJvdmVyQ2hhcnQiOnRydWUsInVzZUNoYXJ0 TGVnZW5kIjp0cnVlLCJoZWlnaHRQZXJjZW50YWdlIjowLjcsIm 9wYWNpdHkiOjEsImhpZ2hsaWdodGFibGUiOnRydWUsInR5cGUi OiJsaW5lIiwic3R5bGUiOiJzdHhfbGluZV9jaGFydCJ9fV0sIn RpbWVVbml0IjpudWxsLCJzdHVkaWVzIjp7InZvbCB1bmRyIjp7 InR5cGUiOiJ2b2wgdW5kciIsImlucHV0cyI6eyJpZCI6InZvbC B1bmRyIiwiZGlzcGxheSI6InZvbCB1bmRyIn0sIm91dHB1dHMi OnsiVXAgVm9sdW1lIjoiIzAwYjA2MSIsIkRvd24gVm9sdW1lIj oiI0ZGMzMzQSJ9LCJwYW5lbCI6ImNoYXJ0IiwicGFyYW1ldGVy cyI6eyJ3aWR0aEZhY3RvciI6MC40NSwiY2hhcnROYW1lIjoiY2 hhcnQifX19fQ%3D%3D

This shows SPY (a S&P500 fund) versus SHY (a short term treasury note fund) which is about the safest thing you can own. Which do you like?
Bear in mind this does not account for dividends/interest, which favors the stocks.

Bill Dufour
05-06-2018, 10:13 PM
After my father retired he had time to research and invest in individual stocks. many of his had perks. Wrigleys sent a pack of gum every holiday season. Got a can of macadamiea nuts every year from the nut company as well and he owned the movie popcorn company as well. No freebie popcorn from them. Many of his choices did so well they bought back all their stock back and went private.
Bill D