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Thread: Totally off topic: retirement mutal funds

  1. #1
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    Totally off topic: retirement mutal funds

    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

  2. #2
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    “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.

  3. #3
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    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.

  4. #4
    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.
    Last edited by Mike Kreinhop; 04-27-2018 at 11:36 AM. Reason: typo

  5. #5
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    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.

  6. #6
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    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.
    --

    The most expensive tool is the one you buy "cheaply" and often...

  7. #7
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    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.
    "Whether you think you can, or you think you can’t - you’re right."
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  8. #8
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    Quote Originally Posted by Mike Kreinhop View Post
    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.

  9. #9
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    Quote Originally Posted by Andrew Joiner View Post
    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

  10. #10
    Quote Originally Posted by John Sincerbeaux View Post
    “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

  11. #11
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    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.

  12. #12
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    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.
    My granddad always said, :As one door closes, another opens".
    Wonderful man, terrible cabinet maker...

  13. #13
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    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.

  14. #14
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    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.
    Last edited by Alan Rutherford; 04-29-2018 at 2:24 PM.

  15. #15
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    Quote Originally Posted by roger wiegand View Post
    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".

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