The Investment Thread

[superfly]

Be careful out there folks...something is broken in this market. Totally irrational volatility and the ETN's that the big boys have been using to "short volatility" for free money the past several years just absolutely blew up. SVXY and XIV

[homer]

Based on futures markets, it looks like another big downturn tomorrow.

[jerichoholicninja]

The coins in my coffee can were not effected by the stock market. That's been a pretty stable investment so far for me.

[adambr2]

If you're investing for retirement and have the proper stock/bond/cash mix for your age, you have nothing to worry about. Short term market volatility is and will always be a part of the market both high and low. The key is being less vulnerable to volatility the closer you get to retirement. I lost about $7,000 in the last week or so and could not care less because I'm 35 and have about 30 years before retirement.

 

If you're investing for the short term or day trading that's an entirely different scenario, but why 401K investors panic time and time again when this happens or carry an inappropriate portfolio mix after decades of these simple lessons really amazes me.

[jerichoholicninja]

If you're investing for retirement and have the proper stock/bond/cash mix for your age, you have nothing to worry about. Short term market volatility is and will always be a part of the market both high and low. The key is being less vulnerable to volatility the closer you get to retirement. I lost about $7,000 in the last week or so and could not care less because I'm 35 and have about 30 years before retirement.

 

If you're investing for the short term or day trading that's an entirely different scenario, but why 401K investors panic time and time again when this happens or carry an inappropriate portfolio mix after decades of these simple lessons really amazes me.

 

This is exactly why I never understand why people freak out when the market drops. What percent of people rely on the day to day fluctuations of the market? .5%, maybe? I guess the media needs to whip people into a frenzy about something for ratings and clicks.

[Patrick425]

If you're investing for retirement and have the proper stock/bond/cash mix for your age, you have nothing to worry about. Short term market volatility is and will always be a part of the market both high and low. The key is being less vulnerable to volatility the closer you get to retirement. I lost about $7,000 in the last week or so and could not care less because I'm 35 and have about 30 years before retirement.

 

If you're investing for the short term or day trading that's an entirely different scenario, but why 401K investors panic time and time again when this happens or carry an inappropriate portfolio mix after decades of these simple lessons really amazes me.

 

All exactly true. One of the issues with people who are afraid of or have a negative view of the market is that there is a lot more noise made by the general media when the market has a down day or a rough year or two. 75% of the time the S&P 500 is up on an annualized calendar year basis. The S&P 500 has only been in existence since 1957. However, it can and has been extrapolated back to 1926. Since that period, if you take the annual returns of the S&P 500 and calculate rolling 10 year annualized returns, there have been only four (out of 82) 10-year periods where the annualized return has been negative. It's never been negative over a 20 year period. The worst 20 year annualized return was 3.11% for the 20 year period ending 1948 and that included the great depression years (the cumulative return for that same period was 84.42%. The average annualized return for a 20 year period is 11.01%. The average cumulative return is 854.63%

 

I'm not suggesting that you should only invest in a S&P 500 index fund. As adambr2 stated, you should have diversified retirement portfolio. My point is that over longer periods of time (10+) years, historically, the market has always gone up.

 

The S&P 500 has been up 9 calendar years in a row now. We are due for at least a few bad years. Trying to time it is a foolish game. You just have to be in for the long hall and roll with the punches.

[MrTPlush]

If you're investing for retirement and have the proper stock/bond/cash mix for your age, you have nothing to worry about. Short term market volatility is and will always be a part of the market both high and low. The key is being less vulnerable to volatility the closer you get to retirement. I lost about $7,000 in the last week or so and could not care less because I'm 35 and have about 30 years before retirement.

 

If you're investing for the short term or day trading that's an entirely different scenario, but why 401K investors panic time and time again when this happens or carry an inappropriate portfolio mix after decades of these simple lessons really amazes me.

 

This is exactly why I never understand why people freak out when the market drops. What percent of people rely on the day to day fluctuations of the market? .5%, maybe? I guess the media needs to whip people into a frenzy about something for ratings and clicks.

 

People freak out because they don’t really understand the stock market and don’t understand their retirement plan(401k etc). They don’t understand the short term is rather meaningless. Some people check their retirements plans way too often. It is really nothing more than that.

[chuckiehacks]

In addition, don't forget the benefit of dollar-cost averaging. If you're regularly contributing to your investment account and/or 401k, you're buying at all point of the market. When you buy in down markets, your overall cost basis goes down. You're much better off doing that, as opposed to trying to time the market.

[NeedMoreFans]

Some people check their retirements plans way too often.

 

This is my wife. She checks our kids' 529s weekly, and they are 6 and 3 years old! I check my quarterly statements when they come in the mail and both of us are in the WRS so we only get one annual statement and we have very little to do with how that money is invested, which is really nice.

 

I'm looking at getting some non-retirement investments going at some point and have zeroed in on VTI or VOO on the ETF front. For some reason I'm sort of chicken when it comes to taking the plunge, but I think it's more due to the amount that we are discussing putting into an account and it's really hard to part with large sums of money sometimes. I do know that it's a best long-term strategy and we will see gains if we let it sit for a while before withdrawing is as income (assuming it earns money over the next several years!).

[superfly]

I created quite the controversy apparently. Lol. All I said was I thought folks should be careful out there, nothing more. Some people (myself is one) are a bit more aggressive than the tortoise 40 year plan so it is a bit more imperative to pay attention to the shorter term trends. And that's not to say the 40 year plan is wrong, most people should be doing it as they don't have the time, energy, wherewithal, etc to be doing anything different.

 

The free money rolled for quite some time, we're due for some sideways/volatility for awhile. Especially when the algorithms decide to sell 3-400 points off in afterhours trading based on what turned out to be a fake news piece like they did tonight, or when Credit Suisse ETN's go bankrupt and terminate in a half hour during extended hours trading when it had been one of the "best" money makers for years. Many many managers got F'd bad with XIV and SVXY.

[nate82]

Some people check their retirements plans way too often.

 

This is my wife. She checks our kids' 529s weekly, and they are 6 and 3 years old! I check my quarterly statements when they come in the mail and both of us are in the WRS so we only get one annual statement and we have very little to do with how that money is invested, which is really nice.

 

I'm looking at getting some non-retirement investments going at some point and have zeroed in on VTI or VOO on the ETF front. For some reason I'm sort of chicken when it comes to taking the plunge, but I think it's more due to the amount that we are discussing putting into an account and it's really hard to part with large sums of money sometimes. I do know that it's a best long-term strategy and we will see gains if we let it sit for a while before withdrawing is as income (assuming it earns money over the next several years!).

 

I am kind of guilty of the first one but I get bored at work sometimes and I just check it but never do anything. I usually just play around with the calculator they have.

 

For your second one have you though of something like this https://www.nationwide.com/retirementincome.jsp instead? You have to put money in it monthly but it is basically an annuity which some people are not fans of. I don't like them but if you don't like risk then an annuity is probably better for you.

 

If you want to go with a one time investment I would go with either of the ETF's you have posted. Others you may want to look at are SPY and SDY. Another option with Vanguard is an ETF of ETF's confusing right? Well not really it is basically a managed ETF without the high fees of a managed fund because Vanguard is basically selling you all of their ETF's in one package. For example the stock symbol VTC holds all of Vanguard's corporate bond ETF's. So you are basically buying all of the ETF's that Vanguard holds for corporate bonds in one ETF instead of investing in multiple or all of them.

[OldSchoolSnapper]

The tortoise plan has proven more effective for 99.9% of investors if they are invested in low-cost index funds.

 

It isn't even necessarily tortoisey if expenses are curbed. There are blogs all over the place about guys retiring in their 30s using nothing but Vanguard indexes. Sorry, I'm older, retired and did fine, but this thread is rather amusing. I worked in finance for many years. The amount of people thinking they're better off targeting IPOs or messing around with bitcoin than they would be just dumping gobs of money into indexes is just always going to be funny. The math behind retiring early is really not that complicated. Don't make it harder than it has to be.

 

Joe Blow has no idea when to buy and sell a stock or a BTC. You may play that perfectly once or twice. You're not going to get it to work for 20, 30 years. You're just not.

[homer]

My new company has a very generous retirement plan. dollar for dollar 4% match and a 5% match at the end of the year. So even if all you're doing is putting away 4% you are more or less saving 13% of your income. So I can totally see how someone who started there as a 22 year old could retire at 45 or so just on their 401K assuming they were saving like 18% of their income every check.

[adambr2]

Most people with a decent income can retire early if that's truly what they want.

 

We've been conditioned to believe that you work til you're 65, hopefully have enough then and hopefully enjoy 20 years after that, but it doesn't have to be that way.

 

Basically just comes down to how much in the short-term that you're willing to sacrifice to slash your monthly budget to the bone and invest everything into an early retirement.

 

I wish I had had the same financial mindset when I was 18 that I do now because that would have definitely been a goal. Now I'm married and my spouse and I don't really have the same financial vision in that regard or it would certainly be still feasible.

[adambr2]

I'll give an example, albeit a rough one. Say my wife and I marry at 25 with no retirement savings and buy a 100K house. We make a combined 50K net per year and want to retire at 45. We want to live off 25 net, just over 2K a month, which is difficult, but feasible. Its more feasible because mortgage payments will not figure into this for most of the exercise.

 

Now with cost of living it gets a little tricky; obviously 25K doesn't buy you 20 years from now what it does today. So for simplicity I'll figure in neither that nor raises and promotions.

 

Figuring in taxes and health insurance in retirement, we want 40K a year in retirement, which is partially taxable and partially tax sheltered in a Roth. So with the 4% rule, we'll need 1 million dollars for that.

 

My wife and I combined contribute 10K to our respective 401Ks, fully matched dollar for dollar -- some companies as Homer mentioned are even more generous. This leaves us 15K annually for other investments. We'll spend the first 7 years aggressively putting all 15K toward the mortgage in extra principal payments, guaranteeing we own the house outright within 7 years. We'll delay having children until age 30-31 so the kids and the added expense they bring hit around the same time the house is paid off.

 

After this, we'll put the extra 15K into a Roth IRA up to the maximum limits with the extra going into a traditional IRA.

 

Assuming 6% returns on an average for all accounts we would hit our goal in exactly 20 years, accumulating 1.08M by age 45 and retiring.

[KeithStone53151]

I'll give an example, albeit a rough one. Say my wife and I marry at 25 with no retirement savings and buy a 100K house. We make a combined 50K net per year and want to retire at 45. We want to live off 25 net, just over 2K a month, which is difficult, but feasible. Its more feasible because mortgage payments will not figure into this for most of the exercise.

 

Now with cost of living it gets a little tricky; obviously 25K doesn't buy you 20 years from now what it does today. So for simplicity I'll figure in neither that nor raises and promotions.

 

Figuring in taxes and health insurance in retirement, we want 40K a year in retirement, which is partially taxable and partially tax sheltered in a Roth. So with the 4% rule, we'll need 1 million dollars for that.

 

My wife and I combined contribute 10K to our respective 401Ks, fully matched dollar for dollar -- some companies as Homer mentioned are even more generous. This leaves us 15K annually for other investments. We'll spend the first 7 years aggressively putting all 15K toward the mortgage in extra principal payments, guaranteeing we own the house outright within 7 years. We'll delay having children until age 30-31 so the kids and the added expense they bring hit around the same time the house is paid off.

 

After this, we'll put the extra 15K into a Roth IRA up to the maximum limits with the extra going into a traditional IRA.

 

Assuming 6% returns on an average for all accounts we would hit our goal in exactly 20 years, accumulating 1.08M by age 45 and retiring.

 

I don't think living off $40k/year in retirement is a wise move. At least half of that could go to health care in any particular year, especially if you have any health issues...which is more and more likely as you age. That's one thing I think people can miss looking at retirement is healthcare costs. It's easy to forget about when your employer is paying 80+% of your premiums.

[BrewCrew02]

I'll give an example, albeit a rough one. Say my wife and I marry at 25 with no retirement savings and buy a 100K house. We make a combined 50K net per year and want to retire at 45. We want to live off 25 net, just over 2K a month, which is difficult, but feasible. Its more feasible because mortgage payments will not figure into this for most of the exercise.

 

Now with cost of living it gets a little tricky; obviously 25K doesn't buy you 20 years from now what it does today. So for simplicity I'll figure in neither that nor raises and promotions.

 

Figuring in taxes and health insurance in retirement, we want 40K a year in retirement, which is partially taxable and partially tax sheltered in a Roth. So with the 4% rule, we'll need 1 million dollars for that.

 

My wife and I combined contribute 10K to our respective 401Ks, fully matched dollar for dollar -- some companies as Homer mentioned are even more generous. This leaves us 15K annually for other investments. We'll spend the first 7 years aggressively putting all 15K toward the mortgage in extra principal payments, guaranteeing we own the house outright within 7 years. We'll delay having children until age 30-31 so the kids and the added expense they bring hit around the same time the house is paid off.

 

After this, we'll put the extra 15K into a Roth IRA up to the maximum limits with the extra going into a traditional IRA.

 

Assuming 6% returns on an average for all accounts we would hit our goal in exactly 20 years, accumulating 1.08M by age 45 and retiring.

 

 

The only problem with this example is that all of your savings are tied up in retirement accounts which could be subject to a penalty if distributed early. With interest rates this low you would be better off saving the money instead of putting the cash toward extra principal payments (mortgage rate is likely 4% vs. the 6% annual return you are expecting). Debt isn't necessarily a bad thing if you can get a greater return elsewhere on the use of that cash.

[Patrick425]

I'll give an example, albeit a rough one. Say my wife and I marry at 25 with no retirement savings and buy a 100K house. We make a combined 50K net per year and want to retire at 45. We want to live off 25 net, just over 2K a month, which is difficult, but feasible. Its more feasible because mortgage payments will not figure into this for most of the exercise.

 

Now with cost of living it gets a little tricky; obviously 25K doesn't buy you 20 years from now what it does today. So for simplicity I'll figure in neither that nor raises and promotions.

 

Figuring in taxes and health insurance in retirement, we want 40K a year in retirement, which is partially taxable and partially tax sheltered in a Roth. So with the 4% rule, we'll need 1 million dollars for that.

 

My wife and I combined contribute 10K to our respective 401Ks, fully matched dollar for dollar -- some companies as Homer mentioned are even more generous. This leaves us 15K annually for other investments. We'll spend the first 7 years aggressively putting all 15K toward the mortgage in extra principal payments, guaranteeing we own the house outright within 7 years. We'll delay having children until age 30-31 so the kids and the added expense they bring hit around the same time the house is paid off.

 

After this, we'll put the extra 15K into a Roth IRA up to the maximum limits with the extra going into a traditional IRA.

 

Assuming 6% returns on an average for all accounts we would hit our goal in exactly 20 years, accumulating 1.08M by age 45 and retiring.

 

Yeah, I don't think this would work out too well. Along with reasons that others have mentioned including penalties for early withdrawal before age 59.5 from retirement plans (However, principal contributions older than 5 years contributed to a Roth IRA can be withdrawn at any time), there are others. The 4% rule assumes you are retiring at a traditional retirement age (65ish). You are adding 20 years to your retirement life that the $1M will have to cover. Also, your kids would be around 15 years old or younger when you retire. Your family health insurance premiums will be at least $1,000 a month, probably closer to $2,000 (and you won't be eligible for Medicare until 65). Also, your SS benefits will be greatly reduced when you finally are eligible to collect it since SS is based on highest 35 years of pay. If you retire at age 45, you may have 25-30 years of pay at the most (based on the current way SS works).

 

As a side note, the 4% rule is questionable. If you Retire at 65 and have $1M and use the 4% rule, the $1M principal would get you to age 90 (assuming it's 4% of your initial retirement amount and not 4% of the amount at the end of each year) . So, it seems to assume that you just move all the money to cash when you retire. That would be a foolish move. You should be at least at 50/50 (50% Equities/50% fixed) or 40/60 in retirement.

[MrTPlush]

Your theory says you want to (combined?) save up $1mil for an early retirement at 45? That’s going to be one sad retirement.

[OldSchoolSnapper]

Not necessarily. $40k for two people is doable, it just flies in the face of conventional thinking so there is a knee-jerk reaction that it's insane. Pete Adney has been doing it for years on about $25k with a dependent child no less.

 

As far as early withdrawal penalties, there are a billion loopholes for accessing retirement accounts prior to that age but that's a much longer post. Healthcare is a valid point, however Obamacare has made that a much less stressful proposition than before. You can remove a lot of that burden by taking care of yourself - before anyone says it, yes, I know bad things happen to people who do good things and your uncle ran 5 miles a day and still got cancer. I get it. The odds are tipped heavily in your favor if you do those things, though.

 

His example of the $40k wasn't meant to be taken literally, he just used it because it worked with round numbers and utilized the 4% rule with a nice round $1mm.

 

His point is still valid - the math behind retirement isn't as complicated as we're led to believe. $3 million by age 60 is extremely attainable for two working people on modest incomes. And it's most likely beyond what anyone would need and still enjoy themselves quite a bit.

[RobDeer 45]

Retirement and income is different for every person, so if you feel comfortable with that amount annually, then that's cool. I do think you want to have cushion when possible.

 

Couple thoughts on your plan

* As another poster said, you may want to reconsider paying off your house so quickly. For some people, not having a payment is a huge relief, so you can't put a price tag on that. With the lower rate on your insurance compared to what you should get for return on investment, a lot of times you are better off not paying off your house. Also understanding Time Value of Money is important when deciding saving now vs later.

* Would you consider getting part time jobs now to save more money, since you are already putting off having kids? That could set you up really nice, working hard now so you can retire early.

* Would you consider working part time jobs in early retirement, so you didn't have to touch your retirement money until later, so you don't have penalties? If you could go part time and make enough to live off o,f and not add more to retirement, or take any out, you'd let that money grow even more!

 

Just some thoughts. Future value calculators are really fun to play around with.

[OldSchoolSnapper]

Another common option is the non-breadwinning spouse continues working and adds you to their insurance. Some people really love their jobs and would do them for free. I have many friends and acquaintances who've done this. Usually the one working has a pretty liberal vacation policy and they still travel often while maintaining the benefit perks of a job.

[MKEguy]

To revisit the real estate idea... If you've got $15k to invest for a couple years, my favorite idea to start off with is the following;

 

1) most importantly, find a good property manager.

2) put 25% down on a $40k-$60k duplex in MKE.

3) Rent each side out for $550 - $700, depending on location and rooms.

4) don't take any profits for a couple years, just save the income so you have a bubble for a bad turn (fixing the unit and getting a new tenant in)

5) Within a few years, you will have saved up enough money to get your initial down payment back and either put it back in wherever it came from or invest in another property and double your cash flow.

 

You'll never get rich off of what the property is worth, but it'll constantly cash flow until you sell the house.

 

Its not as scary as people think, as long as you have a good property manager. You can get good tenants everywhere. Crappy landlords and managers bring in crappy tenants.

[homer]

 

Its not as scary as people think, as long as you have a good property manager. You can get good tenants everywhere. Crappy landlords and managers bring in crappy tenants.

 

I think the property manager part is key. You have to be able to pay them AND make a small net profit every month. Not easy all the time which is why a lot of people self-landlord and that can be a pain unless you are handy and have time to do all the work.

[GAME05]

My folks rent out their second house when they're not there. They pay to have it listed on a site, pay for the property manager, and pay for the cleaning lady to come in after. For the most part it pays the monthly mortgage but isn't any real profit-earner. I'd also imagine the insurance is pretty steep since you've got to replace damaged furniture. I think if I were going into property, it would be purchasing a larger plot of land to hunt on, camp, and for firewood. You take the hit from the property taxes but the value increases as nearby towns grow larger. I see rental property as one of those things where it isn't much of an investment if I can't somehow add value to it, myself, whether that's from knowing how to fix things yourself or other tricks to avoid higher costs.

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I was looking at the stock analyzer Old School Value yesterday. Not cheap at somewhere around $30/mo, but I think when I start being able to put real money away per month, that would really help me to figure out stuff like the Graham Number without near as much work. My usual route is to start with DataRoma, find some interesting recent buys, and then analyze those myself. The downside to it is I lose some time in waiting to see what the Superinvestors have done instead of noticing something right away on my own, but the upside is I'm letting smarter people than me make the initial decision, and I think that's still an overall plus.