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Maybe Warren Buffett Is Warning Us About Something

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Re: Maybe Warren Buffett Is Warning Us About Something

#91

Post by ericd »

wbl wrote: post #59
chii wrote: post #30

Earlier quoted context omitted.

so to sum it up, don't do anything, and hope? Because even if you attempt to educate yourself, it'd be like trying to learn to do your own surgery. Not impossible, but... What i want to really know is what people with a lot of money actually do - and when i say a lot, i meant a lot. networth in excess of 8-9 digits. What do they invest in? What diversification measures do they do? Which country? And finally, how they…

Put it all in the S&P 500. I lived on a street with a bunch of Wall Street higher ups growing up. They all were Vanguard customers.

Most people, if they’re honest with themselves, don’t have the stomach for a 100% equity portfolio. That includes the intestinal fortitude not to panic and sell when the market drops 50% or more.

Re: Maybe Warren Buffett Is Warning Us About Something

#92

Post by whatok »

vonmoltke wrote: post #78
panarky wrote: post #47

Earlier quoted context omitted.

Asset allocation strategies like this used to work because the components like stocks and bonds were negatively correlated. When stocks crash, bonds gain value and reduce the variation and risk of the portfolio as a whole. But that doesn't always happen. Sometimes the correlations flip, and everything becomes positively correlated, and everything crashes at the same time. Today, there's about $20 trillion in the glob…

> Today, there's about $20 trillion in the global government bond market that actually has a negative yield, which means the borrower gets paid to borrow. Not really. The yields are negative, but the coupon rates are positive. Most of those were initially sold with a positive rate, then went negative as buyers bid up the prices. The issuing governments don't get that appreciation, and are still obligated to pay the c…

There have been quite a few recent issues at negative yields and coupons do not need to be low (they usually are though) for yields to be negative; bonds can also be issued at a premium to par. Recent 30 year Bunds were issued with a 0 coupon at EUR103.61 for a yield of -0.11.

Re: Maybe Warren Buffett Is Warning Us About Something

#93

Post by sleepysysadmin »

digitalsushi wrote: post #2

I have no idea how money works. I have a 401k, it's got more in it than the median 60 year old in the united states, and I'm 20 years from that. And I am terrified of how little I know about how it exists or survives. I read these articles and get a sense of overwhelming urgency that, without any explicit indication, I should do something with my nest egg to make it safer to survive a crash. And then I keep reading,…

I would say learn. The beauty of places like Questrade(I use them) is that they've made barrier to entry amazingly easy.

Your 401k no doubt is holding mutual funds that are tremendously expensive and practically just robs you. https://www.sec.gov/fast-answers/answersmffeeshtm.html

If the mutual fund charges 3%. Then the underlying securities have to increase 3% before you have broken even. Which if you're mixing bonds and such, you're probably not getting yearly returns much higher than that. So your money is literally doing nothing for you. Then during a market downturn, you just plain lose. You're down the market amount AND the 3%.

Flipside, ETFs like Vanguard have fees of 0.05% on some of the big ones. So when the stocks increase in value, you pretty much get all of the benefit.

You're not making some banker and financial advisor rich off your money. You're retiring sooner.

Re: Maybe Warren Buffett Is Warning Us About Something

#94

Post by ericd »

panarky wrote: post #47
mhb wrote: post #18

Earlier quoted context omitted.

I recommend reading about the Permanent Portfolio: https://www.investopedia.com/terms/p/permanent-portfolio.asp The permanent portfolio was constructed by Harry Browne to be what he believed would be a safe and profitable portfolio in any economic climate. Using a variation of efficient market indexing, Browne stated that a portfolio equally split between growth stocks, precious metals, government bonds and Treasury…

Asset allocation strategies like this used to work because the components like stocks and bonds were negatively correlated. When stocks crash, bonds gain value and reduce the variation and risk of the portfolio as a whole. But that doesn't always happen. Sometimes the correlations flip, and everything becomes positively correlated, and everything crashes at the same time. Today, there's about $20 trillion in the glob…

IIRC, the permanent portfolio is 25% stock index, 25% long term bonds (which do great in low inflation, dropping interest rates), 25% gold, and 25% cash/short term debt.

Bonds doing terribly means interest rates spiking, and potentially defaults, or massive inflation. Which are all possibilities.

In those cases, you’re probably going to be very happy for the gold portion of the permanent portfolio. And it has been on a bit of a tear, recently, rising ~15% vs USD.

Re: Maybe Warren Buffett Is Warning Us About Something

#95

Post by ericd »

acollins1331 wrote: post #9
digitalsushi wrote: post #2

I have no idea how money works. I have a 401k, it's got more in it than the median 60 year old in the united states, and I'm 20 years from that. And I am terrified of how little I know about how it exists or survives. I read these articles and get a sense of overwhelming urgency that, without any explicit indication, I should do something with my nest egg to make it safer to survive a crash. And then I keep reading,…

While sitting on cash isn't necessarily a bad idea -- when the market crashes you then buy a bunch of index funds, having a 401k is a very safe investment. Think of it this way, the only way you're losing that money is if the market crashes, permanently, and if it crashes permanently, then that money isn't worth shit anyway.

Japan is still a wonderful country, despite the Nikkei being depressed for decades at this point.

Re: Maybe Warren Buffett Is Warning Us About Something

#96

Post by AnimalMuppet »

digitalsushi wrote: post #2

I have no idea how money works. I have a 401k, it's got more in it than the median 60 year old in the united states, and I'm 20 years from that. And I am terrified of how little I know about how it exists or survives. I read these articles and get a sense of overwhelming urgency that, without any explicit indication, I should do something with my nest egg to make it safer to survive a crash. And then I keep reading,…

From the Bible: "Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth" (Ecclesiastes 11:2).

That is: diversify. You don't want your entire 401k in one stock. An S&P 500 index fund is better, but you might want to put a bit of money in an international stock fund, and a bit in a bond fund. (You probably still want to be mostly in stocks at your age, but note well: I am not an investment advisor.)

Re: Maybe Warren Buffett Is Warning Us About Something

#97

Post by ac29 »

mhb wrote: post #18
digitalsushi wrote: post #2

I have no idea how money works. I have a 401k, it's got more in it than the median 60 year old in the united states, and I'm 20 years from that. And I am terrified of how little I know about how it exists or survives. I read these articles and get a sense of overwhelming urgency that, without any explicit indication, I should do something with my nest egg to make it safer to survive a crash. And then I keep reading,…

I recommend reading about the Permanent Portfolio: https://www.investopedia.com/terms/p/permanent-portfolio.asp The permanent portfolio was constructed by Harry Browne to be what he believed would be a safe and profitable portfolio in any economic climate. Using a variation of efficient market indexing, Browne stated that a portfolio equally split between growth stocks, precious metals, government bonds and Treasury…

Just keep in mind this is an extremely conservative portfolio, that wont do much better than "cash under the mattress". That being said, a low risk way to do slightly better than inflation may be exactly the portfolio some people are looking for (not that I'd advocate this particular allocation).

- 25% in cash (short term treasuries actually): currently returning ~2%, approximately the returns of a higher yielding savings account.

- 25% in gold: historically does only very slightly better than inflation. Currently price of gold is inflation adjusted the same as it was in 1979, which was followed by a ~50% loss that took 30 years to recover [0]. TIPS are probably a better choice for people extremely worried about inflation.

- 25% in long term bonds: a sensible allocation to bonds, though I'd prefer intermediate term, personally.

- 25% in stocks: extremely low allocation. Generally 60% allocation to stocks is considered fairly conservative - it gives you some of the increased return of equities while reducing the volatility of exposure to the stock market. Lower allocations definitely make sense for some folks, though I've yet to see a compelling case made for anyone still in their earning years doing less than 40%.

[0] https://www.macrotrends.net/1333/historical-gold-prices-100-...

Re: Maybe Warren Buffett Is Warning Us About Something

#98

Post by vonmoltke »

MrRadar wrote: post #84
vonmoltke wrote: post #81

Earlier quoted context omitted.

> Yes, 401k plans usually have high fees I haven't seen these "high fees" in any of the five 401k plans across 4 providers that I have had since I started my career 17 years ago.

They're often buried in the "expense ratio" of the funds offered. My company's 401k plan has exactly 3 funds with an expense ratio lower than 0.50%, all of them US domestic index funds. All of my bond and international options have ERs over 1.00% which is unacceptably high (I have most of my holdings of those asset classes in my other retirement accounts).

I don't really see how that counts as "401k fees", since those funds charge the same expense ratio to people who buy them on the open market. Investment choice, or lack thereof, is an issue that goes beyond fund fees.

Re: Maybe Warren Buffett Is Warning Us About Something

#99

Post by whatok »

vonmoltke wrote: post #98
MrRadar wrote: post #84

Earlier quoted context omitted.

They're often buried in the "expense ratio" of the funds offered. My company's 401k plan has exactly 3 funds with an expense ratio lower than 0.50%, all of them US domestic index funds. All of my bond and international options have ERs over 1.00% which is unacceptably high (I have most of my holdings of those asset classes in my other retirement accounts).

I don't really see how that counts as "401k fees", since those funds charge the same expense ratio to people who buy them on the open market. Investment choice, or lack thereof, is an issue that goes beyond fund fees.

Some 401ks have access to different share classes that have (nearly) identical funds with different fee structures.

Re: Maybe Warren Buffett Is Warning Us About Something

#100

Post by MrRadar »

whatok wrote: post #99
vonmoltke wrote: post #98

Earlier quoted context omitted.

I don't really see how that counts as "401k fees", since those funds charge the same expense ratio to people who buy them on the open market. Investment choice, or lack thereof, is an issue that goes beyond fund fees.

Some 401ks have access to different share classes that have (nearly) identical funds with different fee structures.

This. The employees participating in the 401k plan don't choose which funds the plan includes, HR people (who are often not very well-versed in investing) do. Those HR people will choose these high-ER funds because the 401k provider usually offers discounts to their direct costs for having them, essentially shifting the cost of running the 401k plan from the employer to the employees.
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