211–220 of 509 posts
If you seek out average advice, expect average results. You are going to get a bunch of people talking about equities, Bogleheads, bla bla bla. Read the book “Expected Returns” and start pulling threads.
Cash out refi everything you can. At 3%, 30 year fixed, with fed target inflation rates of 2-3%, you’ll need a If you can’t get that with passive investments over the next 30 years, the banks will have bigger problems than your loan. Despite your risk aversion, consider putting some in a robo advisor (mix of bonds, index, foreign index, etc), to hedge against a spike in inflation, or a crash of just the US economy. T…
There are tons of high-yield savings accounts paying much more than 0.35%. Telling people to increase their indebtedness to buy index funds right now is pretty dubious advice.
Surely, there is some percentage where it makes sense. If the loan percentage were -1%, it would obviously be a good idea, right?
Assuming 2% inflation, sitting in cash is like taking out a loan you don’t need out at ~2%, and stuffing the money in a mattress. That’s clearly a bad idea, right?
Current rates are 3%, and the market returns about 7% in the long term. (4-5% inflation-adjusted).
Historically, the only way to get burned reinvesting a loan at these rates was buying at the peak prior to the Great Depression. The market will go up or down over the next year, so averaging the purchase over that time eliminates the timing risk.
I can’t come up with a more risk averse strategy than this that also has positive real returns in expectation. Any suggestions?
(Edit: minor clarification)
> I'm not comfortable investing the entirety into an index fund, given the current socio-political climate. Over the the long term there is not really anything better to do with it than equities: the Great Depression, World War 2, gold standard retirement, 1980s inflation, etc. Even if you only invested in the peaks, you'd still do quite well over the decades: * https://awealthofcommonsense.com/2014/02/worlds-worst-m…
I agree with the (downvoted) guy who said, I'm an index fund skeptic. Something is true with index funds that was less true historically, which is the concentration of a few large companies in the largest indexes - as in, the amount of percentage of capital they have. Fact, FAANG make up 10% of the s&p 500 index, tech makes up 20+ %. It's NOT at all averaged out in the way the Bogleheads might think it is. Is it a "b…
Which is to say, exactly like has been for the last several decades:
* https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and...
* https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty...
* https://en.wikipedia.org/wiki/Nifty_Fifty
* https://etfdb.com/history-of-the-s-and-p-500/
* https://www.qad.com/blog/2019/10/sp-500-companies-over-time
That's the definition of the S&P 500: the largest five hundred companies publicly traded companies.
> Fact, FAANG make up 10% of the s&p 500 index, tech makes up 20+ %. It's NOT at all averaged out in the way the Bogleheads might think it is.
Why do you fixate on the S&P 500? If you want something more diversified, you can own a piece of all ~3000 publicly traded companies in the US:
* https://en.wikipedia.org/wiki/Russell_3000_Index
John Bogle and Vanguard themselves recognize(d) this:
* https://www.marketwatch.com/story/vanguard-thinks-its-own-em...
* https://www.marketwatch.com/story/bogle-explains-why-vanguar...
And many Bogleheads also examine the performance of many different types of indexes:
* https://www.bogleheads.org/wiki/US_total_market_index_return...
> Put those two things together, and the S&P 500 index isn't diversified.
You're not wrong, but trying to explain to the layman about all this technical minutiae will cause their eyes to glaze over. So for the average Joe the Plumber the easiest message to get across is "invest in 'index fund' (=S&P 500)". Once you get people to actually save on a regular/monthly basis in low-fee funds, you're >80% of the way to a somewhat successful retirement strategy.
If you want to argue about &P 500 vs 400 vs 600 vs 1500 vs Russell 3000: that's for later once people actually have something going into a retirement account.
Earlier quoted context omitted.
We are in unprecedented times (Lowest bond yields, highest debt, Crazy P/Es). Back-testing is only so useful. And only 20 years even less. We just had a GDP drop which is the largest since WW2 for some, or since 1929 for the U.S. Look at Japan's stock market index e.g. for what the future could look like. Historically low bond yields: The room for rates to go lower is low. I would suggest to be careful with investing…
> And only 20 years even less. I'm guessing you're in the US. I'm sure you can find papers and articles doing back-testing to the 1920s, which would include the Great Depression. If you can wait long enough, things have always recovered and earned a return. > Did you adjust your calculations for inflation? For the S&P 500, the absolute worst-case is 58 years of not being up, I believe. 1929 - 1987. Not my calculation…
I'm pessimistic about bonds because of the debt bubble (gov debt, MBSs, CLOs, corporate bonds) and low yields. Governments couldn't stomach higher rates, either. In the big sell-off we have seen in March everything went down together margin-call style. I guess it did lower volatility, but it also provided little upside.
Euro yields are even negative.
I don't see how any of the countries possible exit strategies could be good for bonds.
Thanks for the links!
Just skimming some of the replies here makes me think you will get better advice on the Bogleheads forum [1]. Despite the minimalist appearance it is actually a great place to get sensible financial advice. I would start with the wiki page on managing a windfall [2], then search through older replies to similar questions. This kind of question gets asked there a lot, so there should be some recent threads. [1] https:…
1. put 6 months of expenses in a high-yield savings account that is easily accessible + liquid in case of emergencies
2. max out tax-advantaged accounts. $19.5k/yr 401k + $6k/yr IRA. allocate into anything similar to a target date retirement fund with healthy exposure to US total market/probably light bonds depending on age
3. put the rest in a brokerage account, allocated in the same things your 401k + IRA are allocated in (target date retirement funds that track things similar to VOO/SPY/VTI/FZROX/etc.)
My advice is unconventional. Why maximize your return? Money is a renewable resource, but time is not. If I were you, I'd spend the money to enjoy my time with others I care about and donate the rest to others in need.
Money is not renewable because you must spend time to obtain money.
Earlier quoted context omitted.
> the willingness of the Federal reserve to print money (create debt). Without restraint nowadays. Ben Felix, a portfolio manager at PWL Capital in Canada, just released a video explaining why this is completely wrong: * https://www.youtube.com/watch?v=K3lP3BhvnSo > Quantitative easing is a monetary policy whereby a central bank buys government bonds or other financial assets in order to inject money into the economy…
He might mean debt monetization. When the Fed buys treasuries. I think the video didn't touch on that. M2 money supply changes nicely correlate with S&P500 performance. So there is truth to his statement. I'd also throw out the assumption that the Fed will reduce the balance sheet eventually. They tried and failed in 2019. It's not going to happen. They are in fact "spending" (through the Treasury and their bond-buyi…
That's because COVID-19 happened. :)
The Fed is buying up bonds: at some point they will mature and the US government will have to either (a) increases taxes to come up with the money to repay them (thus taking money out of circulation via the IRS), or (b) roll the debt forward by issuing new debt to pay the old debt.
Given that a few years ago the UK rolled forward some debt from the South Sea Bubble, Napoleonic Wars, WW1, etc, rolling forward debt is not as big a deal as most people think:
* https://www.theguardian.com/business/blog/2014/oct/31/paying...
* https://www.nytimes.com/2014/12/28/world/that-debt-from-1720...
If you seek out average advice, expect average results. You are going to get a bunch of people talking about equities, Bogleheads, bla bla bla. Read the book “Expected Returns” and start pulling threads.