241–250 of 264 posts
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Nitpicking, 48k is close enough for the point to still be valid. You are technically correct though.
> 48k is close enough ... Mathematics is the one discipline where "close enough" isn't close enough. :)
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One of the recommendations is actually wrong, and in fact outright harmful. "Buy inexpensive, well-diversified mutual funds such as Vanguard Target 20xx funds." Yeah, no. Mutual funds, even those by Vanguard, have high expense ratios, and there is absolutely no evidence that they outperform their equivalent index funds. Jack Bogle, founder and retired CEO of Vanguard, himself recommends index funds over mutual funds…
Vanguard Target funds are nothing but a collection of passively managed index funds. The ER is slightly higher than doing it a la carte, but it re-balances without having to worry about it.
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> With up-front taxation you still end up paying additional capital gains taxes at the end of the day on your total capital gain. Not true if it is a Roth IRA, which is post-tax contribution but tax free on withdrawal.
Of course. A Roth IRA almost always makes sense, which is why they are so limited.
A Roth IRA makes sense in two circumstances:
1) You have maxed out contributions to tax-deferred retirement accounts, such that the only options for additional retirement savings are Roth IRA or regular investments with no special tax benefits (i.e., post-tax contribution and capital gains tax on withdrawals.), or
2) you expect to be at a retirement-savings-excluded income esuch that the average tax on withdrawals from your retirement savings would, if taxed as income, be greater than the taxes you pay on current-year income. (Otherwise, your better off with a tax-deferred vehicle than a Roth IRA.)
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"4% return is conservative. 7% is actually the historical average. So my 4% left plenty of room for bad years." It's only "conservative" if you don't understand variance. The risk isn't in the value of the average. The risk is in the variation around that average. Like I said: if you invested 66% of your net income in the stock market in 1999, you'd be a long way from retirement today. And if you're tempted to keep a…
You'd still be plenty wealthy due to dividends. Raw price indexes hide the true wealth.
Not all stocks offer dividends, and not all investors choose stocks with dividends (there are tax disadvantages to returning value via dividends rather than via appreciation of stock value.) Dividends offer a lower risk component of return, but typically in a diversified portfolio you can put some share of the portfolio in a lower-risk investment to have that lower-risk component.
So, for growth focused investors that aren't risk sensitive, dividends can be a negative feature, and for investors that are risk sensitive, they aren't essential as there are other ways to tune a portfolio around risk. This makes, at best, only a weakly positive net incentive, and more likely a negative net incentive, for firms to offer dividends.
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I started retirement investing in 1993. I did an APY analysis where I pretended I invested every one of my retirement contributions into the S&P-500, on the day that I invested it. From then until today, that APY would have been 6.77% . That's a far cry from 11.26% .
Did you include dividends when calculating that percentage? I have not done the math, but my intuition tells me that 6.77% is a little low. 11.26% is also high for that time period--I think that figure includes the post-WWII figure (and also includes dividends).
This is interesting - I've shared this multiple times in other discussions like this, and a comment like yours is always the first response, that it seems low, questioning if I included dividends. If anything it might just underscore how our collective "societal" intuition might be a bit off in terms of long term retirement performance.
I think part of it is that people tend to contribute more to retirement when times are good, since they have the extra money, and contribute less when times are bad since they're just getting by. The problem is that the market tends to be high when times are good, and low when times are bad. So this will naturally depress performance for everyone. It's impossible to contribute a consistent amount every week/month without having a cash buffer (which would depress performance anyway).
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The savings part sounds like advice from Mr. Money Mustache, there was discussion about his advice here before. "Never borrow money" would include never having a mortgage, which would be a huge lost opportunity for many. Not to mention borrowing money to invest in oneself, start a business, etc.
A mortgage is one of the few exceptions, and even then you should carefully consider whether renting or buying makes more sense. A car, notably, is not a good exception. Education depends heavily on return on investment; you'd want to carefully analyze how much more you'll make with that education, how long it'll take you to pay off the debt, etc. It can certainly make sense when attempting to bootstrap yourself if y…
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Don't let your babies die, but really try not to have them if you can't afford them. I never said people's poor decisions made them poor, I'm saying they can help get out of poverty by making good ones. And if you have kids, yes, make a dollar. You brought life into this world and you have a responsibility. You can let your kids get stuck in a cycle of poverty by feeling like a victim or you can bust your ass to try…
> Don't let your babies die, but really try not to have them if you can't afford them. This is outrageous. Parenthood is one of the most (if not THE most) meaningful parts of being human. Financial issues should NOT take this away from anyone.
But we cannot ignore the fact that raising a child is extremely expensive, and children raised in poverty often have very negative outcomes. He's not saying poor people aren't allowed to have children, he's saying it's a good idea to try not to, because of the likely poor outcome of a child born in poverty.
Poor outcomes such as the child being unable to graduate from high school, or go to college. Repeating the cycle by having a baby in high school, dropping out and probably to raise a high school dropout as well. No one is saying this is always what happens, or that poor people aren't allowed to have children. We're just saying it is not a good idea to have a child unless you're financially stable enough to raise a child with a better outcome. There are obviously plenty of exceptions to the idea that a child born in poverty will have a bad outcome, but the majority outcome is negative (in terms of economic achievement, social mobility, etc).
self-contradictory: "Make financial advisor commit to a fiduciary standard"
A Registered Investment Advisor (RIA) is required by FINRA to commit to a higher fiduciary standard than a broker (the more commonly used investment advisor). I think that's what he's referring to. Of course, most RIAs don't cater to anything but high-wealth individuals. Things are changing, though, as the Internet is enabling a number of RIAs to cater to those with lower levels of investment funds.
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Have you outperformed on a risk-adjusted basis (ie: delivered alpha)? Or simply beat on an outright basis? That time period, aggressive buying of nearly anything beat the DOW-30 (as my portfolio handily beat the DOW30 as well, since I'm full risk-on at this point in my life). I know I crushed the DOW, but I'm much less convinced that I delivered alpha.
I got better than anything else I could have invested in. That's what matters to me.
I knew a lot of people who thought they were hot stuff day traders back in 1998 too. Spoiler: they weren't.
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That sounds wrong. An unexpected year-long unemployment isn't unheard of, but for an already-employed investing professional (i.e. not a recent entrant/re-entrant to the employment market who wouldn't be able to take this advice anyway) it's really quite rare. Certainly it's not true that most people "need" to do that, as it won't happen to them. This sounds like the kind of failure mode better addressed by solutions…
In broad strokes, the more specialized your skill, the harder it will be to find a job that meets your salary expectations. Sometimes this will mean moving to a new city or being unemployed for over a year. Sometimes this will mean taking a pay cut, which means you'll need some cash to break a lease or otherwise see you through downsizing your lifestyle. Also keep in mind that it's huge to have 6 months of expenses e…
And that insurance is readily available in the market, if the duck on my television is telling me the truth.