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Turning 26yrs in Jan / retirement situation advice

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Money Talk > Retirement Planning

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Darga19
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OK...so say I change my portfolio to this:

1. Large Cap Value/LSV Asset Management Fund (18%)
2. Large Cap Growth/Neuberger Berman (18%)
3. Small Cap Value/Kennedy Capital Fund (12%)
4. Small Cap Growth/Boston Co. Fund (12%)
5. International Blend/Artio Fund (20%)
6. Large Cap Blend/S&P500 Index (20%)

That would keep the 80/20 US/International ratio, and would eliminate some costs, but still keep things balanced, right?

What is the benefit of having LC vs SC stocks? It looks like the Kennedy and Boston have sort of underachieved when compared to their projections. Is it smart to keep these?

So will my portfolio be rebalanced with Goalmaker if I still have Goalmaker funds in it, i.e. the funds I already have?
Post Fri Dec 17, 2010 6:14 pm
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Darga19
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Maybe switching out both of those managed LC funds for 50+% sp500 would be my best bet. After all...getting wealthy slowly is my goal here, just like you guys have said. And I just read that putting all your LC investments right in the sp500 index is not a bad move. Thoughts?

Those 2 SC funds have a 2star morningstar rating....hmm...
Post Fri Dec 17, 2010 6:52 pm
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Darga19
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1. Ups or downs to putting all 401k large cap stocks in an index fund (I have the Dryden SP500 available to me) as opposed to splitting between the 2 Growth and Value funds that are available? ....one advantage is lower expense ratio. Any downside?

2. How often should your portfolio be rebalanced? Prudential does mine quarterly with Goalmaker, but I'm considering canceling Goalmaker and doing it myself (looks like all it takes is a couple clicks and resetting your original percentages of the asset types.....).
Post Sat Dec 18, 2010 4:52 pm
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Darga19
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quote:
Originally posted by coaster
When my investments were all funds; I gave each a percent of the p'folio; when one fund exceeded its percent by 10 percent (i.e. a 20% allocation went over 22%) then I did no more buying of that fund; putting subsequent purchases into funds that were below their percent. This is a derivative of what's called "value averaging" in which you buy the funds that are underperforming; the theory being that it forces you to buy "value" and to avoid buying what's overpriced.

I did that for a few years and frankly didn't see much advantage in it.

Now that my all my funds are in my IRA I just let them run.....


That value average as you call it, seems to be what Prudential's Goalmaker is all about. The sell the higher stock and rebuy the lower stock (to obtain your original percentages of allocation) quarterly.

quote:
Originally posted by coaster
With my stocks my only criteria for balancing is that no one position exceed 10% of the p'folio.


Can you explain this? What do you mean by 'position'?
Post Mon Dec 20, 2010 1:03 pm
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oldguy
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When you buy an individual stock, you have a 'position' in that company, ie, a 'holding', you own some of it.

A common rule is to never allow a single stock to add to more than 10% of your holdings - some use 5%. The 10% rule means that you would need at least 10 stocks in your portfolio, 20 would be better. In a way, you would be building your own mini-mutual fund. But, since the invention of mutual funds, no need to do all of that - just buy the 'bundle'.
Post Mon Dec 20, 2010 1:21 pm
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Darga19
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2 Questions regarding index funds...

1. (This one I also posted earlier...really curious here...). Are there ups or downs to putting all /part of 401k large cap stocks in an index fund (I have the Dryden SP500 available to me) as opposed to splitting between the 2 Growth and Value funds that are available? ....one advantage is lower expense ratio. Any downside?

2. How do you choose which index fund to invest in? For example, the only index fund that is available to me in my 401k is the Dryden one mentioned above. However, the 2 large cap funds I'm currently invested in are benchmarked against different index funds...i.e. not the SP500 but the Russell 1000 Value and Growth Funds. So the question is...how do you choose which index fund is the best choice??

Obviously if I had the Russell 1000 funds available I'd just choose those as opposed to the managed funds that are trying to beat them...but switching to an index fund in my case would be switching to a different fund altogether.

**EDIT**

OK so I just I'd some reading and learned that the Russell 1000 index performs almost identical to the sp500, so, my question becomes:

Is there any advantage to having separate growth and value funds as opposed to one all encompassing balanced index fund, especially when factoring in that the growth and value funds have higher expense ratios??
Post Mon Dec 20, 2010 5:35 pm
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oldguy
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Here's another take on it -

If you put your $16.500/yr 401k max into a CD for 30 yrs it will match inflation, ie you will have a purchasing power of $495,000. For most persons retiring in 2040, that is going to be an unacceptable outcome. (In fact, it would be quite a disappointment in 2010).

Conversely, if you put that same $16,500/yr into an 11%/yr index it would be $3,650,000, a more satisafactory outcome.
The point is - a wage earner CANNOT 'save' his way to wealth, you must 'invest' in appreciating assets so that your compounding significantly outpaces inflation.

Above & beyond taking that giant step, the question reduces to - do I want to accept what the market gives me (the broad index) or do I want to add more risk and try for another 1% or 2%?

A broad general index (total market or SP500) gives you the historical 11%/yr. Narrower index funds, ETFs, MidCap funds, Small Cap funds, add risk and add possible return. But you need enough time to statistically realize that return. Eg, the University Endownments regularly get 15% returns over 50, 100, 200 yrs. They are not constrained by human lifetimes - they can buy dirt anywhere and wait until Disney builds a Park on it, they can wait a century for it. OTOH the NASDAQ investors in 2000 that took a risk to get 15% to 18% returns can't wait. Now, 10 yrs later, they are still down 50% - many won't live to see fruition.

So, since most of us are given only a 30-yr block to build our wealth before we must shift to our wealth preservation mode, many of us get better results by using 11% products that have always reverted to the mean within any 30 yr block (altho every generation has to wrestle with 'what if it doesn't do it THIS time??). In my case, I've done stock picking, shorted stocks, tried market timing, bought put options, call options, covered calls, and corn futures - all good fun - but none of them helped me become wealthy. Very Happy
Post Tue Dec 21, 2010 2:53 am
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Darga19
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Thanks for your thoughts guys.

All that said, I'm going to allocate my large cap stock portion of my 401k into that index. The funds I'm in now have higher expense ratios and over the past 10 years, one is slightly better than the index and the other is worse (which sounds like its commonplace), and neither one by that much. So, I think sticking with the lower cost option makes good sense for me. Since I'm young and still learning, I think the low cost / historically average suits me, at least for now.

Ok, that said, does it make sense to allocate some of the remaining assets to the higher risk small and mid cap funds? I don't have index funds of this type available to me in my plan, but the ones that are available (a small cap Kennedy and a mid cap Artisan) have done well and have good morningstar ratings. However, they do have higher expense ratios.

Or, would it make more sense to go more on the average/conservative side and keep the majority of the 401k in the sp500 index and maybe 10% bonds if that is advisable, and delegate my Roth for emerging markets/international/small cap indicies? If I did it that way I'd avoid the higher cost managed funds, but would the numbers make sense in terms of allocating the right amounts of $ in the right areas (considering my contribution rates)? Also would the 401k be diverse enough that way?

So many things to consider. At any rate, I'm thinking a target fund for my Roth might not be best...I think a range of index funds will be better suited for me. There really doesn't seem to be many downsides to them. With this much time to go till retirement (30+ yrs) I think nice steady 'average' returns with low cost funds will do me well!!
Post Tue Dec 21, 2010 1:51 pm
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oldguy
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quote:
At any rate, I'm thinking a target fund for my Roth might not be best...I think a range of index funds will be better suited for me. There really doesn't seem to be many downsides to them. With this much time to go till retirement (30+ yrs) I think nice steady 'average' returns with low cost funds will do me well!!


You are probably over-analizing. The differences between the vehicles that you are considering is within the rounding error, and well inside anyone's ability to make 30-yr predictions. The key metrics are long time (30 yrs), return (10% to 12%), and steady disciplined input.

quote:
Second thought: "reversion to the mean" is a crock. There's no rubber band pulling the outlying variance back to the middle. In fact, it's the other way around. It's the variance that's pulling the middle off to the side. The mean is a moving target. Each day generates a new mean.


Maybe, maybe not. Human behavior is nearly constant, it has been for 1000's of years. Look at the great Cathedrals of England built in the 1100's, the banking systems in 1300, the political monetary systems, the Rule of Law. Humans are continually ambitious, curious, always exploring & inventing.

In recent centuries -
1. Population growth. The US population growth - 1% to 2%.
2. Inflation - long term monetary inflation - 3%.
3. Consumption - our human propensity to consume ever more as we went from cabins w/ an out house to mcmansions w/ appliances and 3 cars - 2% to 3%,
4. Productivity - industrialization, mass production, automation, specialization, design for manufacturability, computerization, CAD/CAM, lights-out factories. The increased output per person means that a company can build more product with less labor, ie higher earnings - 4% to 5%.

These sum to 10%/yr to 13%/yr. So business sales (and earnings) need to grow at 10% to 13% to keep up with human demand. We may go a couple decades with low/no growth - the 1929 Depresion, the 1966 to 1981 Flat Spot, the 2000 ro 2010 lost decade. And we may go a couple of decades with high growth - the 18%/yr returns from 1981 to 2000. But, over the decades we eventually revert to the mean of 10% to 12%.
Post Tue Dec 21, 2010 4:40 pm
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Darga19
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quote:
Originally posted by coaster
Darga, I think we've hijacked your thread……. Laughing


Have at it. I like hearing educated and experienced people talk about interesting topics...knowledge is priceless.

Just like playing guitar with someone that's been playing for 50 years, so much for a young buck like myself to learn. Experience is everything.

....I tend to relate many things in life to music.....can't remember exactly what I wrote but I think I've babbled on about it in this very thread before lol Rolling Eyes
Post Wed Dec 22, 2010 1:45 pm
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Darga19
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quote:
Originally posted by coaster
What kind of music do you like?


I love when people ask me this lol Shocked

(big breath in...) I listen to everything from classic rock like Aerosmith and Jimi Hendrix and the Stones, to cheesy 80s garbage, to punk like the Sex Pistols, to brand new 'radio' rock stuff, to poppy Taylor Swift crap, to some rap & hip hop, to funky stuff like Stevie Wonder or Sly & the Family Stone, to Billie Holliday, to Johnny Cash, to rockin' oldies like the Beatles the Temptations and Frankie Valli, to anything blues like Stevie Ray Vaughan or Clapton or Jonny Lang, to Miles Davis, to Beethoven and Bach, and even some country stuff.

What the heck...this time of year I even like me some Trans-Siberian Orchestra and Mariah Carey Christmas too. Laughing

Now that's as diverse a "musical portfolio" (hey ho) as you'll find for a 25 year old...I'd bet a few potato chips on it. Cool
Post Wed Dec 22, 2010 5:09 pm
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jray51515
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Man, you are too young to be thinking about retirement but i have so much respect for people who think in advance.
Post Mon Dec 27, 2010 6:44 pm
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Salty
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I just want to chime in and say thank you for this calm rational debate. I really took a lot away from it.
Post Wed Dec 29, 2010 4:04 pm
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Darga19
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quote:
Originally posted by jray51515
Man, you are too young to be thinking about retirement but i have so much respect for people who think in advance.


I disagree about being too young...I just think I'm a bit of a rare bird. IMO more people should have my attitude toward it. Wink

I want to retire at 59 1/2 with a couple mil' in savings. The earlier I start working towards that...the more likely it is to happen. Cool
Post Mon Jan 03, 2011 11:07 pm
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Darga19
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quote:
Originally posted by Salty
I just want to chime in and say thank you for this calm rational debate. I really took a lot away from it.


+1 for this.

Thank you to the guys who gave all the good info. I just asked the questions.
Post Mon Jan 03, 2011 11:08 pm
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