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Posted by JACK-UK on June 24, 2008, 5:25 am
I've picked up some great advice guys. Thank you... Seemingly
deducing that I (one) needs to stash away between $6K - $20K a year..
and attempt to achieve this/the elusive 7%-10% long term average, what
suggestions (top 4) vehicles should one look at. Im guessing stocks
are not the way to go for this average because of volatility...
however savings accounts, (again, my inexperienced guess) is not going
to achieve the necessary return... So what can some advisors offer up
as the best 3-4 vehicles to look at.. I understand and agree that I/we
arent so much looking for the sales pitch as we are education on
different mutual funds/Roth etc.. and/or strategies to achieve the
'elusive' retirement return(s)...
cheers
JACK
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Posted by FranksPlace2 on June 24, 2008, 9:22 am
My choice for less active managment is to invest your money equally
among large cap, mid cap and small cap index funds. You may want an
international index fund also.
The best account vehicle is a Roth account; you won't pay any taxes on
the gains. The second best, in my opinion, is an after tax account;
you will pay limited annual taxes for dividends and capital gains.
When you withdraw the money, the gain will taxed at capital gains
rate. The third best is a traditional IRA or 401k, where you pay
ordinary income tax on every penny you withdraw.
Frank
>So what can some advisors offer up
> as the best 3-4 vehicles to look at.. I understand and agree that I/we
> arent so much looking for the sales pitch as we are education on
> different mutual funds/Roth etc.. and/or strategies to achieve the
> 'elusive' retirement return(s)...
>
> cheers
> JACK
>
> --------------------------------------
> Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
> to keep the conversations on-topic for financial planning. Other posting
> guidelines include a request for brevity and another for trimming posts to
> which we respond. For all of the other tips and suggestions, see "FROM THE
> MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
> Newsgroup.
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
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which we respond. For all of the other tips and suggestions, see "FROM THE
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Posted by joetaxpayer on June 24, 2008, 12:43 pm
FranksPlace2 wrote:
> My choice for less active managment is to invest your money equally
> among large cap, mid cap and small cap index funds. You may want an
> international index fund also.
This (the first suggestion) sounds a bit like creating a 'total market'
fund which is offered by Vanguard already. I do agree that aiming toward
low expense index funds makes sense, and there's a place for non-US,
somewhere between 15 and 30%.
> The best account vehicle is a Roth account; you won't pay any taxes on
> the gains. The second best, in my opinion, is an after tax account;
> you will pay limited annual taxes for dividends and capital gains.
> When you withdraw the money, the gain will taxed at capital gains
> rate. The third best is a traditional IRA or 401k, where you pay
> ordinary income tax on every penny you withdraw.
Since the OP is a bit behind and likely to be in a lower bracket at
retirement, the above is reversed from what I suggest. Given he is in
the 25% bracket now, he should invest pre-tax right until he can project
retirement withdrawals that risk putting him into that bracket at
retirement. Since it would take over $2,000,000 in income to put one
into the 25% bracket at retirement (assuming MFJ, no pension, 4%
withdrawal, etc) that risk is low right now.
While there's always the risk of rising tax rates, I don't see that
impacting retirees currently in the 15% bracket. I anticipate mort
tinkering to occur at the higher levels, 25-38% income brackets.
Joe
www.blog.joetaxpayer.com
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Posted by on June 24, 2008, 9:38 am
> I've picked up some great advice guys. Thank you... Seemingly
> deducing that I (one) needs to stash away between $6K - $20K a
> year.. and attempt to achieve this/the elusive 7%-10% long term
> average, what suggestions (top 4) vehicles should one look at. Im
> guessing stocks are not the way to go for this average because of
> volatility...
Where would you get that idea from? Stocks are *precisely* the
main engine of acheiving that return. If it weren't for that
volatity and risk, stocks would be bid up (and their expected
returns thereby bid down) to be more like lower-return, lower
volatility assets.
What you can do, however, is temper that volatility via
asset class diversification - a portfolio of stocks *and*
bonds. And a couple of other asset classes help, too,
but those are the main two for investment portfolios.
> however savings accounts, (again, my inexperienced guess) is not
> going to achieve the necessary return...
Savings accounts are not investment vehicles. They are
savings vehicles and short-term stores of capital. They
hold money not for growth, but for spending or future
investment.
> So what can some advisors offer up as the best 3-4 vehicles to look
> at.. I understand and agree that I/we arent so much looking for the
> sales pitch as we are education on different mutual funds/Roth
> etc.. and/or strategies to achieve the 'elusive' retirement
> return(s)...
You're mixing apples, oranges and pears here.
1. a Roth is an account type, not an asset class. Within a
Roth, one may own any of a variety of assets.
2. Mutual funds are, also, mostly a form of container for
assets. There are mutual funds which hold equities,
fixed-income securities, commodities (or exposure to
them), real-estate, etc.
I'm not sure what you're really asking here, but it seems
to me that you have come to the conclusion that you need to
build an investment portfolio which can acheive the 7+%
long-term return you'll want for building up retirement
savings.
For most people, the easiest tools for doing that are
mutual funds. They allow you to easily build exposure
to various asset classes, to easily do so with adequate
diversification within those asset classes, and to do so
with relatively low transaction and overhead costs.
Similarly, for most people, the first accounts in which
they should be trying to buy those mutual funds are going
to be 401k accounts at work, and IRA and Roth IRA accounts
outside of work.
Now, having talked about accounts and tools, it's time
to figure out what to actually buy with them - namely
an asset allocation - the question of what the assets
you actually want to invest in? While folks can
do better with some tweaking and adjustment, I believe
that the best and simplest starting point is a broad
equity index fund (ie. Vanguard Total Market) and a
broad investment-grade bond fund (ie. Vanguard Total
Bond Market if in an IRA/Roth/401k, or perhaps a
muni bond fund if investing taxable money). You can
get into more detail (especially on the equity side)
with different kinds of equity funds, or you could
keep it even more simple with a single balanced fund
which invested in both stocks and bonds and be done
right there. Frankly, most folks would do better with
a simple *one* fund portfolio than they do with all the
tinkering that they do. Fidelity Balanced Fund, for
example, has a 10 year average return of 8.4%, had losses
only half the size of the equity market in the '02 downturn,
and only one down year in the last 10. It's roughly
60% equities and 40% bonds. It's not perfect, but it's
a pretty easy no-brainer choice for long term money
(though it is actively managed and not ultra-cheap,
it is conservative and relatively quite cheap).
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
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Posted by Elle on June 24, 2008, 10:02 am
> what
> suggestions (top 4) vehicles should one look at. Im
> guessing stocks
> are not the way to go for this average because of
> volatility...
The historical volatility of a well diversified portfolio of
index stock funds for short periods is high. For long
periods (over say 10 years), it has been much lower. I think
the interactive calculator at the following site makes this
point well:
http://moneychimp.com/articles/randomness/time_horizon.htm.
It uses historical data from the S&P 500. The lower the
standard deviation, the less volatility.
For ideas on what top 4 vehicles to use, experiment with the
free online asset allocator tools I previously linked. They
are going to get you in the neighborhood of what Franksplace
said: Some large caps, small caps, international stocks,
etc., plus possibly some bond funds. Some of the tools are
very fast. They typically use age and risk tolerance as
input. I think they help a person quickly get a handle on
asset allocation.
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to keep the conversations on-topic for financial planning. Other posting
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