LarryS

Retirement investing

10 posts in this topic

My investing philosophy has been largely shaped by Objectivist lecturers and by John Bogel, the founder of the Vanguard family of funds. Currently, my (lay-person's) plan is to invest 100% in US stock index funds, until I have 10 or 20 years left to retirement. Then I plan on converting 5-10% of my stocks to short-term corporate bonds each year until retirement. I have equity in my home as well so I have some exposure to real estate as well.

However, recent posts by Richard Salsman indicate that he doesn’t think the US stock market is going to do much, at least in the next couple of years, given the facts that the dollar is depreciating (i.e. gold price is climbing), the Fed is intent on raising interest rates to stifle production, etc.

My question is this: is my retirement plan still decent advice for a lay person with a 20+ year time-window? Or is Mr. Salsman’s advice from early 2005 (see here) better advice? Or have things changed since even then making other options more prudent?

Thanks in advance for any advice.

--Larry

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I would say you have answered your own question. You are investing for the long-term -- apparently 30 years or more. Richard Salsman's prediction, you report, covers the next few years. Why let short-term or even intermediate-term ups and downs affect your long-term portfolio?

I am assuming that you are the kind of investor who doesn't want to spend a lot of time doing research and trading in and out of a multitude of stocks or funds. If that is so, and if you believe your portfolio is sound for the long-term, why not stay the course?

If the overall stock market does decline for a few years, use it as a buying opportunity and as an educational opportunity: see what happens under the predicted conditions.

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My own strategy has been to average out Stephen and my ages, put that percentage into conservative investments (short-term bond funds, money-market funds, CDs) and the rest into equities (mostly an S+P 500 index fund with some positions in companies I know well and see growing like BB+T and Amgen).

We have almost always owned a house, and that has been a very good investment, too.

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I think Betsy's approach assumes that an individual's tolerance to risk decreases linearly with age. I'm not sure I agree with that. E.g., at 65 one would probably want to put nearly all of their funds into bonds and very little in stock (unless one is so wealthy that they have virtually no risk to lack money). On the other hand, I don't think that at 40 or 50 one should have 40% or 50% of their investments in bonds - those are prime earning years.

Personally, I would put a rather small flat % (say 10% - 20%) into a conservative vehicle (bonds, gold, REIT) and the rest in a stock index until I hit 55 - 60, then switch it around and transfer most of the stock investments into bonds, etc. By the time I'm 70 - 75, I'd expect that virtually all my savings would be in "safe" vehicles.

I agree with Burgess that with Larry's approach he shouldn't try to time the market. I do think that he should consider diversifying his stock portfolio into international stocks.

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I am considering a couple of changes to my investing philosophy.

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Point #1: Diversifying to some international stocks seems a good idea to me. Any suggestions on allocation and specific vehicles?

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Background: I used to buy into the fact that there wasn't a big difference between US and foreign investing, as much of the world economy was tied to US performance. Post 9/11, however, I think the US markets especially have a bit of a risk premium priced in that foreign gov'ts might not. Further, it seems the growth potential of foreign gov'ts that are increasingly free might be an argument to diversify some.

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Point #2: "Autopilot" investing (see my original post above) seems the best option for a lay person. However, if I could find/buy advice from a reliable reason-based expert, I'd wouldn't mind tuning my investments once a year or so. Any suggestions for expert advice?

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Background: Mr. Salsman occassionally has something to offer here on the forums, but it's a bit sporadic. And there's a LOT of investing advice in the world that I wouldn't trust with my children's allowance, to say nothing of my retirement!

Thanks in advance for any advice!

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Point #1: Diversifying to some international stocks seems a good idea to me. Any suggestions on allocation and specific vehicles?

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Vanguard Total International Stock Index Fund

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Point #1: Diversifying to some international stocks seems a good idea to me. Any suggestions on allocation and specific vehicles?

A few months ago I put a lot of my money into international funds, and their doing quite well. "International" subsumes a lot: Japan, Europe, Latin America, Asia, emerging markets, etc. You could get index funds or ETFs that diversify across all of that, or do some research and focus on a more narrow area. The MSCI EAFE is a leading international index. If you do buy a fund, look to see what percentage is invested in the US; you may not be quite as diversified as you think. I'm happy with Dodge & Cox International Fund (DODFX).

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Point #2: "Autopilot" investing (see my original post above) seems the best option for a lay person. However, if I could find/buy advice from a reliable reason-based expert, I'd wouldn't mind tuning my investments once a year or so. Any suggestions for expert advice?

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Background: Mr. Salsman occassionally has something to offer here on the forums, but it's a bit sporadic. And there's a LOT of investing advice in the world that I wouldn't trust with my children's allowance, to say nothing of my retirement!

I, too, would like to have someone I could trust to do a better job with my money, but I don't know who that is. Warren Buffet has the very best long-term record, but his returns in the last few years haven't been as good.

The best "autopilot" investing approach that I know of that will give a good long-term (i.e., for retirement) return with a minimum of effort or pain involves dollar-cost averaging, diversification, low costs, and periodic rebalancing. Index funds or ETFs are a good way to do that. I like the approach of paying yourself first (say, 10%) out of each paycheck into retirement accounts that are tax-advantaged (e.g., Roth IRAs, 401(k)s), then putting that money into mutual funds that cover most markets: international, domestic big cap, small cap, maybe commodities and real estate (REITs). Of course, with additional effort and market timing, you can do much better than matching the index averages, but that also has more risk. I have some funds for both "active" and "passive" approaches.

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All,

I've been doing some research on the subject, mostly focusing on Vanguard index funds and similar approaches (Dimensional in particular). I was given the URL of an excellent forum for index fund enthusiast: Morningstar's Diehard forum.

I find that the knowledge base available for research there is amazing. They go into asset allocation, balancing and rebalancing, Vanguard vs. Dimensional, tax exposure strategies, etc, etc.

It costs $5 to be able to post threads, but you can read for free...

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Studies that I have performed suggest that international small capitalization stocks provide more diversification for US investors than international large caps. International index funds, however, tend to be dominated by large caps.

Over the past 10 years I have devoted much more of my retirement money to foreign developed and emerging markets than most advisors would suggest. This tends to increase the monthly volatility that most advisors consider to be "risk," but given my multi-decade time horizon, I think that's myopic. I think a real risk is placing too much of one's assets in one's home country and currency given the context of a global economy, and the fact that one's employment and economic prospects may be correlated with one's home country stock market. With proper diversification by country and industry, I think the long-term risks are manageable.

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All,

I've been doing some research on the subject, mostly focusing on Vanguard index funds and similar approaches (Dimensional in particular). I was given the URL of an excellent forum for index fund enthusiast: Morningstar's Diehard forum.

More than likely this isn't a concern for anyone here with a basic understanding of investing, but when I just clicked on Morningstar's forum, the first thread was by the handle of a person who calls himself hocus; IIRC his web site is Passion Savings - which I would equate to the "Passion" play. He has disrupted several retirement investment forums, so I would apply caution to any of his advice. He is a few fries short of a Happy Meal™

Brin

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