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The Investment Thread

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Offline  Re: The Investment Thread
Posted: February 08, 2018, 8:33 AM Post
Posts: 4839
Location: New Berlin, WI
adambr2 said:
I'll give an example, albeit a rough one. Say my wife and I marry at 25 with no retirement savings and buy a 100K house. We make a combined 50K net per year and want to retire at 45. We want to live off 25 net, just over 2K a month, which is difficult, but feasible. Its more feasible because mortgage payments will not figure into this for most of the exercise.

Now with cost of living it gets a little tricky; obviously 25K doesn't buy you 20 years from now what it does today. So for simplicity I'll figure in neither that nor raises and promotions.

Figuring in taxes and health insurance in retirement, we want 40K a year in retirement, which is partially taxable and partially tax sheltered in a Roth. So with the 4% rule, we'll need 1 million dollars for that.

My wife and I combined contribute 10K to our respective 401Ks, fully matched dollar for dollar -- some companies as Homer mentioned are even more generous. This leaves us 15K annually for other investments. We'll spend the first 7 years aggressively putting all 15K toward the mortgage in extra principal payments, guaranteeing we own the house outright within 7 years. We'll delay having children until age 30-31 so the kids and the added expense they bring hit around the same time the house is paid off.

After this, we'll put the extra 15K into a Roth IRA up to the maximum limits with the extra going into a traditional IRA.

Assuming 6% returns on an average for all accounts we would hit our goal in exactly 20 years, accumulating 1.08M by age 45 and retiring.


I don't think living off $40k/year in retirement is a wise move. At least half of that could go to health care in any particular year, especially if you have any health issues...which is more and more likely as you age. That's one thing I think people can miss looking at retirement is healthcare costs. It's easy to forget about when your employer is paying 80+% of your premiums.


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Offline  Re: The Investment Thread
Posted: February 08, 2018, 8:45 AM Post
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adambr2 said:
I'll give an example, albeit a rough one. Say my wife and I marry at 25 with no retirement savings and buy a 100K house. We make a combined 50K net per year and want to retire at 45. We want to live off 25 net, just over 2K a month, which is difficult, but feasible. Its more feasible because mortgage payments will not figure into this for most of the exercise.

Now with cost of living it gets a little tricky; obviously 25K doesn't buy you 20 years from now what it does today. So for simplicity I'll figure in neither that nor raises and promotions.

Figuring in taxes and health insurance in retirement, we want 40K a year in retirement, which is partially taxable and partially tax sheltered in a Roth. So with the 4% rule, we'll need 1 million dollars for that.

My wife and I combined contribute 10K to our respective 401Ks, fully matched dollar for dollar -- some companies as Homer mentioned are even more generous. This leaves us 15K annually for other investments. We'll spend the first 7 years aggressively putting all 15K toward the mortgage in extra principal payments, guaranteeing we own the house outright within 7 years. We'll delay having children until age 30-31 so the kids and the added expense they bring hit around the same time the house is paid off.

After this, we'll put the extra 15K into a Roth IRA up to the maximum limits with the extra going into a traditional IRA.

Assuming 6% returns on an average for all accounts we would hit our goal in exactly 20 years, accumulating 1.08M by age 45 and retiring.



The only problem with this example is that all of your savings are tied up in retirement accounts which could be subject to a penalty if distributed early. With interest rates this low you would be better off saving the money instead of putting the cash toward extra principal payments (mortgage rate is likely 4% vs. the 6% annual return you are expecting). Debt isn't necessarily a bad thing if you can get a greater return elsewhere on the use of that cash.


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Offline  Re: The Investment Thread
Posted: February 08, 2018, 9:29 AM Post
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adambr2 said:
I'll give an example, albeit a rough one. Say my wife and I marry at 25 with no retirement savings and buy a 100K house. We make a combined 50K net per year and want to retire at 45. We want to live off 25 net, just over 2K a month, which is difficult, but feasible. Its more feasible because mortgage payments will not figure into this for most of the exercise.

Now with cost of living it gets a little tricky; obviously 25K doesn't buy you 20 years from now what it does today. So for simplicity I'll figure in neither that nor raises and promotions.

Figuring in taxes and health insurance in retirement, we want 40K a year in retirement, which is partially taxable and partially tax sheltered in a Roth. So with the 4% rule, we'll need 1 million dollars for that.

My wife and I combined contribute 10K to our respective 401Ks, fully matched dollar for dollar -- some companies as Homer mentioned are even more generous. This leaves us 15K annually for other investments. We'll spend the first 7 years aggressively putting all 15K toward the mortgage in extra principal payments, guaranteeing we own the house outright within 7 years. We'll delay having children until age 30-31 so the kids and the added expense they bring hit around the same time the house is paid off.

After this, we'll put the extra 15K into a Roth IRA up to the maximum limits with the extra going into a traditional IRA.

Assuming 6% returns on an average for all accounts we would hit our goal in exactly 20 years, accumulating 1.08M by age 45 and retiring.


Yeah, I don't think this would work out too well. Along with reasons that others have mentioned including penalties for early withdrawal before age 59.5 from retirement plans (However, principal contributions older than 5 years contributed to a Roth IRA can be withdrawn at any time), there are others. The 4% rule assumes you are retiring at a traditional retirement age (65ish). You are adding 20 years to your retirement life that the $1M will have to cover. Also, your kids would be around 15 years old or younger when you retire. Your family health insurance premiums will be at least $1,000 a month, probably closer to $2,000 (and you won't be eligible for Medicare until 65). Also, your SS benefits will be greatly reduced when you finally are eligible to collect it since SS is based on highest 35 years of pay. If you retire at age 45, you may have 25-30 years of pay at the most (based on the current way SS works).

As a side note, the 4% rule is questionable. If you Retire at 65 and have $1M and use the 4% rule, the $1M principal would get you to age 90 (assuming it's 4% of your initial retirement amount and not 4% of the amount at the end of each year) . So, it seems to assume that you just move all the money to cash when you retire. That would be a foolish move. You should be at least at 50/50 (50% Equities/50% fixed) or 40/60 in retirement.


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Offline  Re: The Investment Thread
Posted: February 08, 2018, 9:29 AM Post
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Your theory says you want to (combined?) save up $1mil for an early retirement at 45? That’s going to be one sad retirement.


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Offline  Re: The Investment Thread
Posted: February 08, 2018, 10:15 AM Post
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Not necessarily. $40k for two people is doable, it just flies in the face of conventional thinking so there is a knee-jerk reaction that it's insane. Pete Adney has been doing it for years on about $25k with a dependent child no less.

As far as early withdrawal penalties, there are a billion loopholes for accessing retirement accounts prior to that age but that's a much longer post. Healthcare is a valid point, however Obamacare has made that a much less stressful proposition than before. You can remove a lot of that burden by taking care of yourself - before anyone says it, yes, I know bad things happen to people who do good things and your uncle ran 5 miles a day and still got cancer. I get it. The odds are tipped heavily in your favor if you do those things, though.

His example of the $40k wasn't meant to be taken literally, he just used it because it worked with round numbers and utilized the 4% rule with a nice round $1mm.

His point is still valid - the math behind retirement isn't as complicated as we're led to believe. $3 million by age 60 is extremely attainable for two working people on modest incomes. And it's most likely beyond what anyone would need and still enjoy themselves quite a bit.


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Offline  Re: The Investment Thread
Posted: February 08, 2018, 12:06 PM Post
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Retirement and income is different for every person, so if you feel comfortable with that amount annually, then that's cool. I do think you want to have cushion when possible.

Couple thoughts on your plan
* As another poster said, you may want to reconsider paying off your house so quickly. For some people, not having a payment is a huge relief, so you can't put a price tag on that. With the lower rate on your insurance compared to what you should get for return on investment, a lot of times you are better off not paying off your house. Also understanding Time Value of Money is important when deciding saving now vs later.
* Would you consider getting part time jobs now to save more money, since you are already putting off having kids? That could set you up really nice, working hard now so you can retire early.
* Would you consider working part time jobs in early retirement, so you didn't have to touch your retirement money until later, so you don't have penalties? If you could go part time and make enough to live off o,f and not add more to retirement, or take any out, you'd let that money grow even more!

Just some thoughts. Future value calculators are really fun to play around with.


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Offline  Re: The Investment Thread
Posted: February 08, 2018, 12:12 PM Post
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Another common option is the non-breadwinning spouse continues working and adds you to their insurance. Some people really love their jobs and would do them for free. I have many friends and acquaintances who've done this. Usually the one working has a pretty liberal vacation policy and they still travel often while maintaining the benefit perks of a job.


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Offline  Re: The Investment Thread
Posted: February 10, 2018, 10:12 PM Post
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To revisit the real estate idea... If you've got $15k to invest for a couple years, my favorite idea to start off with is the following;

1) most importantly, find a good property manager.
2) put 25% down on a $40k-$60k duplex in MKE.
3) Rent each side out for $550 - $700, depending on location and rooms.
4) don't take any profits for a couple years, just save the income so you have a bubble for a bad turn (fixing the unit and getting a new tenant in)
5) Within a few years, you will have saved up enough money to get your initial down payment back and either put it back in wherever it came from or invest in another property and double your cash flow.

You'll never get rich off of what the property is worth, but it'll constantly cash flow until you sell the house.

Its not as scary as people think, as long as you have a good property manager. You can get good tenants everywhere. Crappy landlords and managers bring in crappy tenants.

"There's more people to ignore in New York or in Boston than there are in Milwaukee, but I would still ignore them, probably."
-Zack Greinke


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Offline  Re: The Investment Thread
Posted: February 11, 2018, 9:30 AM Post
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MKEguy said:

Its not as scary as people think, as long as you have a good property manager. You can get good tenants everywhere. Crappy landlords and managers bring in crappy tenants.


I think the property manager part is key. You have to be able to pay them AND make a small net profit every month. Not easy all the time which is why a lot of people self-landlord and that can be a pain unless you are handy and have time to do all the work.

"Dustin Pedroia doesn't have the strength or bat speed to hit major-league pitching consistently, and he has no power......He probably has a future as a backup infielder if he can stop rolling over to third base and shortstop." Keith Law, 2006


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Offline  Re: The Investment Thread
Posted: February 11, 2018, 10:23 AM Post
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My folks rent out their second house when they're not there. They pay to have it listed on a site, pay for the property manager, and pay for the cleaning lady to come in after. For the most part it pays the monthly mortgage but isn't any real profit-earner. I'd also imagine the insurance is pretty steep since you've got to replace damaged furniture. I think if I were going into property, it would be purchasing a larger plot of land to hunt on, camp, and for firewood. You take the hit from the property taxes but the value increases as nearby towns grow larger. I see rental property as one of those things where it isn't much of an investment if I can't somehow add value to it, myself, whether that's from knowing how to fix things yourself or other tricks to avoid higher costs.
----------------

I was looking at the stock analyzer Old School Value yesterday. Not cheap at somewhere around $30/mo, but I think when I start being able to put real money away per month, that would really help me to figure out stuff like the Graham Number without near as much work. My usual route is to start with DataRoma, find some interesting recent buys, and then analyze those myself. The downside to it is I lose some time in waiting to see what the Superinvestors have done instead of noticing something right away on my own, but the upside is I'm letting smarter people than me make the initial decision, and I think that's still an overall plus.


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Offline  Re: The Investment Thread
Posted: February 11, 2018, 12:17 PM Post
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GAME05 said:
I was looking at the stock analyzer Old School Value yesterday. Not cheap at somewhere around $30/mo, but I think when I start being able to put real money away per month, that would really help me to figure out stuff like the Graham Number without near as much work. My usual route is to start with DataRoma, find some interesting recent buys, and then analyze those myself. The downside to it is I lose some time in waiting to see what the Superinvestors have done instead of noticing something right away on my own, but the upside is I'm letting smarter people than me make the initial decision, and I think that's still an overall plus.


That is a waste of time and a waste of money IMHO. If you are just trading a couple hundred dollars here and there and you are not investing tens or hundreds of thousand of dollars you are wasting your time on all of the advanced valuation models.

It really is as simple as taking a chart and then putting in a linear equation on that chart. If the value of the stock is below the linear line then buy if it is above the line then sell. It really is as simple as downloading the data from yahoo finance and then putting that information into Excel and making a graph with a linear line.

Take Amazon for instance:

Image

This is a 3-month trend of Aamzon you would buy when you are below the trend line and sell when above it. For example in this graph you would have bought in mid December and you would see a small profit now. It is far more advantageous to use what you already own to invest than it is to pay for someone to invest for you. If you want someone to invest for you I suggest investing in ETF funds as you are going to get more value (your time and money) from them than you will if you use a tool that you are probably only going to use once or twice a month on average.

Just my opinion on this.


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Offline  Re: The Investment Thread
Posted: February 11, 2018, 11:05 PM Post
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AirBNB has been great from a vacation perspective...I've had a blast staying in people's vacation homes all over the place. I can't imagine why I would ever want to own a vacation/investment property when you can pay to stay in a different on every time, and they are often way nicer than anything I would ever be able to afford. But if you do own one, you can rent it out when you aren't there and it can potentially pay for itself or return a profit. I know someone making her entire salary via AirBNB.


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Offline  Re: The Investment Thread
Posted: February 14, 2018, 10:27 AM Post
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MrTPlush said:
Your theory says you want to (combined?) save up $1mil for an early retirement at 45? That’s going to be one sad retirement.


No, it really not. As I mentioned your mortgage would be paid off which for most is a substantial monthly bill. You would also be able to supplement that money with social security once you reached your 60s.

It really depends on a number of factors -- your cost of living for one. Where I live in Central Wisconsin -- 40k a year will go a long way. Obviously as someone pointed out that 40k was just an example because it worked well as a round number.

Most importantly, it depends on your priorities and what they are. If you need to have that vacation home, if you need to wine and dine, yes that will be a sad retirement. If you can find a way to live within lesser means and value your time more, it can be a very happy retirement.

Others brought up the idea of having one spouse retire while the other continues working for health insurance, a great idea. Ideally you could simply have one spouse work part-time, but part-time jobs with decent insurance are hard to find. Obviously insurance is the million dollar question, and not an easy one. I don't know much about the government marketplace for insurance, never had to use it.

My dad retired in his 50s from a modest job. He owns his home and makes enough in retirement to live comfortably. For extra side cash, he earns $300 per month from donating plasma twice a week, which takes about an hour each time. He actually enjoys the hour to just sit there and read or watch Netflix. This plan isn't for everyone, but it works fine for him.

Retirement, or timing retirement, is nothing more than a choice between time and money. Every year you have less time and more money. I won't make 45, but I won't work a day into my 60s -- I've never heard of anyone on their death bed saying they wished they had less time and made more money.


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Offline  Re: The Investment Thread
Posted: February 25, 2018, 1:41 PM Post
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Can someone correct me if I'm wrong, but isn't there an exception to the early withdrawal penalty of a Roth IRA in order to purchase a house?

I've finished paying my total debt, but don't yet have enough to start investing with. So I'm devouring investment books and also trying to figure out just where to put my savings. Challenging part is I'll retire somewhere between 55-60, so not old enough to start pulling from an IRA, but I'm currently in work housing, so I'll need to rent/buy a place to live.

Also thanks for the advice Nate82. I think as I learn more I'll become more confident in how to do things myself along with how to do it that I suppose I wouldn't really need an analytics tool to do what I should be able to do myself. Plus if I don't know how to do it myself I shouldn't be using a tool to self-invest in the first place and at that point an Index fund would be the better option. Buffett has said "You should invest as if you can only do 20 trades in your entire lifetime," so I don't plan on being crazy-active buying and selling in the first place.

And just to have it posted, here's a link to Buffett's annual letters to his shareholders, which are all a must-read and included the one written last week: http://www.berkshirehathaway.com/letters/letters.html


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Offline  Re: The Investment Thread
Posted: February 26, 2018, 9:02 AM Post
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GAME05 said:
Can someone correct me if I'm wrong, but isn't there an exception to the early withdrawal penalty of a Roth IRA in order to purchase a house?

I've finished paying my total debt, but don't yet have enough to start investing with. So I'm devouring investment books and also trying to figure out just where to put my savings. Challenging part is I'll retire somewhere between 55-60, so not old enough to start pulling from an IRA, but I'm currently in work housing, so I'll need to rent/buy a place to live.

Also thanks for the advice Nate82. I think as I learn more I'll become more confident in how to do things myself along with how to do it that I suppose I wouldn't really need an analytics tool to do what I should be able to do myself. Plus if I don't know how to do it myself I shouldn't be using a tool to self-invest in the first place and at that point an Index fund would be the better option. Buffett has said "You should invest as if you can only do 20 trades in your entire lifetime," so I don't plan on being crazy-active buying and selling in the first place.

And just to have it posted, here's a link to Buffett's annual letters to his shareholders, which are all a must-read and included the one written last week: http://www.berkshirehathaway.com/letters/letters.html


Depends on the plan for early withdrawal for a home. If it is a company plan or a union plan you should be fine. Now how much you can withdraw is dependent on the plan rules. If you get fired or leave you will have to repay the loan within 90 days or however long your plan gives you. If you don't repay it will count as an early withdrawal and you will have to pay the tax on that.


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Offline  Re: The Investment Thread
Posted: February 26, 2018, 9:43 AM Post
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Location: Waukesha, WI
GAME05 said:
Can someone correct me if I'm wrong, but isn't there an exception to the early withdrawal penalty of a Roth IRA in order to purchase a house?


The principle can be withdrawn anytime. Up to $10K in earnings can be withdrawn to purchase a principle residence.


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Offline  Re: The Investment Thread
Posted: March 12, 2018, 1:05 PM Post
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Well, I'm about finished with the book Rule #1 by Phil Town. The first 30 pages of the book is a lot of "Only 15 minutes per week! Make money guaranteed!" and the usual bad salesman nonsense. Common sense says none of that is true, as with the example he gives of a couple buying a stock conveniently at a low point, selling at all the peaks, and repeating. But to his main points, I like the approach to evaluating a stock for the long term, what to look for and how to value a stock based on those numbers.

Ideally, Town requires 10, 5, 3 and one-year numbers in EPS, Sales, Equity, Cash and ROI in order to look at the moat of a business. He notes that having less than this increases the risk and lessens probability.

I won't be in a position for many months yet to be buying anything, but I was spending a long time this morning just going to many different sites and at least trying to find those numbers. I could find five-year, and Fidelity had 8-year numbers on AAPL, but 10-year numbers are all locked behind paywalls. But I found a blog post which mentioned many public libraries have subscriptions to Morningstar's Premium services. And sure enough, it looks like my parent's home library does, and offers it from home computers using the card number. So check your local library and see if it does and not pay $30/month.

Town also has you look up Future EPS Growth Rate and Estimated Future PE (along with current EPS, which is easy to find). I haven't attempted to look for those yet.

Once I finish Rule#1, I think I'll pick up The Manual of Ideas by John Mihaljevic and Active Value Investing by Vitaliy N. Katsenelson


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Offline  Re: The Investment Thread
Posted: March 12, 2018, 6:22 PM Post
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owbc said:
AirBNB has been great from a vacation perspective...I've had a blast staying in people's vacation homes all over the place. I can't imagine why I would ever want to own a vacation/investment property when you can pay to stay in a different on every time, and they are often way nicer than anything I would ever be able to afford. But if you do own one, you can rent it out when you aren't there and it can potentially pay for itself or return a profit. I know someone making her entire salary via AirBNB.

Yep. If you have vacation property and the mortgage/taxes/insurance are $3000/month, all you need to do is rent it 100 days a year at $400/night and you break even (assuming also charging cleaning fees which pay the cost of cleaning, and $4000/year in maintenance and supplies such as toilet paper/paper towels, towels, etc.) from a cash flow perspective and build equity. Plus you can take one trip per quarter and write it off as a business expense of "checking up on your property/doing maintenance", so your actual vacations are tax deductible.


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Offline  Re: The Investment Thread
Posted: June 17, 2018, 10:01 AM Post
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My gf has inherited a substantial amount, over one half million, and is planning to use Vanguard to invest. She had met with a FA her family uses, and that she has a Roth with, but the fees associated just seem like a waste. We've been looking into stuff together and are leaning toward a diversified plan of some percentage of domestic and international stocks and bonds. Plan to use index funds and ETFs and minimize fees. She is planning to invest more heavily in stocks as she wants the best returns. I agree with this except for the caveat that the market is nearing the end of a cycle and the money would be more valuable once a downturn takes place. I am supporting her in her plans though, as I do not want this to be my decision in any way. And I realize I would be trying to time the market, which is a terrible strategy.

I think a reasonable portfolio would be 70% domestic, 20% international and 10% bonds. I would invest more heavily in international but she would like to stay in domestic, feeling the US economy is strong. Any advice on this plan is appreciated. We both feel a FA would effectively just be skimming and a Vanguard account with index funds would accomplish the same goals while reducing fees.


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Offline  Re: The Investment Thread
Posted: June 17, 2018, 12:25 PM Post
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ilikewisco said:
My gf has inherited a substantial amount, over one half million, and is planning to use Vanguard to invest. She had met with a FA her family uses, and that she has a Roth with, but the fees associated just seem like a waste. We've been looking into stuff together and are leaning toward a diversified plan of some percentage of domestic and international stocks and bonds. Plan to use index funds and ETFs and minimize fees. She is planning to invest more heavily in stocks as she wants the best returns. I agree with this except for the caveat that the market is nearing the end of a cycle and the money would be more valuable once a downturn takes place. I am supporting her in her plans though, as I do not want this to be my decision in any way. And I realize I would be trying to time the market, which is a terrible strategy.

I think a reasonable portfolio would be 70% domestic, 20% international and 10% bonds. I would invest more heavily in international but she would like to stay in domestic, feeling the US economy is strong. Any advice on this plan is appreciated. We both feel a FA would effectively just be skimming and a Vanguard account with index funds would accomplish the same goals while reducing fees.


You need to forget about timing the market that is mostly a short-term investment thing. If you are only going to keep the money in for 1-3 years then yes you want to time the market for certain stocks and sectors. There are stocks that perform very well in a bear market but perform very poorly in a bull market.

If you are investing long-term I would go with whatever makes you comfortable in investing in. If you are not comfortable in investing in foreign companies then don't do it. I would definitely use Vanguard or any other company like Vanguard for this type of an investment. Personally I don't like FA's as they normally just take advantage of people who know very little of the market and throw big words around to get a sale.

I would go 70% domestic, 20% international, 5% precious metals and 5% bonds/cash. Bonds should only be invested in when you are closer to retirement if you are not over the age of 50 then there is no reason to have 10% of your assets being taken up by bonds. You are just wasting earning potential with the money just sitting in bonds.


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