^That’s an interesting article. In Berstein’s book, he quotes a study done before 2008. If I remember correctly, it points 60/40 range the optimal. Higher than that, the risk doen’t bring rewards, lower it’s not any safer considering lower yields. I didn’t quite understand how they measure risk/rewrard or safety but remember the conclusion.
@sax we are on the same wavelength - have our meeting the end of the month with our guy Don. Keep fine tuning things and H and I are understanding more and more as we edge towards retirement. Don has risk analysis software that shows where we are, and based on our risk profile - and gives us what he sees for the coming months. He also helps look over our 401k investment options, and makes suggestions - even though that is outside of our investments through him.
We got out of international funds in our 401k in 2015, and wish I had done so earlier - they did not do well and dragged our return from that year way down. Do not see going back into international either. US markets have better returns for the risk, IMHO.
A key thing to pass onto DDs is an understanding of the time value of money. DH and I were able to put more $$ away for retirement (as a % of income) early when we were DINKS (dual income no kids), and let the time and the money do the work growing. Another key is to have term life insurance policies in place for DDs and Hs - one DD is getting married in 2017.
I cannot imagine funding college, weddings, along with paying mortgage and trying to continue to heavily fund retirement nest egg because of a need to catch up.
I am going to be optimistic and push off getting our estate through more legal processing beyond the wills we currently have (which are in our current state), believing we have time. Key is for when H and I are no longer alive, and DDs as young adults having to close out estate. I don’t plan to die first, but will talk to H about the documents and what is needed to be done. It would be different if I did not become cancer free after surviving stage III disease…after many months of treatment.
Typo, I think you meant Bernstein.
In any case, a rule of thumb is that you should not have less than 20% bonds nor more than 80% bonds.
Generally, risk is gauged by volatility, or the standard deviation of returns.
Interesting article: http://www.marketwatch.com/story/careful-you-might-be-risking-too-much-for-the-same-investment-return-2015-12-22
Hadn’t heard of “bond tenting” before, but it’s worth some consideration
https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/
@ixnaybob Did you intend to relink the same 50/50 article or was there another one you wanted to link?
Good catch, @lxnayBob. Of course, they use SD to measure the risk. The greater SD the greater risk. What I don’t understand is how do you number them to valuate the risk. Is one SD 50% risk, two SD 75%? If so, how do you determine the worth of risk? I guess you calculate the expectation value in some fashion. It looked to me a lot of hodge podge going on that didn’t interest me enough to bother to understand. Didn’t look like an exact science.
I don’t know how much credence one should give to bond articles that came out after QE. The traditional bond/stock theory didn’t seem to work. Wasn’t bond supposed to be the stabilizing element? Since November it was bonds taking a big fall.
Haha, doschicos, no, that was a genuine senior moment :))
@iglooo, I don’t understand volatility (the VIX) and risk too well either. Supposedly, in theory, the VIX will go up when there’s implied volatility in upward or downward direction, but it’s called “the fear index” and seems to correlate much more with downward than upward. I’m happy that DW brings home enough bacon that my lack of understanding of the markets hasn’t hurt us.
The bond fall was of historic proportions, but by comparison to equities, zzzzzzzzz. I did have to do a sell/buy rebalance, which is rare; I usually rebalance only with new money.
@SOSConcern Honestly, I’m not happy with the amount we have in international bonds/stocks too but H and I agreed to go along with the Vanguard advisor. Investments have been our only flash point in our lifetime together and it wasn’t worth the battle.
Vanguard wants to take our retirement timeline out to 100 . I get it but there is no way that’s happening.
A different question.
We have not converted any money to a Roth. Now that H retired and our income is so much lower I would like to do some this year.
I need to put money in by the end of the year.
I also need to put $6500 into my Traditional IRA by April 15th for this year.
Does this even make sense? Is it just a wash since I am getting moving it into the Roth and have to pay the taxes on it.? Should I just put it in the Roth?
It seems like such a stupid question.
I edited to try and reword it to make more sense.
We did transition $$ from IRA to Roth IRA. Was split between 2 years, and of course had the tax hit. But like the assets growing in the Roth and being tax free on withdrawal.
I believe H and I will be long living, God willing…H has super long longevity from both parents. He has 5 great aunts that all lived to 103 - 108. Grandfather and his siblings, and great-grandma survived the small pox in a mud house in the Dakotas before moving back to southern WI. Mine is a matter of will over body! Hope stage III cancer is the worst I will see medically.
Some international funds of course will do better than others, but the one in our 401k choices, Oppenheimer Developing Markets Y, ODVYX has an expense ratio of 1.07% and the numbers (gains, at various time increments) are both much lower than the two investments we currently are in with 401k - HBLTX Hartford Balance Income R5 (balanced value), and MFS Value R4, MEIJX (large cap stock value).
Wish we had gotten out of International in 2014 - our particular choice (before the Oppenheimer) lost in that fund choice for the year too, which dragged our overall gain down.
@sax, you might want to look at all the info your Vanguard guy is giving you, and why your H is so hot on investment choices that you may differ on. Risk/reward. See if you can find some common ground. Maybe you can do some ‘what if’ scenarios and see what does turn out - tracking both decisions over time (what you believe should be the mix and what H believes should be the mix).
edited.
Oops…thought I was in pm mode. Yikes TMI. hahaha
Cool family history SOS.
So do I put money in Traditional just to convert it over?
If you are eligible to make a contribution into a Roth IRA, it makes no sense IMO to put it into a traditional IRA only to immediately convert it to a Roth.
Whether converting your other IRAs to a Roth makes sense is a tough question. Unless you will be a in a higher tax bracket later (perhaps due to mandatory withdrawals?) it probably doesn’t make sense, if you intend to actually use the money for retirement.
If you are using it as an estate-planning tool, that is a different story.
Contributing to a traditional IRA could make sense in case where you want to lower your AGI.
I’m trying to figure out what type of IRA my D should fund. 29 yrs old she does not have an employer sponsored 401K. She is a saver by nature so doesn’t necessarily need to put the money away in order to save. She doesn’t own a home, no student loan debt.
My S funds a Roth each year but he also participates in an employer plan so does save some income pretax. I think in his case that is the appropriate IRA for him.
@mom60, it can get complicated, but generally, you have a choice between paying taxes now (Roth) and pays by taxes after you retire (traditional). So, to a great extent, it depends on whether you expect your D to be in a higher tax bracket after retirement or now. https://www.bogleheads.org/wiki/Traditional_versus_Roth
There are also state considerations (e.g., NJ does not allow deductions for traditional).
@mom60, if your daughter is in a relatively low Tax bracket now, and her income is expected to climb, I recommend a ROTH. Otherwise the decision isn’t as easy.
Just by looking at the tax brackets her income now places her at 25% federal. She is in California. I would hope her income continues to rise.
@IxnayBob - I’ll read that link. Thanks
I totally agree on the Roth being first choice, but I suggest she do it no matter the tax bracket, as long as she doesn’t desperately need the tax break. Think of all those decades of tax free growth, to never pay taxes on it again. Chances are her taxes will only go up in the future too, and who knows how long a Roth will be available?
Does your daughter get insurance through her employer or is she on the ACA exchange for insurance? If the latter (at least for now and as long as it exists) contributing to a traditional IRA instead of a Roth would lower her AGI and potentially reduce her insurance cost.
@busdriver11, I tend to agree that a Roth is preferable in most cases for young people. In mom60’s D’s case, probably doubly so as she makes a good income now and expects it to increase.
And, since her D is a saver by nature, she probably is already saving in a taxable account, which makes the tax advantages of a Roth painless.