Retirement savings ....Yikes !

[Brokermike]

The average person would do a lot better to just go to Vanguard or Fidelity and buy a Target Retirement fund for the year that they plan to retire

not historically actually, most target retirement funds were underperformers, even though they had too much equity in them. When the market crashed five years ago,
many target plans significantly reallocated their plans to make them more conservative, as too many lost huge amounts of money in the market drop.

Yes, they work, but I think you can do better yourself with conservative and moderate allocation funds from Vanguard or Fidelity.
Your point is good though, target retirement funds are the true cruise control of investing.

As someone who has sat down at the kitchen table with an awful lot of middle income families, in a pretty highly educated area, I can tell you
that the "average" investor is almost dangerously incompetent. This may seem easy to "us" but investing is voodoo and witchcraft to many, many
people and the stock market scares, and tempts, most of them. The husbands tended to be more aggressive investors, and the wives more conservative, but
few had any plan for what they were doing. Buying individual stocks is nuts for the uninformed investor. And not one person I saw had any idea how to buy an
individual bond, which I think is good, stay away from them if you don't know what you are doing... bonds are no longer "safe" any more, though everything is relative.
In a low yield environment, people are doing strange things to ice their cake, and most are just throwing darts against the wall.

My forte was portfolio analysis. I loved doing it, intellectually challenging and the look of relief on parents faces when they finally understood where there money
was invested was gratifying. I didn't manage money for anyone, except for a few ancient Quaker ladies who would not let me out of their kitchens without their statements, because
they didn't trust anyone, well except me. I never liked managing money, I worried more about folk's money than they did, literally, and it was not a comfortable position for me. And when I did manage half a dozen accounts, I charged half of one percent. That annoyed most of the other brokers in the reporting agency, because it made them look, well, expensive... I wasn't in it for the money, and that made me a bit of an oddball. I was happy to charge folk one to two thousand dollars to spend about fifty hours on their planning. Fifty real hours....not attorney hours.

I had a close friend come to me with his family trust of just over seven figures. We designed a socially responsible investing plan that met his needs and goals perfectly.
And when the crash came, his one million dollar account was now 700K. How do you look at a friend and know you were partially responsible for his "losing" all that money.
Now we figured he had ten percent more than if he hadn't made the change, which was little consolation. He is still one of my closest friends.

I sat down with another local broker and discussed his business, he managed a lot of money. I asked him about fees, and he was at two percent. I asked him if he had any
client pushback for that, and he said not at all. Some sheep going to slaughter there, even if was all professional and above board.

I'm very happy with my savings in Vanguard. Their main office is an hour away, which I like. And I grew up with Jack Bogle coming to our farm often, walking down the lane, looking like he was eight feet tall. A real Ichabod Crane. He and my Dad were good friends, my father was President of the Investment Company Institute, basically the trade association for all mutual funds. So I have a comfort level with no load mutual funds run by what sure seems like honest people. You have to find your comfort level somewhere...

THIS!

 

[dave1949]

Lots of good info in this discussion.

For people who are younger than many here and still working, I think it makes the point that what you do with IRA and 401k funds (hopefully they are being funded to the limit) are very important decisions, requiring effort, that have a big impact on your life 20-40 years later.

It seems not all companies have good 401k plans, high fees, poor investment options, etc., so that has to be considered too. A 401k offering is not an automatic "good thing." You may well do better by investing on your own in those cases. How many young working people are capable of evaluating the quality of a 401k plan?

I wish the laws and rules that govern retirement savings were a bit more level for those who are not self-employed. But, knowing that they are not, should be an input to the decisions people make about how they are going to earn a living. I am sure that is 99.9% not considered by people in their 20's.

Beyond all the choices about financial investments, retirement savings should include other asset classes.

 

[Travelover]

The average person would do a lot better to just go to Vanguard or Fidelity and buy a Target Retirement fund for the year that they plan to retire

not historically actually, most target retirement funds were underperformers, even though they had too much equity in them. When the market crashed five years ago,
many target plans significantly reallocated their plans to make them more conservative, as too many lost huge amounts of money in the market drop............

Here is why I said that the average person is better off with a target fund; you can't take human emotion out of the equation. If you buy and hold a target fund you avoid the temptation to sell when the market drops and buy back in when stocks have risen again. Also the target fund unemotionally buys more stocks when stocks are down to maintain a constant asset allocation, setting you up for future gains. And when stocks are up, bonds are purchased to lock in gains. On average, investors' returns are less than index averages simply because of this human weakness to buy high and sell low.

Just as most people honestly believe that they are above average drivers, most people way over estimate their investing skills. So, yes some people can do better outside of target funds, just as some people really are great drivers. The problem comes in accurate self identification.

 

[MacLawn]

Yes, they work, but I think you can do better yourself with conservative and moderate allocation funds from Vanguard or Fidelity.
Your point is good though, target retirement funds are the true cruise control of investing.

As someone who has sat down at the kitchen table with an awful lot of middle income families, in a pretty highly educated area, I can tell you
that the "average" investor is almost dangerously incompetent. This may seem easy to "us" but investing is voodoo and witchcraft to many, many
people and the stock market scares, and tempts, most of them. The husbands tended to be more aggressive investors, and the wives more conservative, but
few had any plan for what they were doing.

Yeah, that's what I was trying to say, Dave (I still think of you as "daug"!). If somehow we could get younger people to get educated in this, by that I mean educated to not try to do it themselves! I'm 64, so on the tumbling down the other side era, but still probably need some help! I like that "cruise control of investing" analogy! See, we can understand that!

 

[Brokermike]

Agreed. But you can pay a financial adviser by the hour to set you up with a basic plan that includes an asset allocation consisting of just a few basic stock and bond index funds that you can manage yourself pretty much forever. The gouging comes in when they want to charge you an ongoing fee based on assets or are constantly churning your account in and out of hot new opportunities. I am not a fan of Edward Jones, as I don't feel that their fees justify their value added.

The average person would do a lot better to just go to Vanguard or Fidelity and buy a Target Retirement fund for the year that they plan to retire. It is managed, and the allocation is adjusted year over year including into retirement. And the fees are a fraction of 1%.

You obviously didn't actually read my reply. It is also apparent that you do not understand how bond index funds really work, or what they really hold. I am happy for your success and I hope everything works out great

 

[daugen]

Yeah, that's what I was trying to say, Dave (I still think of you as "daug"!).
I'm thinking of changing my avatar name to Windbag. It might be more fitting...
but Drew will never change, not Dave.

The problem comes in accurate self identification.

well said. And many people have a hard time even knowing where to start.
They are perfect for a cruise control fund. I did not mean to insinuate they
weren't a good investment option, just that they took such a drubbing in the market
collapse that long term yields perhaps until recently have been pretty poor.

I've been retired four years now, and am totally and happily "out of the game" ,so
I need to be careful that I'm getting rusty. I physically handed back my CFP certificate so
I can actually have these discussions online. Before it took a thirty page preface...

By the way, many CFP's handed their certificates back in when the CFP required the highest standard of care
even when dealing with regular insurance, not just financial planning, and it seriously complicated the lives of anyone
trying to make a living in this business. If someone needed life insurance, they almost had to receive a financial plan ahead of time
to ensure the life insurance was proper.

The point of this is that if you find a CFP designee to work with, you really can depend upon getting someone who will look after your interests first,
and not just peddling a product or meeting a quota. It's a different mind set, and business model, and it's not for everyone. Took me three years to study for,
seriously hard exam that half fail. Equally hard to turn that certificate back in, but as long as I kept it, retired or not, I was muzzled on what I could say.
all for good reasons. But since I am no longer muzzled, it's fun to chat about this. I believe in keeping things simple, brokers who exist on transactional fees and who routinely
churn your managed account had sure better have some excellent performance in your pocket to show for it.

If someone is charging two percent, I'd ask him/her to give half of it back if the portfolio was down for the year. Share the pain. Will never fly, but a nice idea.

 

[Travelover]

You obviously didn't actually read my reply. .........

No offense, but I have no ulterior motive in my advice. While I'm sure that you personally are one of the good guys, the financial industry has been rife with abuse and has lobbied Congress hard for years to maintain a level of opaqueness. Only until very recently did employees even have a right to know the fees being charged on their 401(k) account, just as an example. My nephew asked me for help with his investments in his 401(k) (large city firefighter) and we discovered that they were charging him over 3% on assets on an ongoing basis. So, all I can say is - know what the true total fees are, especially for sketchy investments like variable annuities.

 

[Brokermike]

No offense, but I have no ulterior motive in my advice. While I'm sure that you personally are one of the good guys, the financial industry has been rife with abuse and has lobbied Congress hard for years to maintain a level of opaqueness. Only until very recently did employees even have a right to know the fees being charged on their 401(k) account, just as an example. My nephew asked me for help with his investments in his 401(k) (large city firefighter) and we discovered that they were charging him over 3% on assets on an ongoing basis. So, all I can say is - know what the true total fees are, especially for sketchy investments like variable annuities.

You are right, and he likely doesn't have a 401(k) he likely has a 403(b) hence the crappy annuity plan

 

[ultrarunner]

I'd be one of those thinking much of the financial sector is Voodoo and Witchcraft.

Mom always had her little CD accounts... back around 1980 when I was working overseas, the bank put all of Mom's money into a fund... she was not looking or asking to switch... the bank kept calling her and she succumbed.

Not too long after, half her CD money was gone... she was so upset and let the Bank know... so they put her back into a CD... that little trip was devasting.

Ever notice how when everything is good... investment people come out of the woodwork... they can't wait to speak to the employees at the job, they call and send letters to your home, etc... then, in a downturn, the deck is reshuffled so fast, it would make your head spin!

The guy that put Mom into the Fund was gone... no one would say where... later I found out the Bank had transferred him to Southern CA... like I said lots of shuffling when things go bad.

On the other hand... as a child and teen, I was always told income property is how to build an estate and that is why I bought rentals... starting at age 21/22.

The Real Estate Market crashed... rents actually went up although I didn't raise mine.

The Real Estate Market has multiple cash offers and anyone that bought in the last 4 years is sitting pretty in my market...

It could be the farmer/peasant stock I come from where owning the land is everything.

 

[daugen]

if someone was under forty today and needed diversity, and had a twenty+ year time frame, I'd suggest they buy undervalued real estate tomorrow.
Over forty, I'd focus on income streams and you can accomplish that with rental units, but you sure need to think it through first.
Being a landlord is not for everyone. But buying some vacant land in the right place and letting it appreciate through the next hoped for real estate
boom, could be a nice diversifier for most people's total investment portfolio. But remember, folk tend to get attached to land, so you have to be willing to
give it up someday if you want it to "count".