Market/Financial Thread

[Chisoxfn]

Thread to discuss the latest happenings around the market.  

[BigHurt3515]

I don't have a lot in a Roth (put in about $4,500 for the year) and I ended up losing over $300 last week. Might not be a lot to some but that stung a bit.

[southsider2k5]

1 hour ago, BigHurt3515 said:

I don't have a lot in a Roth (put in about $4,500 for the year) and I ended up losing over $300 last week. Might not be a lot to some but that stung a bit.

If you left it alone you already made back about half of it.

[raBBit]

3 hours ago, BigHurt3515 said:

I don't have a lot in a Roth (put in about $4,500 for the year) and I ended up losing over $300 last week. Might not be a lot to some but that stung a bit.

Every time that a "correction" like we saw the past couple weeks has happened over the last 9 years every one who held through it has made back their losses and much, much more. I do feel there's cause for more economic uncertainty but if the last several years are any indication, you should be just fine.

Take solace in the fact that you're young and being responsible saving. A great deal of our generation can't say the same.  

[BigHurt3515]

4 hours ago, southsider2k5 said:

If you left it alone you already made back about half of it.

Close to it. I would never touch it, I just have it in a target fund. I don't know enough about stocks to do much else at the moment

2 hours ago, raBBit said:

Every time that a "correction" like we saw the past couple weeks has happened over the last 9 years every one who held through it has made back their losses and much, much more. I do feel there's cause for more economic uncertainty but if the last several years are any indication, you should be just fine.

Take solace in the fact that you're young and being responsible saving. A great deal of our generation can't say the same.  

This is what  I have heard from people smarter than I am when it comes to this. The market will correct itself.

[Chisoxfn]

13 minutes ago, BigHurt3515 said:

Close to it. I would never touch it, I just have it in a target fund. I don't know enough about stocks to do much else at the moment

This is what  I have heard from people smarter than I am when it comes to this. The market will correct itself.

Over the long haul it should...if it doesn't, we have way bigger problems. You obviously want to have some liquidity because you don't want to be a "forced" seller, however, when you invest long, low cost target date / index funds are the way to go.  The biggest part is putting it away. The sooner you can do it the better and if you can only afford so much in year 1, no matter how small, do it, and than try to auto bump up your deferral rate so that over time you are socking more aside. 

But the more you can (to extent it is at all possible) live below your means when you are young, the better and quicker you can build up / accumulate enough assets that can work for you.  I'm not saying crawl up into a hole and don't live, you need to live and you need to splurge from time to time, but if you can get ahead and accumulate assets...time will work in your favor and you will start generating nice amounts of "passive" window that can either enable you to be more independent or to splurge on more things (knowing that you've built up that steady annuity stream).  

[raBBit]

3 hours ago, BigHurt3515 said:

Close to it. I would never touch it, I just have it in a target fund. I don't know enough about stocks to do much else at the moment

This is what  I have heard from people smarter than I am when it comes to this. The market will correct itself.

Your target funds are typically poor choices if you're looking for growth. I am going to guess you're in a target 2050 or 2055. Give you have a long way to your theoretical retirement, these funds are generally going to be more conservative with much lower weight in stocks. The assets you'll see more of are long term bonds, short term debt, international equities and typically some chunk allocated to something in emerging markets. Your target fund may be different, but if you're with Fidelity or Schwab, that's how your fund is going to be. That may be the preferred fund of the type of investor you are.

For a long time now in America, stocks have given the best return of any asset class these funds are considering in their allocation strategy. Now plenty would point to the 8-9 year bull market and say it's overdue for a correction. At the same time corporate profits are way up.  No one really knows. You can learn how market react but you can't learn when they react. 

As for your fund choice, what you want to look at is 1.) Asset allocations 2.) expense ratios 3.) asset details/holdings

1.) See what percentage of each asset class the fund is made up of. Even if you don't "know" which asset classes are the best to invest in for the next 35 years, you can still know the general rule of thumb in terms of risk/reward with a handful of asset classes. As you'd assumed, higher risk brings higher returns. 

2.) Anything over .5% is bad. There is going to be some fee with most of them but try to keep them as low as possible because there's no real reason to pay anything significant here.

3.) If you choose a heavy stock route, look at the holdings. Even if you don't be find yourself to be financially versant you're still going to have your opinions on a given company that you have experience with over a life time. A lot of the top holdings of the most popular funds you'll see is Apple, Microsoft, Amazon, Salesforce, Boeing, Facebook. Companies you know.

 

Edited October 18, 2018 by raBBit

[southsider2k5]

1 hour ago, BigHurt3515 said:

Close to it. I would never touch it, I just have it in a target fund. I don't know enough about stocks to do much else at the moment

This is what  I have heard from people smarter than I am when it comes to this. The market will correct itself.

Get out of the target fund and find an index fund to get into. You'll thank me in 40 years.

[BigHurt3515]

28 minutes ago, raBBit said:

Your target funds are typically poor choices if you're looking for growth. I am going to guess you're in a target 2050 or 2055. Give you have a long way to your theoretical retirement, these funds are generally going to be more conservative with much lower weight in stocks. The assets you'll see more of are long term bonds, short term debt, international equities and typically some chunk allocated to something in emerging markets. Your target fund may be different, but if you're with Fidelity or Schwab, that's how your fund is going to be. That may be the preferred fund of the type of investor you are.

For a long time now in America, stocks have given the best return of any asset class these funds are considering in their allocation strategy. Now plenty would point to the 8-9 year bull market and say it's overdue for a correction. At the same time corporate profits are way up.  No one really knows. You can learn how market react but you can't learn when they react. 

As for your fund choice, what you want to look at is 1.) Asset allocations 2.) expense ratios 3.) asset details/holdings

1.) See what percentage of each asset class the fund is made up of. Even if you don't "know" which asset classes are the best to invest in for the next 35 years, you can still know the general rule of thumb in terms of risk/reward with a handful of asset classes. As you'd assumed, higher risk brings higher returns. 

2.) Anything over fifty cents is bad. There is going to be some fee with most of them but try to keep them as low as possible because there's no real reason to pay anything significant here.

3.) If you choose a heavy stock route, look at the holdings. Even if you don't be find yourself to be financially versant you're still going to have your opinions on a given company that you have experience with over a life time. A lot of the top holdings of the most popular funds you'll see is Apple, Microsoft, Amazon, Salesforce, Boeing, Facebook. Companies you know.

 

It is a 2055 target fund with Vanguard and it is set at 90% stocks and 10% bonds and a 0.15% expense ratio

For some reason stocks and these accounts go right over my head and I can't seem to figure them out. That is why I just wanted something easy for now so I just went with a Roth and I have heard good things about Vanguard. I probably won't keep it in there for long though

[Chisoxfn]

As a data point, if you are in a 401k, which I presume you are, I have seen a lot of analysis done that indicate the target funds (ie vanguard target fund) typically outperform an individual who picks and chooses a variety of portfolios within the 401k.

Additionally, while past performance is not an indicator of future success, an investment strategy with some form of fixed income plus equities (when factoring in reinvestments etc) have actually outperformed pure stock indexes when looking back over very large durations. I’m generalizing here but some weighting of fixed income, historically hasn’t been bad (past tense speaking). 

One major caveat I have is that same performance might not repeat in a rising rate environment. 

By and large, low cost index is very good, but can be very volatile, so like anything it depends on your overall tolerance for risk and duration requirements.

I should point out in the above context the concept and metrics I’m discussing are focused on risk adjusted returns vs pure returns.

[caulfield12]

Might want to look at some alternative areas like REITs or small and mid-caps to diversify.

Emerging markets are getting killed right now.  At any rate, no point to sell Alibaba, Ten Cent, JD.com, TSM, Ping An, ZTO Logistics (still net positives compared to purchase price)...the Chinese economy looks to be slowing down, finally, but those companies are more hurt by domestic issues/government actions than anything to do with tariffs.  

The best bets right now are the 3 large telecom companies here, that are consolidating into essentially two entities to increase their economies of scale for the 5G buildout.

[StrangeSox]

11 hours ago, southsider2k5 said:

Get out of the target fund and find an index fund to get into. You'll thank me in 40 years.

Both Vanguard's and Fidelity's target date funds have slightly higher expense ratios than their regular index funds, but they're still pretty low (0.14 for Fidelity, 0.15 for Vanguard). Those companies' S&P index funds are more like 0.05 or so, but if you want a "set it and forget it," their target date funds aren't too bad. And at least as of today, Fidelity's 2050 fund and Vanguard's 2055 fund only have 10% bonds, so it's not like they aren't growth-oriented this far out. Our non-401k stuff is mostly in Fidelity or Vanguard target date funds.

Now the target date fund in my 401k, lol. Expense ratio north of 1.00 last I checked.

[StrangeSox]

8 hours ago, Tony said:

I’ve done a decent amount of reading on it, but for a buy and hold type investor like myself, how much of a difference am I going to see with a Vangars Index Fund compared to the Vangard S&P 500 ETF? 

Quick check using this calc:

 

https://www.bankrate.com/calculators/retirement/mutual-funds-fees-calculator.aspx

 

Invest 100k, hold 30 years, 7% ror, comparing 0.05 and 0.15 expense ratios is about $10k difference over 30 years. Not nothing, but if you don't wont to worry about "well do I have the right ratio of bonds to stocks, what about large vs small cap, or domestic versus foreign??" it could be worth it.

 

I like this general guide called "If You Can"

http://tuttle.merc.iastate.edu/Bernstein_If_You_Can.pdf

[Y2HH]

I'll make this simple for you -- put 75-80% of your funds into the S&P500 Index, and put 20-25% into a Foreign Index ... this will cover all your bases. Don't bother with Bonds until you're much older. These recommendations should be cheap in terms of management costs (the foreign index will be a bit more expensive, but I recommend it to cover your bases), and they also cover you in terms of diversity.

You shouldn't buy them in "one giant lump sum", either. If you're putting 4,500$ into this account yearly, you should buy up these indexes on a quarterly basis ... this will cover you in terms of ebbs and flows of the market. If you buy all at once, you may end up buying VERY HIGH, but if you buy consistently over time, you'll buy both lows and highs and it'll even itself out for you.

NOTE: The S&P500 isn't "one stock", it's the top 500 American Companies sold in a bundle, so while this guarantees you will not beat the market, you will also not "lose" to the market, either. It's important to understand that just buying the S&P 500 is, in and of itself, diversified.

I also suggest the "foreign index" simply because there are a lot of worthwhile emerging markets and viable companies based in other nations. Also, these are quite cheap right now...and this plan covers you on a global basis.

Don't bother toying with a lot of the other stuff, you'll find high managerial fees that don't sound like very much now, but over time they really ding you.

Thank you, that is all.

[Soxbadger]

The only thing Ill add is that if your employer offers a match program, you should try and save as much money as will be matched. 

[southsider2k5]

1 hour ago, Soxbadger said:

The only thing Ill add is that if your employer offers a match program, you should try and save as much money as will be matched. 

100%.  This is free money.  Take it.

[justBLAZE]

This is great info guys, I'm in a Fidelity Target 2050 401K at work and I'm currently sitting at -1.40 YTD and it's very concerning.

I'm not very financially savvy when it comes to investments, I'm contributing about 10% of my income where company matches 5.5%

Should I get out of the target date fund ?

[caulfield12]

Do you have any other index funds that you can change to?

Target date funds actually might be a better defensive play in this environment...assuming there's going to be correction of 20-25% over the next 2-3 years.

Equities (especially emerging markets) are getting battered.  Bonds are the safer play to mitigate against risk.

The way I think about it is a simple rule.  100 minus your age should be the percentage you have in more aggressive investments, like individuals stocks and "high growth/technology" fields.   At this point in my life, I should be relatively close to 50/50.

That said, since I won't need the money for another 10-15 years, I'm okaying being 80/20 on the side of stocks versus bonds.  I also have about 10% parked in a real estate investment trust (REIT), but real estate is also going to suffer in this future environment.  Utilities/telecoms/high dividend or defensive "value" stocks (think Oakmark Funds or Berkshire Hathaway) would be a decent play, if available.

If your time horizon is 3-5 years and you're really concerned about taking significant losses in the next 2-3 years of expected recession/falling corporate profits, you MIGHT want to readjust, but you probably shouldn't if you have a decent target year fund.

If you were sitting on the Vanguard 500 index for your retirement, we're going into some really choppy waters, but you take your money out and you lose huge gains in the future when it bounces back.  That said, it's okay to reallocate now, when things are relatively/comparatively higher than panicking down the line when you're already lost an additional 20-30%.  That's when you SHOULD be buying on the dip, dollar cost averaging, etc.  You will be rewarded in the future, even if it seems counter-intuitive to do the opposite of the crowd/neighbors/co-workers/your mailperson, etc.

 

 

Edited October 23, 2018 by caulfield12

[Chisoxfn]

1 hour ago, justBLAZE said:

This is great info guys, I'm in a Fidelity Target 2050 401K at work and I'm currently sitting at -1.40 YTD and it's very concerning.

I'm not very financially savvy when it comes to investments, I'm contributing about 10% of my income where company matches 5.5%

Should I get out of the target date fund ?

Given you are in a target 2050 fund, meaning you have another 32 years until your "target retirement date", I'd say you should not even look at the returns and be more focused on the contributions and match. That said, if your 401K has options, you should look to see if there are any low cost target funds out there. Given that you mentioned you aren't financially savvy when it comes to investments, I think the leave it in a target date fund in your retirement works best. The target date fund will be diverse and ensure you are taking enough risk while slowly moving to less risky assets over time.

Do note that a 1.4% YTD drop is nothing and there will be a point where the markets drop more...just continue making your contributions and invest with the long-term in mind.  Do not try to time the market as the steady contributions will serve as a balancer...sometimes you will be buying at "low's", other times at "high's", but over the long haul this strategy should reap very positive returns (6-8% would be my best guess but that is based upon past history and future history could always look much different).  Also, since these are "long-term funds" set aside from your retirement, even in that down market, resist the urge to sell off and continue contributing your funds.  It is the contributions which matter most as the LT returns should be positive (and any day to day / year-to-year volatility should be ignored....at least for the next 15-20 years).  

I'd probably give the same advance to a "financially" savvy person as well. I think in many cases a financially savy person can make an even worse mistake because they think they know more than the average joe, but reality is, timing the market is a difficult thing to do.  A lot of "financially" savy people thought markets were hot 2-3 years ago and if you believed that, you would have missed out on nice returns.  I tend to think markets are hot now, but again, I'm investing for the long haul and taking a strategy of making steady contributions, albeit I might be a little defensive at this point in time (in the sense that I want to make sure I have some liquidity for an eventual recession to target potential opportunities).  

[lostfan]

On ‎10‎/‎18‎/‎2018 at 12:51 PM, southsider2k5 said:

100%.  This is free money.  Take it.

I was actually bummed when I left my old job this past summer that was matching 6% to my new job that matches 5%. Granted, it's offset by a pension, which most people don't get, but that's a pretty large deduction out of my check, too.

 

[lostfan]

My 401k took a dive of about 15k but I knew that those gains in 2017 were not going to last so I'm not tripping too hard off it.

I debated whether I was going to move all that money (it's not a bank-breaking number, but it's a lot) into the TSP when I went to the government but for now I think I'll just leave it as is. I'm allowed to borrow against it with pretty decent interest rates if I have to, and since I don't work there anymore, I don't have the 3 or 5 year deadline or whatever it is.

 

 

[caulfield12]

https://finance.yahoo.com/quote/^DJI?p=^DJI

Another bloodbath today.  Nearing correction territory.   Between American companies exposed to China and the housing industry getting clobbered by rising interest rates, things are looking bleak.  It’s starting to sound like the Trump administration wants to force China to capitulate, and they won’t do that as easily as Trump believes.  Regime change, in the words of Jim Cramer, is almost impossible to conceive of over here, where the stock market was actually up Monday and Tuesday.  In fact, the political pressure will only ratchet up more in the US if stocks continue to fall the next two weeks.  No “fake middle class tax cut” talk will be able to save anyone’s hide.   Trump doesn’t seem to know only 8% own stocks here (almost all institutional holders, government and corporate shares, not mom and pop in the middle class), not the 58% or 61% or whatever the number is in America whose retirements are tied to the markets.

Edited October 23, 2018 by caulfield12

[Jenksismyhero]

It's a good thing I'm winning the lottery tonight. Otherwise the large drop in my portfolio the last month would be a little concerning!

[southsider2k5]

13 hours ago, justBLAZE said:

This is great info guys, I'm in a Fidelity Target 2050 401K at work and I'm currently sitting at -1.40 YTD and it's very concerning.

I'm not very financially savvy when it comes to investments, I'm contributing about 10% of my income where company matches 5.5%

Should I get out of the target date fund ?

For my two cents, always look for an index fund first.  Those are going to be the lowest expenses, and they are going to track the market dollar for dollar.  While some funds can beat the market on an annual basis, they aren't going to do it on an ongoing basis.  It just doesn't happen.

Also don't worry too much about YTD returns as of now.  With the market correction currently going on, gains for the year have been pretty well wiped out, so that an index being slightly down on the year is to be expected.

You are doing a great job of saving for retirement, but I without knowing your financial situation, be sure that you aren't accumulating consumer debt at the same time, otherwise you are giving away future spending power anyways.  Pay down your debt by highest interest rate to lowest.  Move down your 401k contributions a bit if you need extra cash to do it.

[Soxbadger]

Just now, southsider2k5 said:

For my two cents, always look for an index fund first.  Those are going to be the lowest expenses, and they are going to track the market dollar for dollar.  While some funds can beat the market on an annual basis, they aren't going to do it on an ongoing basis.  It just doesn't happen.

Also don't worry too much about YTD returns as of now.  With the market correction currently going on, gains for the year have been pretty well wiped out, so that an index being slightly down on the year is to be expected.

You are doing a great job of saving for retirement, but I without knowing your financial situation, be sure that you aren't accumulating consumer debt at the same time, otherwise you are giving away future spending power anyways.  Pay down your debt by highest interest rate to lowest.  Move down your 401k contributions a bit if you need extra cash to do it.

SS2k makes a great point. If you have a 20% (just a hypothetical) interest rate credit card, its better to pay that off first. 

And dont look at your stocks today.