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I Am Not A Market Timer....


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#1 bk10s

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Posted 27 September 2017 - 05:18 AM

For over 30 years, I have been a disciple of dollar cost averaging.  Through payroll deduction, and investment into a range of low cost index funds, we have built a great 403b and Roth IRA portfolio.  Retired in June, 2017.  Current allocation is 60% in equities and 40% in a fixed account presently earning 3.8%.  I am considering moving some of the $$ gained in those index funds to the fixed account.  Am I crazy?  Like I said, we have never been market timers.......But this has been quite a run up.  What are you doing, if anything?



#2 sschullo

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Posted 27 September 2017 - 06:57 AM

Congratulations on your retirement!

You are an experienced and successful investor but something has changed that you want to lower your risk. 

 

Here are my 2 cents cause I have been through all. 

 

You asked what am I doing? I am doing absolutely NOTHING. I am sticking with my 30/70 stock bond split and paying about .07% investment costs with my money in Vanguard and TIAA. I did a major rebalancing last year because my equity allocation ran up to 37%! Yikes! that's too much for me so I sold some of my equities and purchased international bonds and the TIAA traditional annuity paying a guaranteed 3.0%. But I was only reacting to my stock bond split plan, not what the talking heads are saying. 

 

You asked, "Am I crazy?"

If moving from equities to a fixed allocation because your 60/40 is out of balance now, no, you are not "crazy." If you are getting anxious because of the "quite a run up" then you need to check your plan. Never make changes because of what you think (or the financial talking heads) the markets are going to do. The financial news media has been warning of a market crash for years now, and they have been wrong every time. Since the 2016 election, all three markets have broken all-time market highs about 58 times!  

 

So I would go back to your stock-bond split and take another look. I have had a 30/70 split since I was 60 and I am sticking with that, as I am 70 years old now. Last year 2016, I had a return of 5.9% and YTD this year its about 5.5%.

 

Question: with a 60%/40% stock-bond split you said your return of 3.8%. Is that just your fixed account earning 3.8% or your portfolio?   

 

Points to consider:

1. Do you need the money for retirement? 

2. If not, and the money is for your descendences, heck, I would increase the equity risk to 80 or 90%. Because that money has many decades to weather booms and busts. 

3. If you need the money now that you are in retirement, perhaps the 60%/40% is too risky for you. I know that is too risky for me because I make distributions monthly to fund my retirement. My pension is below average, so I need the money, but that's me, not you. 

 

 

It's very important that you are responding to your stock-bond split plan, and not what you think the market is going to do. Just asking this important question about risk-taking and wanting to move money into the fixed account means something has changed from the last 30 years of your disciplined DCA. 

 

2 cents,

STeve 


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#3 tony

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Posted 27 September 2017 - 09:51 AM

Steve nailed it . I have nothing to add.  Congratulations on your retirement.

 

Tony



#4 Admin

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Posted 27 September 2017 - 11:16 AM

Congrats, bk10s. You grew rich slowly! 



#5 bk10s

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Posted 27 September 2017 - 12:45 PM

In my 60-40 split, here is the QTD, YTD, MTD, 3YR and 5YR.  Overall portfolio performance so far this year is 8.3%.  Prudential Guaranteed is 3.8% for the year.

 

5.20% 22.84% 1.61% 37.97% 101.87%  

 

3.25% 20.06% -0.07% 14.01% 56.91%

   

0.76% -1.63% -2.01% -10.53% 9.70%

   

0.59% 2.33% 0.29% 11.61% 20.49%

   

2.36% 11.91% 0.30% -- --  

 

1.15% 10.40% -0.58% -- --

   

0.17% 5.93% -0.93% -- --



#6 whyme

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Posted 27 September 2017 - 09:46 PM

Amen to Steve Schullo's comments: figure out your long term asset allocation and make adjustments to fit that plan.  Don't shift assets in response to market movements.  If a significant drop in the stock market would cause you to sell stock, you should have a lesser allocation to equities.  If you are comfortable riding out volatility, one way of thinking about the asset allocation is to determine what fraction of the money you won't touch for fifteen years (or twenty years, or more), and leave that portion in stocks.  But do so only if you can sleep comfortably with that amount of stock during a market plunge, like the one in 2007/08.

 

I think most folks here would agree that it would be a good move to consolidate your stock assets at Vanguard, dropping the higher-cost managed funds from T Rowe Price and Fidelity (even the ones that have done well).  This will only make sense if you can do it inside IRAs, without triggering taxes. If a lot of these assets are still in a 403b account, consider rolling them into a Vanguard IRA account--most 403b accounts have additional fees on top of the fund expense ratios that the standard IRAs do not.



#7 tony

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Posted 27 September 2017 - 10:34 PM

Bk

I wasn't sure if you wanted us to discuss your allocation or not but since Whyme did I will also. I agree you could lower your costs and simplify your portfolio by going 100% Vanguard with no loss on return. You would probably do better. I am in  all index funds and my return on my portfolio which has a similar but not exactly similar allocation breakdown is YTD  9.12%. As an example your Fidelity international fund charges over 1% expense ratio. Your New Era and Contrafund run about a half a percent or more in expense ratios. By Vanguard standards and ours, you are paying too much.You could considerably lower your expense ratio by going 100% Vanguard Index Funds in a transfer  IRA into admiral shares.  You may be paying even more as I checked the retail expense ratios available outside a 403b.  Are you getting your funds through Prudential? Could you state your expense ratios?I checked the returns on your Contrafund and New Era Fund on Morningstar and they don't quite match the  returns you stated . 

Hope this helps you make decisions.

 

Tony



#8 bk10s

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Posted 28 September 2017 - 05:13 AM

Contrafund:  Fees  .68%  Move into Vanguard Institutional??

Diversified Int'l:  1.05%  Move into Vanguard Total International??

 

You got me.  I have tried to be a champion of low fees.  Going to be looking hard at this today.  New Era was really good when the price of gas was going crazy!

 

We get our funds through WEA Member Benefits:  https://www.weabenefits.com/

 

All of these assets are within our 403b.  I will check into the IRA plan you suggested, as I am not aware of how that would work. 

 

I am so thankful for this site.  I like to think that I am kind of edumacated on this stuff, but we always have room to learn!  I'll report back -

 

Bill



#9 sschullo

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Posted 28 September 2017 - 08:40 AM

Vanguard Institutional is the s&p 500. https://personal.van...&FundIntExt=INT

 

If it were me, I would invest in the ETF total stock market index instead. I have a lot of my equity allocation in ETF total stock market, and my costs are (are you sitting down?) .04%! YES! 

 

Vanguard total international is slightly higher cost at .11%

 

Please note that most of my Vanguard funds are Admiral share classes which are slightly lower than investor share classes. 

 

Here is a link to my portfolio scroll down to see my returns and costs: http://latebloomerwe...rtfolio-report/ Which include both the total stock market index ETF and the VG total international stock market index, and their returns as of June 30, 2017. They are much higher returns now, BTW. 


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#10 tony

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Posted 28 September 2017 - 09:03 AM

BK

 

 

All of these assets are within our 403b.  I will check into the IRA plan you suggested, as I am not aware of how that would work. 

 

Now that you are retired you can exchange your 403b into an Vanguard IRA. The paper work is available on line on their site or you can call them. I suggest you call Vanguard before doing anything.You will also have to fill out paperwork on the WEA side. Its a very easy process actually. You will have lower costs and better options transferring over to a IRA. I did it too the minute we retired. Otherwise it works like your 403b.

 

 

In my opinion New Era should be let go too.  Its expense ratio is .67 I am sure an all Vanguard Admiral portfolio ETF (an mentioned by Steve)or mutual fund including total market index and international would outperform yours over time. Short term returns can be deceiving.

 

An easy move would be into Vanguard Strategy Funds  which are made up of index funds . https://investor.van...lifestrategy/#/

 

Tony

 

B.K. We didn't "get you". You obviously did a fine job saving for retirement. This site set me straight years ago when I was playing musical chairs with different companies, different funds  and different expense ratios. I used to read Steve's posts years ago. Everything he ever posted was correct. I am glad I am in low cost index funds now.



#11 bk10s

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Posted 28 September 2017 - 11:09 AM

My current portfolio is a mixture of 403b and Roth IRA.  The Vanguard Total International is offered within the 403b.  So, I would move the Fidelity Contrafund $$ into Vanguard Institutional and the Fidelity Diversified into Vanguard Total International.  Can I just do it that way instead of the IRA?  What is the advantage of doing the IRA?  Obviously, I am missing something.  Many thanks again -

 

Bill



#12 whyme

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Posted 28 September 2017 - 11:53 AM

Hi bk10s.  The reason for a rollover to an IRA is mainly because you are paying additional administrative fees within the 403b account.  Those fees erode your nest egg, and you now can eliminate them by rolling the money into an IRA account.  The move won't be difficult... call Vanguard and they'll walk you through it.  You'll need to open a Vanguard IRA account, then there will be some paperwork to authorize the rollover--Vanguard should make that quite painless, they may even fill it out for you, leaving you to simply sign, date and mail it. 

 

I recommend that you determine a long-term target allocation for your portfolio. Then, either liquidate the current 403b investments and reinvest at Vanguard according to that new plan, or keep the 3.8% Prudential stable value account in your 403b (you can't replicate that at Vanguard) and roll over the remaining balance.  If you take the latter course, consider the Prudential fund as part of your "bond" allocation.  (By the way, it is probable that a 403b administrative fee is shaving a chunk off of that claimed 3.8% rate, but it still may leave you with a good deal.)

 

The simplest thing would be a one-fund approach--everything goes into one of the Vanguard Target date or Life Strategy funds, maybe one that is designed for retirees.  The question of your asset allocation deserves more attention than we'll give it here, but if you put everything in, for example, the Life Strategy Conservative Growth fund (which is about 40% stock, 60% bond), you'll have made a sound move that would be a fine long term solution, but you'll have the flexibility to reallocate if you later decide that you want more or less stock exposure during retirement.  (If you become, like Steve, dedicated to chasing down every hundredth of a percent of costs, you'll find that individual funds or ETFs are a little bit less costly than the all-in-one funds, so that is another change you might make in the future.  But please don't fret over that, the difference is small.)

 

If you have a standard Roth account, you are probably ok where you are, but you might consider rolling that to Vanguard, too, the advantages being the convenience of consolidation and Vanguard's generally lower fee structure.  If the Roth account is within a 403b, then you should ask Vanguard about the procedure to roll it over--the same added 403b admin fees would pertain to a Roth 403b.

 

Steer clear of attempts by any vendor--Vanguard included--to connect you to a fee-based financial advisor.  Such an advisor makes sense for certain folks, and you can always opt for one later, but the situation you describe can easily be resolved without that added cost--a percentage of your entire portfolio--which applies year after year.

 

 

PS: A new edition of John Bogle's "Little Book of Common Sense Investing" is due to be published next month.  It would be a very clarifying volume, which will explain why those of us posting here fuss so much about fees and expenses.  It might help you to rest easily with your do-it-yourself investment choices and enjoy your retirement.



#13 krow36

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Posted 28 September 2017 - 01:27 PM

If you stay in your 403b, I think you should sell the TRP New Era fund. It’s a large cap growth fund focusing on natural resources especially petroleum. It’s performance over 1, 3 and 5 years has been poor. It’s not an appropriate investment for your retirement portfolio, if ever (even if its ER was low). The Vanguard Institutional Index (=500 Index) is much more diversified. 

 

If you are certain you want to keep Contrafund, it might be a good idea to limit to about 5% of your total portfolio. It is also not near as diversified as Inst. Index, focusing on the big tech growth companies.  

 

WEA charges you an administration fee of 0.35% (or a maximum of $300) per year for your 403b. If you balance is more than about $85,700, you are paying $300. If your balance was $200,000 you would be paying 0.15%. 

 

WEA gives you have access to some great Institutional class Vanguard funds, and the Prudential Guaranteed Investment is an attractive alternative to a bond fund. I think either staying with the WEA 403b or moving to a Vanguard IRA are both reasonable choices.



#14 tony

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Posted 28 September 2017 - 01:27 PM

Bk

 

Boy are you getting good advice and its free!!  Dan , Michael D, Steve S, Krow, Whyme and Ed La fave know what they are talking about and they have no financial incentives to tell you anything but the truth!!

 

Fidelity Contra matches up perfectly with Vanguard 500 Index but is less diversified. Fidelity Contra which I used to own myself is a good fund but its not a pure domestic large cap as it also has some international holdings in its allocation. Your Vanguard International will take care of that part.



#15 bk10s

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Posted 29 September 2017 - 05:16 AM

Is it suggested that I move the Contrafund to Vanguard Institutional and the Fidelity Diversified to Vanguard Total International all at once?  Or, a certain amount every month until the conversion is complete?  As I looked back, I got into Contrafund when our 403b provider dropped Vanguard PrimeCap.  Many thanks again for all of your great information.

 

Bill