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tony

Big Change At Vanguard

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Summary

Vanguard lowers investment minimum of Admiral Shares of 38 index funds to $3,000, for estimated $71 million in aggregate savings
 

Lowered minimums represent savings up to 71% over corresponding Investor Shares

 

Vanguard to launch new low-cost Admiral Shares on five index funds, including Vanguard FTSE Social Index Fund, for estimated $10 million in aggregate savings

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Whyme

Didn't know that. That's pretty ridiculous. Money market funds can be expensive to manage because of constant very high turnover. 

 

As a side note: From what I am seeing a money market might be a good place to park new cash right now. I know we can't predict the market but the signs of a continued downturn are evident and money markets are outperforming stocks and bonds.

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I guess this is as good a time to remind ourselves to have a plan.

If any of you are thinking about "parking money" in cash because of downturn "signs" that are happening right now, you have taken on too much risk, or you are attempting to time the market. If you want to rebalance from bonds to stocks (because stocks have dropped recently) because your plan is out of whack, that would be a good thing.

Two months ago, my stock allocation went up so much it triggered a rebalance. My stock to bond balance was out of whack, it was up to 35% stocks and 65% fixed. I called Vanguard and they helped me by looking at which equities indexes to sell that would have the least capital gains. 

I sold holdings in my total stock market index and international stock market index and bought the total bond market index. At the time, it reduced my stock allocation to about 32%. Right now my balance is about 31% stocks and 69% bonds and I had a plan of 30% stocks and 70% bonds for over a decade, and it held up fine during 2008, and it will hold up fine now too.

This is a plan for somebody my age and who needs the money to fund my retirement. If you are my age and don't need the money because you can live off your pension, heck, put 80%, 90% or 100% in the stock market! And let your descendants or charities worry about it, - ). 

Buffett's story is ancient news now, as millions of investors have heard it many times in the past, but it seems we have to be reminded again: Buffett made his billions by buying when everybody was getting out.  

Many DIYer investors have a plan that is appropriate for their risk tolerance and need (or not needing the money right now) in place and stick with your plan through good, neutral or negative times. 

 

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I was not attempting to encourage you to make changes to your current retirement contributions plan based on the market. Don't do it. Just keep contributing and ignore the noise which I inadvertently reminded you of.   

I was just saying any new cash like a bonus, or Christmas gifts,  sudden inheritances or maybe even tax refunds could be parked in a money market until a better idea of what the market is going to do is in sight if you were planning to invest any windfall.  Money markets are paying quite well at the moment.

I am not looking forward to any major downturn but I think those of you who have yet to experience one might respond emotionally and change your plan.  If you are are happy with your allocation leave it alone.  Also It's best to patch your roof when it's sunny if you know what I mean.

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3 hours ago, tony said:

I was not attempting to encourage you to make changes to your current retirement contributions plan based on the market. Don't do it. Just keep contributing and ignore the noise which I inadvertently reminded you of.   

I was just saying any new cash like a bonus, or Christmas gifts,  sudden inheritances or maybe even tax refunds could be parked in a money market until a better idea of what the market is going to do is in sight if you were planning to invest any windfall.  Money markets are paying quite well at the moment.

I am not looking forward to any major downturn but I think those of you who have yet to experience one might respond emotionally and change your plan.  If you are are happy with your allocation leave it alone.  Also It's best to patch your roof when it's sunny if you know what I mean.

Great thanks for the clarification Tony. There is a valid discussion about lump sum vs. DCA with a bundle of new cash from tax refund, inheritance and or a sale of real estate. With a bundle of new cash, either strategy would be OK long term, as long as you keep with your DCA plan. Nothing wrong with lump sum either because the markets are 5% off their highs, and the big advantage is that you are done.

So many people never invested again in the stock market because of 2008 and the missed tremendous gains in the last decade. 

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Investing a sum of money into the market over a period of time has a lower expected return than putting it all in at once.

Spreading the investment out over time is a mental fallacy. Every day we all decide what percentage of our assets should be in the market. Nobody ever chooses to take out a percentage and drip it right back into the market, which is exactly what you’re doing if you don’t invest it all at once.

Market timing is bad for your financial health no matter what form it takes. 

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2 hours ago, sschullo said:

So many people never invested again in the stock market because of 2008 and the missed tremendous gains in the last decade. 

 

This was a tremendous mistake on their part. With every downturn comes opportunity. Stay the course. 

 

2 hours ago, EdLaFave said:

Investing a sum of money into the market over a period of time has a lower expected return than putting it all in at once.

 

 

It seems DCA is now in the doghouse  and not just with Ed. Nobody much talks about it much anymore.  When I started investing everybody was raving about it and frankly most people had to use this method whether they liked it or not in a retirement plan since no one had large sums of money to invest. It served me well over time as it kept me investing every paycheck through thick and thin.  Regardless if it has fallen out of favor or not, aren't most 403b participants DCAveraging?  From a math standpoint perhaps it doesn't add up. I'm not smart enough to make that mathematical comparison. But from a psychological and disciplinary approach, it helps you build your assets.  Granted for a windfall you could just invest it and be done with it.

I

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Dollar cost averaging is when you take a sum of money and instead of investing it all at once you invest it chunk by chunk over a period of time. Generally people begin to consider dollar cost averaging when they receive what they consider to be a large sum of money.

Taking the surplus from each paycheck and investing it is NOT dollar cost averaging because at any given moment in time you’re fully invested. You’re not leaving money on the sidelines based on your fear that the market may decline.

Many people frequently and erroneously use the term dollar cost averaging to refer to investing on a regular basis because you earn money on a regular basis. So the term is beginning to lose its meaning, like people using the word “literally” when the word they literally should be using is “metaphorically”.

At any rate, DCA is statistically inferior, but it isn’t a terrible thing to do. However, if somebody is too afraid to put their assets in the market all at once then I question the appropriateness of their portfolio’s risk profile and/or their understanding of what they’re invested in and how markets function.

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