Rate of Return on Roth IRA's

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TheDev
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Rate of Return on Roth IRA's

Post by TheDev »

I'm reading Bogleheads the book. They keep going on tangents, saying something like "If you invest $4000 a year into a Roth IRA with a rate of 8%, you will make a million dollars by the day you retire."

Where do you find investments with that high of rate?
Last edited by TheDev on Thu Aug 09, 2012 9:20 am, edited 3 times in total.
xerty24
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Re: 8% Interest Rate on Roth IRA?

Post by xerty24 »

TheDev wrote:8%?!?! Where do you get a Roth IRA with such a high rate? Where do you find any investments high that high of rate?
Long the stock market and hope.
No excuses, no regrets.
Topic Author
TheDev
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Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

xerty24 wrote:
TheDev wrote:8%?!?! Where do you get a Roth IRA with such a high rate? Where do you find any investments high that high of rate?
Long the stock market and hope.
The stock market is ridiculously risky though.
Johm221122
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Re: 8% Interest Rate on Roth IRA?

Post by Johm221122 »

A diversified portfolio with high percentage in stocks and cross your fingers :moneybag
What other choice is there :?:
Topic Author
TheDev
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Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

Johm221122 wrote:A diversified portfolio with high percentage in stocks and cross your fingers :moneybag
What other choice is there :?:
But with stocks, :moneybag can turn into :oops:

Bogleheads keeps insisting that you can get a Roth with this rate. I don't see how that's possible.
Johm221122
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Re: 8% Interest Rate on Roth IRA?

Post by Johm221122 »

TheDev wrote:
Johm221122 wrote:A diversified portfolio with high percentage in stocks and cross your fingers :moneybag
What other choice is there :?:
But with stocks, :moneybag can turn into :oops:

Bogleheads keeps insisting that you can get a Roth with this rate. I don't see how that's possible.
Please show me example, I can't think of one
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bottlecap
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Re: 8% Interest Rate on Roth IRA?

Post by bottlecap »

TheDev wrote:
xerty24 wrote:
TheDev wrote:8%?!?! Where do you get a Roth IRA with such a high rate? Where do you find any investments high that high of rate?
Long the stock market and hope.
The stock market is ridiculously risky though.
You can't get the return without the risk. Smoking is ridiculously risky. The stock market, not so much.

I don't know what you're reading, but a Roth can give you a 100% rate of return if the funds are invested in the right asset class. I can't tell you which that will be.

Whatever you are reading, I think they are using 8% to demonstrate the power of compounding. They are not saying you're guaranteed an 8% return.

JT
dbr
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Re: 8% Interest Rate on Roth IRA?

Post by dbr »

Johm221122 wrote:
TheDev wrote:
Johm221122 wrote:A diversified portfolio with high percentage in stocks and cross your fingers :moneybag
What other choice is there :?:
But with stocks, :moneybag can turn into :oops:

Bogleheads keeps insisting that you can get a Roth with this rate. I don't see how that's possible.
Please show me example, I can't think of one
See here:

http://www.portfoliosolutions.com/the-p ... -for-2012/

Nominal returns for US and OUS stocks run 8%-11%.

Note that the associated risk measured by annual SD (don't anyone get started on this, please!) run 19%-29%.

The language "get a Roth with this rate" suggests one is not thinking of the concepts of risk and return correctly. If by "rate" one means to refer to "safe" bond returns the same forecast suggests thirty year nominal prospects in the range of 2.8%-4.4% with SD's of 2%-8%. Note the lower end of that scale is a real return of 0.3% with the 2.5% inflation contained in the same article and could be negative real return if inflation were more.

The recommendation that a young investor might invest primarily in US and OUS stocks in a Roth for long term is quite reasonable, however. The quibbles about Roth/Trad-401k/Taxable are tax/cost issues and not asset allocation issues.
Topic Author
TheDev
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Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

What is the rate of return for this:
https://personal.vanguard.com/us/whatwe ... Link=facet
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Sheepdog
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Re: 8% Interest Rate on Roth IRA?

Post by Sheepdog »

From 1926 to 2011, according to Vanguard, there were these average returns (stock/bond %)

80/20 9.4%
70/30 9.0%
60/40 8.6%
50/50 8.2%

What will be the next 85 years? That's the question. Let me know how it turns out, will you?
All that truly matters in the end is that you loved.
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Re: 8% Interest Rate on Roth IRA?

Post by Johm221122 »

dbr wrote:
Johm221122 wrote:
TheDev wrote:
Johm221122 wrote:A diversified portfolio with high percentage in stocks and cross your fingers :moneybag
What other choice is there :?:
But with stocks, :moneybag can turn into :oops:

Bogleheads keeps insisting that you can get a Roth with this rate. I don't see how that's possible.
Please show me example, I can't think of one
See here:

http://www.portfoliosolutions.com/the-p ... -for-2012/

Nominal returns for US and OUS stocks run 8%-11%.

Note that the associated risk measured by annual SD (don't anyone get started on this, please!) run 19%-29%.

The language "get a Roth with this rate" suggests one is not thinking of the concepts of risk and return correctly. If by "rate" one means to refer to "safe" bond returns the same forecast suggests thirty year nominal prospects in the range of 2.8%-4.4% with SD's of 2%-8%. Note the lower end of that scale is a real return of 0.3% with the 2.5% inflation contained in the same article and could be negative real return if inflation were more.

The recommendation that a young investor might invest primarily in US and OUS stocks in a Roth for long term is quite reasonable, however. The quibbles about Roth/Trad-401k/Taxable are tax/cost issues and not asset allocation issues.
From what I see 8% is 30 year forecast for US large stocks,which by history this could be correct. But I see,nobody is making seem like this is guaranteed.OP is misunderstanding risk/return, there is no safe 8% at this time.If you need 8% to reach goals,you must take risk.focus on what we can control, such as listed in boglehead philosophy
http://www.bogleheads.org/wiki/Boglehea ... philosophy
Last edited by Johm221122 on Tue Aug 07, 2012 10:30 am, edited 1 time in total.
Johm221122
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Re: 8% Interest Rate on Roth IRA?

Post by Johm221122 »

TheDev wrote:What is the rate of return for this:
https://personal.vanguard.com/us/whatwe ... Link=facet
The market is a moving target,history shows when you buy when markets are down,you will usually be rewarded.Focus on what you can control
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TheDev
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Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

Johm221122 wrote:
TheDev wrote:
Johm221122 wrote:A diversified portfolio with high percentage in stocks and cross your fingers :moneybag
What other choice is there :?:
But with stocks, :moneybag can turn into :oops:

Bogleheads keeps insisting that you can get a Roth with this rate. I don't see how that's possible.
Please show me example, I can't think of one
What about the financial crash of 2008? If someone had a large percentage on money invested in the stock market, wouldn't they have lost a lot of money?
NYBoglehead
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Re: 8% Interest Rate on Roth IRA?

Post by NYBoglehead »

The 8% figure is used to show the magic of compounding and to demonstrate how to reach a number that a lot of Americans identify as being rich. People set a timeline on when they'd like to have $1 million in invested assets, not 800k.

Another important thing to remember for those who are young and beginning investing is that a million dollars in 30 years will not be as significant a number as it is in 2012. Just as those with $1 million today are not as wealthy as those that much in 1982, etc. etc.

Invest as much as you can into a diversified, disciplined, low-cost portfolio and enjoy life.
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Re: 8% Interest Rate on Roth IRA?

Post by nisiprius »

TheDev wrote:I'm reading Bogleheads. They keep going on tangents, saying something like "If you invest $4000 a year into a Roth IRA with an interest rate of 8%, you will make a million dollars by the day you retire." 8%?!?! Where do you get a Roth IRA with such a high rate? Where do you find any investments with that high of rate?
xerty24 wrote:Long the stock market and hope.
TheDev wrote:The stock market is ridiculously risky though.
TheDev, you need to spend a little quality time looking at charts and graphs of the long-term behavior of stocks. And you really need to do it for yourself, and form your own opinions both about the risk of stocks and the return of stocks. Everyone has their own opinion and a lot of the stuff you read does have spin on it. One extreme: "the stock market is ridiculously risky." Another extreme: "Extensive research by Jeremy Siegel of the University of Pennsylvania’s Wharton School has found that over 20 years and more, stocks are no more risky than Treasury bonds or even bills." That statement was made in 1999 by two gentlemen who said that the Dow was certain to reach 36,000 by "2005 at the latest." The truth lies somewhere in between.

For an individual investor with a limited time span for investing, it would not be wise to count on getting 8%, but it is not an impossibly optimistic number, either.

And, yes, 8% is high. That's why people invest in stocks. You don't get that kind of rate with safe investments. If you're getting 8%, there is risk involved. How much risk to take is a personal decision.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
sscritic
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Re: 8% Interest Rate on Roth IRA?

Post by sscritic »

TheDev wrote: Bogleheads keeps insisting that you can get a Roth with this rate.
Could you quote a boglehead for us?

By quote, I mean the exact words written by someone else claiming you can get a Roth with 8%. What you see above is a sample quote.
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TheDev
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Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

TheDev wrote:
Johm221122 wrote:
TheDev wrote:
Johm221122 wrote:A diversified portfolio with high percentage in stocks and cross your fingers :moneybag
What other choice is there :?:
But with stocks, :moneybag can turn into :oops:

Bogleheads keeps insisting that you can get a Roth with this rate. I don't see how that's possible.
Please show me example, I can't think of one
What about the financial crash of 2008? If someone had a large percentage on money invested in the stock market, wouldn't they have lost a lot of money?
quoting myself since no one answered this.
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TheDev
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Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

sscritic wrote:
TheDev wrote: Bogleheads keeps insisting that you can get a Roth with this rate.
Could you quote a boglehead for us?

By quote, I mean the exact words written by someone else claiming you can get a Roth with 8%. What you see above is a sample quote.
Bogleheads the book.
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Re: 8% Interest Rate on Roth IRA?

Post by Johm221122 »

TheDev wrote:
TheDev wrote:
Johm221122 wrote:
TheDev wrote:
Johm221122 wrote:A diversified portfolio with high percentage in stocks and cross your fingers :moneybag
What other choice is there :?:
But with stocks, :moneybag can turn into :oops:

Bogleheads keeps insisting that you can get a Roth with this rate. I don't see how that's possible.
Please show me example, I can't think of one
What about the financial crash of 2008? If someone had a large percentage on money invested in the stock market, wouldn't they have lost a lot of money?
quoting myself since no one answered this.
Only if you sold ,see staying the course in boglehead philosophy
rustymutt
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Re: 8% Interest Rate on Roth IRA?

Post by rustymutt »

TheDev wrote:I'm reading Bogleheads. They keep going on tangents, saying something like "If you invest $4000 a year into a Roth IRA with an interest rate of 8%, you will make a million dollars by the day you retire."

8%?!?! Where do you get a Roth IRA with such a high rate? Where do you find any investments with that high of rate?
I've not seen any Bogleheads claiming 8%. Could you post the links to this? I've done much better than 8% many years, but also have lost money in some years. It all averages out better than passbook saving accounts.
Even educators need education. And some can be hard headed to the point of needing time out.
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TheDev
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Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

rustymutt wrote:
TheDev wrote:I'm reading Bogleheads. They keep going on tangents, saying something like "If you invest $4000 a year into a Roth IRA with an interest rate of 8%, you will make a million dollars by the day you retire."

8%?!?! Where do you get a Roth IRA with such a high rate? Where do you find any investments with that high of rate?
I've not seen any Bogleheads claiming 8%. Could you post the links to this? I've done much better than 8% many years, but also have lost money in some years. It all averages out better than passbook saving accounts.
dratkinson wrote:My gut reaction is don't "waste the Roth year". But I'm often wrong.

So using my HP-12C...

Assume:
You are 25 and can work and invest until you are 65---40 years.
You can invest $5K per year into your Roth.
Your investment will earn 8% APY.
You will invest as soon as possible each year.
Ignore the effects of inflation.

Question: What is the difference between investing $5K in your Roth beginning at age 25, and delaying 1 or 2 years.

Investing $5K per year for...
40 years = $1,398,905
39 years = $1,290,282 (a loss of $108,622)
38 years = $1,189,706 (a total loss of $209,199)
37 years = $1,096,579 (a total loss of $302,325)

You only owe $66K in school debt. But you will lose more than $100K by delaying funding your Roth by one year. It get worse for every year you delay.

So I vote fund your Roth to the max, and as soon as possible every year.



(Above assumes I did not fumble-finger something.)
sscritic
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Re: 8% Interest Rate on Roth IRA?

Post by sscritic »

TheDev wrote: I'm reading Bogleheads.
... [much later]
Bogleheads the book.
You confused me. If you look at the top of this page, this website is titled Bogleheads.org. I thought you were reading this Bogleheads, not some other Bogleheads. If you google bogleheads, this website comes up first. The second result is a book, but its title starts with The Bogleheads' (note the possessive). But now I know.
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Re: 8% Interest Rate on Roth IRA?

Post by Johm221122 »

8% was a guess, you could also probably find 6%,7%,9% and 10%,if you look hard enough. There are no guarantees in stocks or life.Focus on what you can control
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Re: 8% Interest Rate on Roth IRA?

Post by xerty24 »

TheDev wrote:What about the financial crash of 2008? If someone had a large percentage on money invested in the stock market, wouldn't they have lost a lot of money?
Yup, maybe 30-50% depending on which crash and what market. The Great Depression was worse of course, ~90%. Usually these things recover somewhat, but if you need to retire then or otherwise spend the money you're SOL.
No excuses, no regrets.
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Re: 8% Interest Rate on Roth IRA?

Post by Johm221122 »

xerty24 wrote:
TheDev wrote:What about the financial crash of 2008? If someone had a large percentage on money invested in the stock market, wouldn't they have lost a lot of money?
Yup, maybe 30-50% depending on which crash and what market. The Great Depression was worse of course, ~90%. Usually these things recover somewhat, but if you need to retire then or otherwise spend the money you're SOL.
Which is why you have a plan(see boglehead philosophy)
example :age in bonds
Last edited by Johm221122 on Tue Aug 07, 2012 11:02 am, edited 1 time in total.
Topic Author
TheDev
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Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

I see little need to think highly of an 8% return on stocks when you could end up losing way more than 8% if there is another crash.
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Re: 8% Interest Rate on Roth IRA?

Post by Johm221122 »

TheDev wrote:I see little need to think highly of an 8% return on stocks when you could end up losing way more than 8% if there is another crash.
Only if you sell,you need EF ,so you don't sell in crash
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hoppy08520
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Re: 8% Interest Rate on Roth IRA?

Post by hoppy08520 »

The 8% might be a return with inflation included, and a best guess on annual inflation is 3%. That would make for a 5% real return. Even a 5% real return might be a bit optimistic.

There's a thread going on now with Jack Bogle's estimates on real returns in the future (http://www.bogleheads.org/forum/viewtop ... 0&t=100480). The thread is a little unclear but I think Mr. Bogle was suggesting you might expect to get a 4% - 5% real return on a 50/50 portfolio.

This wiki page also has some information on Historical and Expected Returns.
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Re: 8% Interest Rate on Roth IRA?

Post by bottlecap »

TheDev wrote:What about the financial crash of 2008? If someone had a large percentage on money invested in the stock market, wouldn't they have lost a lot of money?
What does that have to do with an 8% return? An average 8% return over 30 years is not unheard of. Some say it is less likely nowadays, but it's not impossible, either. If you think the stock market is ridiculously risky, then you probably won't get that regardless.

If you don't like 8%, use 6% or 5% or 3%. I don't understand what the issue is. Use whatever figure is appropriate for your risk tolerance.

JT

P.S. I lost nothing in the crash, because I didn't sell. I'm back up above where I was before the crash. The figures used include data during the "crash" and even "Great Depression" years.
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Re: 8% Interest Rate on Roth IRA?

Post by Johm221122 »

bottlecap wrote:
TheDev wrote:What about the financial crash of 2008? If someone had a large percentage on money invested in the stock market, wouldn't they have lost a lot of money?
What does that have to do with an 8% return? An average 8% return over 30 years is not unheard of. Some say it is less likely nowadays, but it's not impossible, either. If you think the stock market is ridiculously risky, then you probably won't get that regardless.

If you don't like 8%, use 6% or 5% or 3%. I don't understand what the issue is. Use whatever figure is appropriate for your risk tolerance.

JT

P.S. I lost nothing in the crash, because I didn't sell. I'm back up above where I was before the crash. The figures used include data during the "crash" and even "Great Depression" years.
+1 I'm up and 75% stocks
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Re: 8% Interest Rate on Roth IRA?

Post by Elbowman »

bottlecap wrote: Smoking is ridiculously risky.
Rubbish! I'd wager there are few common activities which are as effective as smoking at reducing your risk of having unfunded retirement years.
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Re: 8% Interest Rate on Roth IRA?

Post by Sheepdog »

Elbowman wrote:
bottlecap wrote: Smoking is ridiculously risky.
Rubbish! I'd wager there are few common activities which are as effective as smoking at reducing your risk of having unfunded retirement years.
:thumbsup
All that truly matters in the end is that you loved.
xerty24
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Re: 8% Interest Rate on Roth IRA?

Post by xerty24 »

Johm221122 wrote:
xerty24 wrote:
TheDev wrote:What about the financial crash of 2008? If someone had a large percentage on money invested in the stock market, wouldn't they have lost a lot of money?
Yup, maybe 30-50% depending on which crash and what market. The Great Depression was worse of course, ~90%. Usually these things recover somewhat, but if you need to retire then or otherwise spend the money you're SOL.
Which is why you have a plan(see boglehead philosophy)
example :age in bonds
Sure it's good to have a plan, but with say 40% of your money in bonds earning ~1-2%, even if the stocks deliver 8-10% over the long term, your blended return is more like 6-7%. bonds lower the risk a lot, but they also lower the returns a lot (especially now when rates are so low).
No excuses, no regrets.
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Re: 8% Interest Rate on Roth IRA?

Post by Johm221122 »

xerty24 wrote:
Johm221122 wrote:
xerty24 wrote:
TheDev wrote:What about the financial crash of 2008? If someone had a large percentage on money invested in the stock market, wouldn't they have lost a lot of money?
Yup, maybe 30-50% depending on which crash and what market. The Great Depression was worse of course, ~90%. Usually these things recover somewhat, but if you need to retire then or otherwise spend the money you're SOL.
Which is why you have a plan(see boglehead philosophy)
example :age in bonds
Sure it's good to have a plan, but with say 40% of your money in bonds earning ~1-2%, even if the stocks deliver 8-10% over the long term, your blended return is more like 6-7%. bonds lower the risk a lot, but they also lower the returns a lot (especially now when rates are so low).
For someone young,and investing on regular basis, rates will eventually rise(let it be 2,5,10 or more years) and for someone older rates were higher and they have enjoyed capital gains
Edit: if your 40% bonds,I would not expect 8%, possible, but not expect
Last edited by Johm221122 on Tue Aug 07, 2012 11:47 am, edited 1 time in total.
xerty24
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Re: 8% Interest Rate on Roth IRA?

Post by xerty24 »

Johm221122 wrote:For someone young,and investing on regular basis, rates will eventually rise (let it be 2,5,10 or more years)...
Better make that 15+ years

http://housingjapan.com/wp-content/uplo ... -rates.gif
No excuses, no regrets.
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Re: 8% Interest Rate on Roth IRA?

Post by Johm221122 »

xerty24 wrote:
Johm221122 wrote:For someone young,and investing on regular basis, rates will eventually rise (let it be 2,5,10 or more years)...
Better make that 15+ years

http://housingjapan.com/wp-content/uplo ... -rates.gif
OP is 25(he has 15+ years) and age in bonds would be 75% stocks
Edit he would still be younger than I am now
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Re: 8% Interest Rate on Roth IRA?

Post by bottlecap »

Elbowman wrote:
bottlecap wrote: Smoking is ridiculously risky.
Rubbish! I'd wager there are few common activities which are as effective as smoking at reducing your risk of having unfunded retirement years.
Smoking's still risky, it's just some other common things are quicker. Smoking was the easiest thing to mention without offending people. Although, perhaps that didn't even work...

JT
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TheDev
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Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

Johm221122 wrote:
xerty24 wrote:
Johm221122 wrote:For someone young,and investing on regular basis, rates will eventually rise (let it be 2,5,10 or more years)...
Better make that 15+ years

http://housingjapan.com/wp-content/uplo ... -rates.gif
OP is 25(he has 15+ years) and age in bonds would be 75% stocks
Edit he would still be younger than I am now
75% is stocks?!!? Why not just throw my money in a bonfire while I'm at it?
porcupine
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Re: 8% Interest Rate on Roth IRA?

Post by porcupine »

TheDev wrote:I'm reading Bogleheads. They keep going on tangents, saying something like "If you invest $4000 a year into a Roth IRA with an interest rate of 8%, you will make a million dollars by the day you retire."

8%?!?! Where do you get a Roth IRA with such a high rate? Where do you find any investments with that high of rate?
You can always rework the math in your favor using a number as low as 0% (or even in the negative, if you so choose), and see where/how your savings stack up!

BTW, you could also say that you would only spend $1000 (yes, that's right, a thousand buckaroos) a year, when those magical calculations affix a figure such as $50k or $75k to your annual expenses post retirement.

- Porcupine
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Re: 8% Interest Rate on Roth IRA?

Post by bengal22 »

TheDev wrote:
xerty24 wrote:
TheDev wrote:8%?!?! Where do you get a Roth IRA with such a high rate? Where do you find any investments high that high of rate?
Long the stock market and hope.
The stock market is ridiculously risky though.
"Ridiculously." How so?
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley
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Re: 8% Interest Rate on Roth IRA?

Post by bottlecap »

TheDev wrote:
Johm221122 wrote:
xerty24 wrote:
Johm221122 wrote:For someone young,and investing on regular basis, rates will eventually rise (let it be 2,5,10 or more years)...
Better make that 15+ years

http://housingjapan.com/wp-content/uplo ... -rates.gif
OP is 25(he has 15+ years) and age in bonds would be 75% stocks
Edit he would still be younger than I am now
75% is stocks?!!? Why not just throw my money in a bonfire while I'm at it?
It's obvious to me at this point that we've been had. No further need to respond.

OP, great work, you can pat yourself on the back for a job well done.

JT
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TheDev
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Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

bottlecap wrote:
TheDev wrote:
Johm221122 wrote:
xerty24 wrote:
Johm221122 wrote:For someone young,and investing on regular basis, rates will eventually rise (let it be 2,5,10 or more years)...
Better make that 15+ years

http://housingjapan.com/wp-content/uplo ... -rates.gif
OP is 25(he has 15+ years) and age in bonds would be 75% stocks
Edit he would still be younger than I am now
75% is stocks?!!? Why not just throw my money in a bonfire while I'm at it?
It's obvious to me at this point that we've been had. No further need to respond.

OP, great work, you can pat yourself on the back for a job well done.

JT
what are you talking about?
2wolves
Posts: 158
Joined: Sun Apr 10, 2011 11:57 am

Re: 8% Interest Rate on Roth IRA?

Post by 2wolves »

bottlecap wrote:
It's obvious to me at this point that we've been had. No further need to respond.

OP, great work, you can pat yourself on the back for a job well done.

JT
I was thinking the same thing. But even when someone make up an online caricature, I still enjoy the threads for the entertainment. If he would have been a little more subtle, he could have gotten a few pages of responses.
Topic Author
TheDev
Posts: 80
Joined: Sun Aug 05, 2012 1:42 pm

Re: 8% Interest Rate on Roth IRA?

Post by TheDev »

2wolves wrote:
bottlecap wrote:
It's obvious to me at this point that we've been had. No further need to respond.

OP, great work, you can pat yourself on the back for a job well done.

JT
I was thinking the same thing. But even when someone make up an online caricature, I still enjoy the threads for the entertainment. If he would have been a little more subtle, he could have gotten a few pages of responses.
caricature? no. Putting that much money in stocks is very risky. You could lose a lot of money.
covertfantom
Posts: 224
Joined: Thu Feb 02, 2012 7:42 pm

Re: 8% Interest Rate on Roth IRA?

Post by covertfantom »

Here's another way to look at it: you have $10,000 sitting in a bank. Lets say you earn 1% on it a year (which is really high right now for a bank account.) Factoring in inflation at 3% a year, you are guaranteeing yourself a 2% loss every year by keeping your money in the 'safety and security' of a bank. This loss will be compounded the longer you keep your money in a bank.

Sure the market could swing up 8% as easily as it can swing down 8% any given day. But the long term trends seem to indicate that if you slowly and incrementally put your money on the market, you will be in for an 8% gain average every year over a 30 year term. Why are you arguing about short term risks when you can't argue with the long term outcomes? Even if you invested just before the 2008 bust, most of your money is now back... and if you had kept on incrementally investing into the market over that time, you would be ahead of having put the money in a bank account.
dhodson
Posts: 4117
Joined: Mon May 24, 2010 3:03 pm

Re: 8% Interest Rate on Roth IRA?

Post by dhodson »

TheDev wrote:
2wolves wrote:
bottlecap wrote:
It's obvious to me at this point that we've been had. No further need to respond.

OP, great work, you can pat yourself on the back for a job well done.

JT
I was thinking the same thing. But even when someone make up an online caricature, I still enjoy the threads for the entertainment. If he would have been a little more subtle, he could have gotten a few pages of responses.
caricature? no. Putting that much money in stocks is very risky. You could lose a lot of money.

Let me guess...You want people to buy insurance products?
Khanmots
Posts: 1236
Joined: Sat Jun 11, 2011 2:27 pm

Re: 8% Interest Rate on Roth IRA?

Post by Khanmots »

TheDev wrote:
Johm221122 wrote:
xerty24 wrote:
Johm221122 wrote:For someone young,and investing on regular basis, rates will eventually rise (let it be 2,5,10 or more years)...
Better make that 15+ years

http://housingjapan.com/wp-content/uplo ... -rates.gif
OP is 25(he has 15+ years) and age in bonds would be 75% stocks
Edit he would still be younger than I am now
75% is stocks?!!? Why not just throw my money in a bonfire while I'm at it?
I'm currently 80% in equities at age 32.

In 2008 I was 100% stocks in my 401k, and despite the drop I was able to stay at 100%, and everything that my account lost in the drop has since been recovered. In fact since I kept making contributions, it turns or that I picked up some stock on a half price sale.

Equities, or anything with a decent rate of return has large amounts of risk. Sometimes that risk shows its head with an event like we saw in 2008.

However risk isn't only present with equities, it's present with *everything*! Different investment types are exposed to different risks. Even cash.

Cash is vulnerable to the ravages of inflation. If you put a $100 bill under your bed in 1975 and then went to spend it in 1985, you'd find that it would only buy roughly half as much. In other words, while it took 10 years to do so, inflation made cash crash just as much as stocks did in 2008... And unlike stocks cash won't recover.

So if risk can't be avoided what do you do? One thing that you can do is diversify across different kinds of investments such that you've reduced your exposure to any one type of risk.

How much of which types of risk to take is a very personal thing and figuring out what you're comfortable with is one of the most important decisions to make in successfully saving for retirement. However a good understanding of what all the risks are had to be had before you can determine what is right for your situation and your personality. Otherwise you're making decisions in the dark while wearing a blindfold. Unfortunantly, right now you seem to be reacting very emotionally to even the idea of a loss in stocks, but you're ignoring less visible threats such as inflation that can be even worse.

That said, after educating yourself you may decide that you personally have a harder time dealing with visible losses than invisible ones and will setup an allocation with less stocks because of that and will save more to attempt to compensate for the lower expected long-term returns. That's quite alright.

What I think most of us are interested in is making sure that you have good information on which to make your decisions... We're not trying to tell you that you must invest in this or that.
Novine
Posts: 1240
Joined: Mon Nov 17, 2008 9:07 pm

Re: 8% Interest Rate on Roth IRA?

Post by Novine »

Wasn't this comment by the OP a clue of a basic misunderstanding about how investing money works?
"Where do you get a Roth IRA with such a high rate? "
A Roth IRA is a vehicle for investing funds, it's not an investment that you can "get...with such a high rate". It's not an investment that can guarantee you a rate of return. The rate of return on a Roth IRA is dependent on what you put into it and how you manage it over time. If the OP doesn't understand that distinction, the rest of the explanations are probably going to be lost on them as well.
Default User BR
Posts: 7501
Joined: Mon Dec 17, 2007 7:32 pm

Re: 8% Interest Rate on Roth IRA?

Post by Default User BR »

Either it's a put-on, or the OP needs to stop and go read lots from the Wiki and the books in the reading list. The thread is a waste of time.


Brian
User avatar
SSSS
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Re: 8% Interest Rate on Roth IRA?

Post by SSSS »

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