Where do I invest TODAY?

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Rexindex
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Where do I invest TODAY?

Post by Rexindex » Tue Mar 27, 2018 4:03 pm

Lets assume my asset allocation is where I want it. Lets assume my time span to retirement is 10 years and I have $2,000/month to invest in taxable accounts. Where would you put your money if the options were as follows:

1) Money Market
2) Total International Index
3) Total stock Index (US)


I guess my real question: is the International market slightly less overvalued than the US, and for $2k per month would it really matter?
Last edited by Rexindex on Tue Mar 27, 2018 4:07 pm, edited 1 time in total.
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Jack FFR1846
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Re: Where do I invest TODAY?

Post by Jack FFR1846 » Tue Mar 27, 2018 4:07 pm

What's your IPS say your asset allocation should be? Invest to match the IPS. Today, tomorrow, 7 weeks ago, it really doesn't matter.
Bogle: Smart Beta is stupid

alex_686
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Re: Where do I invest TODAY?

Post by alex_686 » Tue Mar 27, 2018 4:08 pm

Your current AA. You seem to be happy with it. Choosing to investing in one of the 3 options you listed indicates you are not happy with your current AA.

Another question to ask is as you get wealthier what happens to your risk tolerance? For some it means they have a greater ability to take risks so one should load up on more equity. For others it means that they no longer need to take risks and should load up more on bonds. Both are equally valid.

Cash is not an option. Cash loses to inflation.

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flamesabers
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Re: Where do I invest TODAY?

Post by flamesabers » Tue Mar 27, 2018 4:12 pm

I think it depends.

How many years are you going to be retired before you plan to start withdrawing from your IRAs/401k and/or take social security?

What is the intention of your monthly $2k investment? Do you want it to generate income for you during retirement or are you more looking to use all of the money to pay the bills when you're retired?

MotoTrojan
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Re: Where do I invest TODAY?

Post by MotoTrojan » Tue Mar 27, 2018 4:14 pm

Rexindex wrote:
Tue Mar 27, 2018 4:03 pm
Lets assume my asset allocation is where I want it. Lets assume my time span to retirement is 10 years and I have $2,000/month to invest in taxable accounts. Where would you put your money if the options were as follows:

1) Money Market
2) Total International Index
3) Total stock Index (US)


I guess my real question: is the International market slightly less overvalued than the US, and for $2k per month would it really matter?
This makes no sense to me. I'd invest the $2K/month towards you AA, so whichever asset class was under-target.

For many people, $24K/yr of contributions is a dream, for others it is rounding error relative to portfolio; that would answer whether it "really matters".

Total International has a much lower P/E than Total US and is historically at a better valuation, but that doesn't tell you if there are good reasons for the Ex-US to be worth less per earned dollar vs. US.

PFInterest
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Re: Where do I invest TODAY?

Post by PFInterest » Tue Mar 27, 2018 4:25 pm

Rexindex wrote:
Tue Mar 27, 2018 4:03 pm
Lets assume my asset allocation is where I want it. Lets assume my time span to retirement is 10 years and I have $2,000/month to invest in taxable accounts. Where would you put your money if the options were as follows:

1) Money Market
2) Total International Index
3) Total stock Index (US)


I guess my real question: is the International market slightly less overvalued than the US, and for $2k per month would it really matter?
You invest where you need to based on your AA.

Nowizard
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Re: Where do I invest TODAY?

Post by Nowizard » Tue Mar 27, 2018 4:30 pm

For TODAY, the possibility of trade wars suggests international; for the long haul, others have given good advice that basically says follow your IPS.

Tim

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tennisplyr
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Re: Where do I invest TODAY?

Post by tennisplyr » Wed Mar 28, 2018 7:23 am

To keep it simple, look into a target retirement fund that puts you in retirement in roughly 10 years.
Those who move forward with a happy spirit will find that things always work out.

z3r0c00l
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Re: Where do I invest TODAY?

Post by z3r0c00l » Wed Mar 28, 2018 7:25 am

10 years from retirement? I don't think $2000 matters that much at this stage. I would put it in stocks and then just put the next $2000 where needed to balance. In a pinch, you could split it up evenly among the three choices.

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nisiprius
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Re: Where do I invest TODAY?

Post by nisiprius » Wed Mar 28, 2018 8:02 am

I try to expunge words like TODAY and NOW from my investment thinking. I have an informal rule, which admittedly is sometimes honored in the breach, of trying to wait a full month between deciding on an action and take that action. And I have a rule which in fact I have followed, which is "no big sudden changes in asset allocation, ever."

Unless there is something that had made me realize, not that you can predict something, but that the world was much less predictable than I had thought and that my asset allocation was seriously wrong for my risk tolerance, I would make no change.

With regard to your choices,
1) Money Market
2) Total International Index
3) Total stock Index (US)

it seems to me that you have made some big point of principle in not using any bond fund. I can't put myself in that place so it's hard to speak to what I might do. Since I am personally conservative, ten years before retirement I had a significant part of my portfolio that was not in stocks. In my case it was mostly in bond funds. I am still using bond funds. I see no reason to change. But I also see no reason not to use bank CDs (purchased directly at a bank, not brokered CDs which are like bonds and respond the same way to interest fluctuations) instead of a bond fund if for some reason bond funds really bother you.

For the "not-stocks" part of the portfolio, I would not use a money market fund exclusively. I would definitely put some into, say, five-year CDs. We are talking about 1.67% SEC yield in Prime Money Market versus 2.5% in good 5-year bank CDs. I would read the terms and conditions and give preference to CDs without statements that early withdrawal is "with the bank's permission" or "at the bank's discretion," but I can't say how much weight to put on that, particularly since banks have been adding them to existing CDs anyway.

For the balance between international and US stocks, I would not change what I had, whatever it is. Speaking personally, I think 0% international is extreme, and I also think full cap-weighting (about 50/50 US/international) is extreme. I happen to be in the middle, and I'm glad. During 2002-2008 I would have been really uncomfortable holding no international stocks at all, and from 2009 to the present I would have been really uncomfortable having half my stocks in international. However, I don't think this is an important decision.

How you are split between "stocks" and "not-stocks," that is, your stock allocation calculated as percentage of all of your retirement holdings, is an important decision. To be as specific as I care to be, ten years before retirement I was in between the red and purple lines on this chart, I still am, think almost everyone ought to be in between these lines.

Image
Last edited by nisiprius on Wed Mar 28, 2018 8:13 am, edited 1 time in total.
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.

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nisiprius
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Re: Where do I invest TODAY?

Post by nisiprius » Wed Mar 28, 2018 8:08 am

With regard to "is the International market slightly less overvalued than the US," accounting standards are different in every country, I don't think anyone but a real expert would know how to interpret valuation numbers for more than one or two countries. I don't think it's possible to say whether international stocks are more or less "overvalued" than the US (if we even know that the US is "overvalued.")

You just have the same old sterile debate. US stocks have been doing well. International stocks haven't. Some say "the trend is your friend, momentum, don't fight the dominant trend of the market, stick with the US." Some say "what goes up must come down, mean reversion, contrarian investing, international stocks on sale, great buying opportunity." Some say "the almighty market sees all, knows all, predicts the future decades ahead, and is never wrong: whatever is, is right." Nobody knows. There's a big danger of choosing the gurus who confirm your personal impulses and not admitting that you are following your impulses rather than anything rational.

I try to keep my feelings, whether they be "the US is going to Hades in a handbasket" or "It's never paid to bet against America," separate from what I do with my serious money.
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.

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