Vanguard's own 401k plan eliminating S&P 500 Index option!

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Engineer250
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by Engineer250 »

JamesSFO wrote: Thu Jun 07, 2018 8:29 am
shelanman wrote: Wed Jun 06, 2018 12:25 pm Is there some reason for 401k plans to have such limited choices?

Why doesn't Vanguard (or any employer) just let you pick whatever funds you want?
The empirical evidence is that this tends to suppress participation in the plan for the average Jane/Joe. Default enrollment (opt out) into target funds helps fight this, but it still can discourage many.

A tradeoff is some companies offer a brokerage window where you can do whatever you want.
Vanguard is my 401k administrator and we have the brokerage option. Which is good since other than the Target Date funds my employer picked a bunch of awful and overpriced stuff. So I use the brokerage option to get standard VG funds. Wish they offered total stock, total international, and total bond. Even with a yearly fee I still save money this way.
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Re: Vanguard employees won’t have an S&P 500 index fund in their 401(k) plan

Post by FIREchief »

autolycus wrote: Thu Jun 07, 2018 2:26 pm
Actin wrote: Wed Jun 06, 2018 1:33 pm What benefit does Vanguard get from doing this?

VTSAX is an overall better investment than VFIAX, but I seriously doubt they did this purely in the best interest of their employees
I would certainly hope you are wrong about that, considering the fiduciaries of the 401(k) plan have a legal duty to act exclusively in the best interest of the participants in said plan.
I get nervous any time that somebody else tries to decide what's best for me (with the exception of good medical professionals).
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by columbia »

Jack Bogle Defends Vanguard’s 401(k) Changes

https://www.barrons.com/articles/jack-b ... 1528378547
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by cfs »

Some of the funds removed from their 401k are part of the "Vanguard Select" listing? Okay! Gracias por leer / cfs
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by AlphaLess »

livesoft wrote: Wed Jun 06, 2018 12:14 pm it is much ado about nothing I think.
I agree. Choices are not always good. Definitely not good for average people. The set of all people is average, on average.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by staythecourse »

How is this thread 2 pages long? Who cares if the sp500 is gone? The TSM is still there. There are about 10-100 things more important in investing success then, "Oh my god there is no SP500 and only the TSM how will I retire FI?"

Good luck.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by student »

Personally, as long as total market index is there, it is unimportant whether S&P 500 is there.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by BogleBoogie »

triceratop wrote: Thu Jun 07, 2018 1:21 pm Yes, my comment was meant to be read tongue-in-cheek. ;)
That's how I interpreted it and for that reason, I appreciated it.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by JoMoney »

staythecourse wrote: Thu Jun 07, 2018 8:17 pm How is this thread 2 pages long? Who cares if the sp500 is gone? The TSM is still there. There are about 10-100 things more important in investing success then, "Oh my god there is no SP500 and only the TSM how will I retire FI?"

Good luck.
Maybe Vanguard Marketing is trying a new tactic. They've seen our threads on "Why Buffett picked S&P 500?" and "TSM or S&P 500?" and they figured this kind of outrage would stir up publicity on social media . #SAVETHESP500
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by Doc »

student wrote: Thu Jun 07, 2018 9:07 pm Personally, as long as total market index is there, it is unimportant whether S&P 500 is there.
Vanguard's Total Stock Market index is the CRSP index which is the industry standard for the US market. Right? Exactly how much experience do we have with this index? And almost every fund company offers one?

Maybe most Vanguard employees can't answer these questions and they need to have somebody make their investment decisions for them. What are the implication for us peons?

Maybe we should rename this forum from Bogleheads to Crispies. :P
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by Earl Lemongrab »

Doc wrote: Thu Jun 07, 2018 11:41 am
Crisium wrote: Thu Jun 07, 2018 8:06 am This stands out to me too. SP500 vs TSM is a wash unless you really prefer avoiding small caps completely for some reason.
Not at all. If you desire to overweight small value for example the "best" way may be to use S&P500 plus a small value fund.
I have a slice-and-dice portfolio. I mainly avoid the "total" stock funds to keep things relatively pure within a sub-allocation. So my "Large Blend" is mainly S&P 500 funds of one type or another. Some MGC (Megacap ETF) from past tax-loss harvesting.

That way I don't have to figure out how much of another sub-allocation is contained there. Plus, when I got started a lot of that was in my 401(k), where only the 500 fund was available.

Not a huge deal, but then again there's no advantage to me to use the Total funds.
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Re: Vanguard employees won’t have an S&P 500 index fund in their 401(k) plan

Post by autolycus »

FIREchief wrote: Thu Jun 07, 2018 3:39 pm
autolycus wrote: Thu Jun 07, 2018 2:26 pm
Actin wrote: Wed Jun 06, 2018 1:33 pm What benefit does Vanguard get from doing this?

VTSAX is an overall better investment than VFIAX, but I seriously doubt they did this purely in the best interest of their employees
I would certainly hope you are wrong about that, considering the fiduciaries of the 401(k) plan have a legal duty to act exclusively in the best interest of the participants in said plan.
I get nervous any time that somebody else tries to decide what's best for me (with the exception of good medical professionals).
Ugg... draft got eaten... so I'll try again...

I don't know what to say about your trust issues. By participating in a 401(k) plan, you are subjecting yourself to the rules of that plan and the decisions made by the fiduciaries. They have a very high standard of behavior. And Actin's vague allegation that Vanguard acted in its own interest rather than the interest of its participants (i.e. engaged in self dealing) is a serious allegation in this context.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by gizzsdad »

livesoft wrote: Wed Jun 06, 2018 12:38 pm
shelanman wrote: Wed Jun 06, 2018 12:25 pm Is there some reason for 401k plans to have such limited choices?

Why doesn't Vanguard (or any employer) just let you pick whatever funds you want?
......Studies show that participants are overwhelmed by the Tyranny of Choice. I have seen participants simply divide up their contributions equally among all options.
I have seen an employee divide up equally among ALL target date funds!
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Re: Vanguard employees won’t have an S&P 500 index fund in their 401(k) plan

Post by FIREchief »

autolycus wrote: Fri Jun 08, 2018 1:13 pm
FIREchief wrote: Thu Jun 07, 2018 3:39 pm I get nervous any time that somebody else tries to decide what's best for me (with the exception of good medical professionals).
I don't know what to say about your trust issues. By participating in a 401(k) plan, you are subjecting yourself to the rules of that plan and the decisions made by the fiduciaries.
Trust issues? LOL If you just automatically trust anybody who claims to be working in your best interest, you're likely setting yourself up for some serious disappointments.

That said, I'll agree with you that by participating in a 401k plan a person is subjecting themselves to the rules of the plan. That doesn't mean I have to embrace a "rule" that lets the plan sponsors arbitrily reassign existing assets when they shuffle the fund lineup; especially when they appear to be using criteria other than simply transferring the assets to the next closest investment. It used to be that some plans, when removing an investment option, would just drop existing investments into all cash and suggest that the plan participant choose another option either before or after the old fund is removed.
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Re: Vanguard employees won’t have an S&P 500 index fund in their 401(k) plan

Post by autolycus »

First, I agree that it would seem the TSM fund is a close enough analogue that Vanguard could have used it as the default replacement.
FIREchief wrote: Fri Jun 08, 2018 3:42 pmIt used to be that some plans, when removing an investment option, would just drop existing investments into all cash and suggest that the plan participant choose another option either before or after the old fund is removed.
Indeed it used to be the norm to dump it into cash. It was an overly defensive approach by plan fiduciaries who didn't want to put assets into investments with any risk to principle because they didn't want to be liable for losses. Now that there are safe harbors for QDIAs (Qualified Default Investment Alternatives), target date funds are now preferred. Prudence would generally require that retirement assets not be in cash because we know cash will be beaten by inflation.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by Doc »

autolycus wrote: Sun Jun 10, 2018 11:17 am Prudence would generally require that retirement assets not be in cash because we know cash will be beaten by inflation.
Generally T-bills are considered cash and 30 day t-bills will not be beaten by inflation.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by columbia »

Doc wrote: Sun Jun 10, 2018 11:25 am
autolycus wrote: Sun Jun 10, 2018 11:17 am Prudence would generally require that retirement assets not be in cash because we know cash will be beaten by inflation.
Generally T-bills are considered cash and 30 day t-bills will not be beaten by inflation.
Can you please elaborate? I *think* I know what you mean, but want to make sure.
Thanks
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by Doc »

columbia wrote: Sun Jun 10, 2018 11:28 am
Doc wrote: Sun Jun 10, 2018 11:25 am
autolycus wrote: Sun Jun 10, 2018 11:17 am Prudence would generally require that retirement assets not be in cash because we know cash will be beaten by inflation.
Generally T-bills are considered cash and 30 day t-bills will not be beaten by inflation.
Can you please elaborate? I *think* I know what you mean, but want to make sure.
Thanks
Since the the rate on a 30 day t-bill "resets" every 30 days it keeps up with inflation. Unless you belive that the real rate on a t-bill is negative it will therefore keep up with inflation.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by columbia »

Doc wrote: Sun Jun 10, 2018 11:49 am
columbia wrote: Sun Jun 10, 2018 11:28 am
Doc wrote: Sun Jun 10, 2018 11:25 am
autolycus wrote: Sun Jun 10, 2018 11:17 am Prudence would generally require that retirement assets not be in cash because we know cash will be beaten by inflation.
Generally T-bills are considered cash and 30 day t-bills will not be beaten by inflation.
Can you please elaborate? I *think* I know what you mean, but want to make sure.
Thanks
Since the the rate on a 30 day t-bill "resets" every 30 days it keeps up with inflation. Unless you belive that the real rate on a t-bill is negative it will therefore keep up with inflation.
So something like the BIL ETF is about as close as one can get, without individuals t-bill purchases?
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by Doc »

columbia wrote: Sun Jun 10, 2018 11:52 am
Doc wrote: Sun Jun 10, 2018 11:49 am
columbia wrote: Sun Jun 10, 2018 11:28 am
Doc wrote: Sun Jun 10, 2018 11:25 am
autolycus wrote: Sun Jun 10, 2018 11:17 am Prudence would generally require that retirement assets not be in cash because we know cash will be beaten by inflation.
Generally T-bills are considered cash and 30 day t-bills will not be beaten by inflation.
Can you please elaborate? I *think* I know what you mean, but want to make sure.
Thanks
Since the the rate on a 30 day t-bill "resets" every 30 days it keeps up with inflation. Unless you belive that the real rate on a t-bill is negative it will therefore keep up with inflation.
So something like the BIL ETF is about as close as one can get, without individuals t-bill purchases?
Probably close enough to not make any measurable difference.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

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Doc wrote: Sun Jun 10, 2018 11:49 am Since the the rate on a 30 day t-bill "resets" every 30 days it keeps up with inflation. Unless you belive that the real rate on a t-bill is negative it will therefore keep up with inflation.
The rate doesn't "reset". It goes out for competitive bid. The rate is purely set by supply and demand. 30-day T-Bills have been negative real (most of the time substantially) for most of the last ten years.

They haven't even remotely kept up with inflation. I have no idea what you are trying to say.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by lack_ey »

columbia wrote: Sun Jun 10, 2018 11:52 am So something like the BIL ETF is about as close as one can get, without individuals t-bill purchases?
Or a Treasury money market fund.

I would take issue with the earlier assertion that 30 day t-bills will not be beaten by inflation, though. Historically on average in the long term in the U.S. this has been the case, but in general there are a lot of periods where this is not true, at current rates this is likely not true, and at least some economists think that long-term real rates going forward may have to be on average about zero or slightly negative (though I think more think the other direction). So I would say it depends.

I'd also say that the prudence of a retirement asset shouldn't be judged on return relative to inflation, which was also suggested. If in some time in the future we live in a world where real short rates are -3% and bonds yield about -1%, that doesn't mean necessarily to not own bonds, or shift into junk bonds just to get a positive real yield. Return targets are speculative and you shouldn't necessarily ramp risk up or down based on how difficult any given target rate of return is to achieve based on the current environment's risk pricing and rates. You should focus on the behavior of the allocation as a whole more than the individual parts in isolation.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by FIREchief »

Doc wrote: Sun Jun 10, 2018 11:49 am
columbia wrote: Sun Jun 10, 2018 11:28 am
Doc wrote: Sun Jun 10, 2018 11:25 am
autolycus wrote: Sun Jun 10, 2018 11:17 am Prudence would generally require that retirement assets not be in cash because we know cash will be beaten by inflation.
Generally T-bills are considered cash and 30 day t-bills will not be beaten by inflation.
Can you please elaborate? I *think* I know what you mean, but want to make sure.
Thanks
Since the the rate on a 30 day t-bill "resets" every 30 days it keeps up with inflation. Unless you belive that the real rate on a t-bill is negative it will therefore keep up with inflation.
30 day t-bills are currently yielding 1.78%. Hasn't inflation been running slightly higher than that? (12 month inflation using the latest BLS data was 2.46%)
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by welderwannabe »

I have traditionally read the same thing that Doc stated...that 30 day and 3 month T-Bills generally keep up with inflation.Below is the Ibbotson SBBI. Bills refers to 30 day bills...the numbers with 3 months bills are even better.

After taxes is a different story, but this graph shows over the long haul bills do keep up with inflation.

Image
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

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welderwannabe wrote: Sun Jun 10, 2018 12:55 pm I have traditionally read the same thing that Doc stated...that 30 day and 3 month T-Bills generally keep up with inflation.Below is the Ibbotson SBBI. Bills refers to 30 day bills...the numbers with 3 months bills are even better.

After taxes is a different story, but this graph shows over the long haul bills do keep up with inflation.

Image
That narrowing gap since 2008 (between the grey and the green line) indicates that they have not been keeping up with inflation for the past 10 years.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by Doc »

FIREchief wrote: Sun Jun 10, 2018 1:03 pm That narrowing gap since 2008 (between the grey and the green line) indicates that they have not been keeping up with inflation for the past 10 years.
People need to stop using Treasury data starting with 2008. The '08 financial crisis and the subsequent some ten year period of Fed quantitative easing have made the last ten years interest rate data virtually useless for making assessment about more normal times. Ditto the inflation data.

Recency bias!
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by dharrythomas »

We should all try to remember that many of the things we understand and use or don't are just confusing options for the bulk of employees. The world is not full of Bogleheads and firms need to be much more concerned about getting average to a sustainable retirement than the Top 15% to early retirement. Offering a restricted menu of options, default enrollment, TDF as the default option reduce the likelihood of employee errors.

The desire to slice and dice you can figure out on your own. The one improvement the TSP could make would be to do away with the C & S funds and replace them with TSM. Rather than options, I'm much more concerned about people like a colleague of mine who after 8-10 years as a federal employee (currently GS-13, in the DC area, so not unsophisticated or uneducated) was not contributing to the TSP. I think I was able to convince them to set aside 5% to get the match. At least they were open to a little mentoring.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by columbia »

Doc wrote: Sun Jun 10, 2018 1:57 pm
FIREchief wrote: Sun Jun 10, 2018 1:03 pm That narrowing gap since 2008 (between the grey and the green line) indicates that they have not been keeping up with inflation for the past 10 years.
People need to stop using Treasury data starting with 2008. The '08 financial crisis and the subsequent some ten year period of Fed quantitative easing have made the last ten years interest rate data virtually useless for making assessment about more normal times. Ditto the inflation data.

Recency bias!

Thanks for the great information. It really helps me think about the idea of holding my emergency fund during retirement in my Roth and using a ST Treasury or even just federal MM.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by FIREchief »

Doc wrote: Sun Jun 10, 2018 1:57 pm
FIREchief wrote: Sun Jun 10, 2018 1:03 pm That narrowing gap since 2008 (between the grey and the green line) indicates that they have not been keeping up with inflation for the past 10 years.
People need to stop using Treasury data starting with 2008. The '08 financial crisis and the subsequent some ten year period of Fed quantitative easing have made the last ten years interest rate data virtually useless for making assessment about more normal times. Ditto the inflation data.

Recency bias!
Let's be fair (and accurate) here. There is no such thing as "normal" times. Certainly the bond market going forward from 1980 can not be considered "normal," if for no other reason than it is simply mathematically impossible to sustain year after year of rate drops forever. I was merely stating a fact, not suggesting anything about the future. If you know what the future holds, you'll be the first.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by Doc »

FIREchief wrote: Sun Jun 10, 2018 3:34 pm There is no such thing as "normal" times.
Agreed, but I think we should be able to agree that the Fed action from 2008 through ~2016/17 was not normal. Using interest rate data from the past ten years fro projections is very iffy in my mind.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

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Doc wrote: Sun Jun 10, 2018 4:54 pm
FIREchief wrote: Sun Jun 10, 2018 3:34 pm There is no such thing as "normal" times.
Agreed, but I think we should be able to agree that the Fed action from 2008 through ~2016/17 was not normal. Using interest rate data from the past ten years fro projections is very iffy in my mind.
I agree 100% that we shouldn't use data from the past ten years (or any specific historical period) to try to project anything. Projecting the future is a sucker's game. We can look at what we know and make informed decisions, but the future may or may not cooperate. That said, if somebody is worried about bonds and inflation (a very legitimate concern), they can largely protect themselves with TIPS. That's another discussion and likely another thread. 8-)
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

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Doc wrote: Sun Jun 10, 2018 1:57 pm
FIREchief wrote: Sun Jun 10, 2018 1:03 pm That narrowing gap since 2008 (between the grey and the green line) indicates that they have not been keeping up with inflation for the past 10 years.
People need to stop using Treasury data starting with 2008. The '08 financial crisis and the subsequent some ten year period of Fed quantitative easing have made the last ten years interest rate data virtually useless for making assessment about more normal times. Ditto the inflation data.

Recency bias!
People need to stop using a claim of Recency bias as a crutch to justify their position that 30-day T-Bills keep up with inflation!

When you are talking about cash-like instruments such as MMF and 30 day T-Bills that have no interest rate risk. Recent, current and immediate near term interest rates and inflation data are 100% relevant and actionable in a timely manner.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by Doc »

FIREchief wrote: Sun Jun 10, 2018 5:00 pm That said, if somebody is worried about bonds and inflation (a very legitimate concern), they can largely protect themselves with TIPS. That's another discussion and likely another thread
Right. That's Grok's 30 year TIPS threads. Occasionally I throw in a rolling ten ladder into that thread instead of a thirty ladder under today's conditions.

"Grok means 'to understand,' of course"

"The Martian Race had encountered the people of the fifth planet, grokked them completely, and had taken action; asteroid ruins were all that remained, save that the Martians continued to praise and cherish the people they had destroyed."1

Substitute "the people of the fifth planet" with "TIPS" and you will grok. (Small "g".)

(Sorry Grok if you are reading. I spent many hours in the laboratory at 2 AM reading Heinlein while waiting for that damn vacuum chamber to pump down to an interspatial (Martian) pressure. :sharebeer

1McGiveron, Rafeeq O. (2001). "From Free Love to the Free-Fire Zone: Heinlein's Mars, 1939–1987"
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by Doc »

Spirit Rider wrote: Sun Jun 10, 2018 6:03 pm People need to stop using a claim of Recency bias as a crutch to justify their position that 30-day T-Bills keep up with inflation!
Maybe I wasn't being clear. I don't think you should use the last ~ten years US Treasury data to make any kind of predictions of future events at all because of the extreme and unprecedented Fed action over that period no matter whether you want to predict 30 year real rates or if 30 day TBills will keep up with inflation.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by LadyGeek »

Doc wrote: Sun Jun 10, 2018 6:04 pm
FIREchief wrote: Sun Jun 10, 2018 5:00 pm That said, if somebody is worried about bonds and inflation (a very legitimate concern), they can largely protect themselves with TIPS. That's another discussion and likely another thread
Right. That's Grok's 30 year TIPS threads. Occasionally I throw in a rolling ten ladder into that thread instead of a thirty ladder under today's conditions.

"Grok means 'to understand,' of course"

"The Martian Race had encountered the people of the fifth planet, grokked them completely, and had taken action; asteroid ruins were all that remained, save that the Martians continued to praise and cherish the people they had destroyed."1

Substitute "the people of the fifth planet" with "TIPS" and you will grok. (Small "g".)

(Sorry Grok if you are reading. I spent many hours in the laboratory at 2 AM reading Heinlein while waiting for that damn vacuum chamber to pump down to an interspatial (Martian) pressure. :sharebeer

1McGiveron, Rafeeq O. (2001). "From Free Love to the Free-Fire Zone: Heinlein's Mars, 1939–1987"
Grok's TIPS are in the wiki: Grok's tips (#5)

For Heinlein, see: Good Modern Science Fiction
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Vanguard's new 401k employee options

Post by pkcrafter »

6/5/18
For Vanguard employees' own retirement fund, the firm will no longer offer its signature S&P 500 index fund
http://www.philly.com/philly/business/v ... 80606.html


Paul
Last edited by pkcrafter on Sun Jun 10, 2018 10:30 pm, edited 2 times in total.
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Re: Vanguard's own 401k plan eliminating S&P 500 Index option!

Post by LadyGeek »

^^^ I merged pkcrafter's post into here.
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