Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

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Hugo9898
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Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Hugo9898 »

Have a buddy with the above AA - we've spoken about our individual AA before, but never gone into depth why. I just would like him to know that there are options out there that can outpace inflation (so to speak) in the long run. Rather than provide unsolicited advice, the only thing I can think of is a few boglehead reads (e.g. Guide to Investing, Millionaire Next Door, etc).

Normally, I don't feel compelled to question something of this nature; however, due to his age, what are your thoughts?
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fortfun
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by fortfun »

I'd suggest this quick read.
https://www.google.com/url?sa=t&rct=j&q ... -SB3S580I5

If you can (pdf).
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Sandtrap »

fortfun wrote: Mon Dec 04, 2017 9:28 pm I'd suggest this quick read.
https://www.google.com/url?sa=t&rct=j&q ... -SB3S580I5

If you can (pdf).
+1
Also email a link to the forum.
j :D
Last edited by Sandtrap on Tue Dec 05, 2017 12:45 am, edited 1 time in total.
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mega317
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by mega317 »

You didn't tell us what fixed income your friend uses but it sounds like you want to suggest he increase risk which, depending on his own situation, might be bad advice.
grog
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by grog »

If it's a buddy, I would make fun of him for having a grandma portfolio.
Last edited by grog on Wed Dec 06, 2017 6:48 pm, edited 1 time in total.
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msi
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by msi »

Bogle's Little Book of Common Sense Investing is another one to show him.

https://www.amazon.com/Little-Book-Comm ... 589&sr=1-3
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by dbr »

You could ask him for advice on how you should invest and find out why he does what he does and whether or not he wants to discuss it. How did you find out his AA in the first place?
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Da5id »

Hugo9898 wrote: Mon Dec 04, 2017 9:23 pm Have a buddy with the above AA - we've spoken about our individual AA before, but never gone into depth why. I just would like him to know that there are options out there that can outpace inflation (so to speak) in the long run. Rather than provide unsolicited advice, the only thing I can think of is a few boglehead reads (e.g. Guide to Investing, Millionaire Next Door, etc).

Normally, I don't feel compelled to question something of this nature; however, due to his age, what are your thoughts?
The reads can't hurt, but I'd not push it. If he feels like you've somehow pushed him to go higher in stocks (whether or not you do so), if the market tanks 50% (always possible), you may be in for some blame. I'm happy to tell people what I do, if asked, but I tend not to evangelize much other than to my own kids. Nice thing on bogleheads is that people are asking :)
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by snowox »

Da5id wrote: Tue Dec 05, 2017 8:37 am
Hugo9898 wrote: Mon Dec 04, 2017 9:23 pm Have a buddy with the above AA - we've spoken about our individual AA before, but never gone into depth why. I just would like him to know that there are options out there that can outpace inflation (so to speak) in the long run. Rather than provide unsolicited advice, the only thing I can think of is a few boglehead reads (e.g. Guide to Investing, Millionaire Next Door, etc).

Normally, I don't feel compelled to question something of this nature; however, due to his age, what are your thoughts?
The reads can't hurt, but I'd not push it. If he feels like you've somehow pushed him to go higher in stocks (whether or not you do so), if the market tanks 50% (always possible), you may be in for some blame. I'm happy to tell people what I do, if asked, but I tend not to evangelize much other than to my own kids. Nice thing on bogleheads is that people are asking :)

I totally agree here^. You'd be better if you could get him to come up with a way to ask you what you do and why and explain it that way so he can make his own decision and share links with him then.
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Hugo9898
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Hugo9898 »

dbr wrote: Tue Dec 05, 2017 8:17 am You could ask him for advice on how you should invest and find out why he does what he does and whether or not he wants to discuss it. How did you find out his AA in the first place?
he volunteered to show me as he hit the $50k milestone in his 401k this year - his words were that he had a prominent, well off family friend look at and state this is exactly what i do, so he has continued this trend...he's pretty adamant about it now that i think about it so perhaps "hush, hush" is best at this point
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Hugo9898
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Hugo9898 »

fortfun wrote: Mon Dec 04, 2017 9:28 pm I'd suggest this quick read.
https://www.google.com/url?sa=t&rct=j&q ... -SB3S580I5

If you can (pdf).
love the read!!!!!
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by dbr »

Hugo9898 wrote: Tue Dec 05, 2017 9:02 am
dbr wrote: Tue Dec 05, 2017 8:17 am You could ask him for advice on how you should invest and find out why he does what he does and whether or not he wants to discuss it. How did you find out his AA in the first place?
he volunteered to show me as he hit the $50k milestone in his 401k this year - his words were that he had a prominent, well off family friend look at and state this is exactly what i do, so he has continued this trend...he's pretty adamant about it now that i think about it so perhaps "hush, hush" is best at this point
You can't compete with the other fellow and there is no incentive for you to do so.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Amart »

The only reasonable explanation to why he would be doing this would be to re-allocate a higher percentage of his portfolio into stocks in the event of a large market downturn (market timing). Did he give you his reasoning?
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Da5id »

Amart wrote: Tue Dec 05, 2017 9:26 am The only reasonable explanation to why he would be doing this would be to re-allocate a higher percentage of his portfolio into stocks in the event of a large market downturn (market timing). Did he give you his reasoning?
I don't think that is the only reasonable explanation. Some people are by inclination, life experience, or upbringing extremely intolerant to risk. While this low stock allocation will almost certainly result in him having to save vastly more to reach his goals, at least he isn't 100% in CDs long term (like a relative of mine).
dbr
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by dbr »

Amart wrote: Tue Dec 05, 2017 9:26 am The only reasonable explanation to why he would be doing this would be to re-allocate a higher percentage of his portfolio into stocks in the event of a large market downturn (market timing). Did he give you his reasoning?
A well-off family friend could easily be an older investor who has lots of money and does not want to see any more volatility than necessary. 20/80 is actually an optimal minimum in portfolio volatility. On the other side, a person who is knowledgeable enough to do that by intention would also know that his strategy might not make sense for someone else.

You are right on that the important question is what is the reasoning.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by dbr »

Da5id wrote: Tue Dec 05, 2017 9:30 am
Amart wrote: Tue Dec 05, 2017 9:26 am The only reasonable explanation to why he would be doing this would be to re-allocate a higher percentage of his portfolio into stocks in the event of a large market downturn (market timing). Did he give you his reasoning?
I don't think that is the only reasonable explanation. Some people are by inclination, life experience, or upbringing extremely intolerant to risk. While this low stock allocation will almost certainly result in him having to save vastly more to reach his goals, at least he isn't 100% in CDs long term (like a relative of mine).
Even 100% in CDs is a possible right answer in the appropriate circumstance.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by chevca »

grog wrote: Tue Dec 05, 2017 12:15 am If it's a buddy, I would make fun of him for having an grandma portfolio.
This^^

Give a little ribbing as a friend. But otherwise leave it be. He has a portfolio... that alone is better than many out there. If he's a very conservative type, that's fine too. Ideal? Probably not, but at least he's saving.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by steadyeddy »

His portfolio may be appropriate for his risk tolerance. Better to stay the course at 20/80 than to take on more risk and sell at the bottom. If he had 100% of his portfolio in his checking account I would be more concerned, but 20/80 is a very reasonable allocation for a risk-averse individual.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Sandtrap »

Hugo9898 wrote: Tue Dec 05, 2017 9:02 am
dbr wrote: Tue Dec 05, 2017 8:17 am You could ask him for advice on how you should invest and find out why he does what he does and whether or not he wants to discuss it. How did you find out his AA in the first place?
he volunteered to show me as he hit the $50k milestone in his 401k this year - his words were that he had a prominent, well off family friend look at and state this is exactly what i do, so he has continued this trend...he's pretty adamant about it now that i think about it so perhaps "hush, hush" is best at this point
Agreed.
It's sort of the "lead the horse to water but can't force to drink" thing. I have friends of substantial worth with very simple retirement portfolios that continue to pay AUM fees and brag about their financial advisors. Personal finances can be as touchy as religion, politics, and underwear choice.
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unclescrooge
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by unclescrooge »

Read the deep risk series by Bernstein.

That will cover all the basics. Then lay off your friend.

I tried to tell all my friends to buy investment properties in 2003. No one listened....until 2006 which was when I was selling.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Dottie57 »

I would ask the friend what his goals are and how much income he wants to generate. You could ask him how his portfolio will generate that amount of income. I think the key is to get the wheels turning and thought process going.

Actually thinking about this stuff may make him reconsider.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by garlandwhizzer »

A 20/80 portfolio for a 32 year old says a great deal about how large a role emotion, especially fear of loss, plays in determining his investment strategy. Reading investment books with rational analysis may not work for him. Most peoples choices are more determined by fear, both rational and irrational fear, than by either reason or hope IMO. Investors can err in either direction of the fear-hope spectrum, but if you're interested in long term return it's not a good sign if your investment decisions are dominated by fear at age 32. One wonders what will it be like at age 72 when there's much more to worry about.

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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by miamivice »

I would not recommend giving unsolicited advice to buddies.

For one, nobody knows what the future holds. What you suggest may actually turn out to be the wrong advice. i.e, bonds might outperform stocks in the next five years, and then your buddy is mad at you for making a bad suggestion.

For two, he's not asking in the first place.

For three, finances are very personal. KlangFool, for examples, believes that my 529 account is causing me to pay far more in income tax than his college funding strategy. I disagree. We will never agree. There is no one right answer that everyone agrees upon.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Redfactor »

While I don't agree with his AA, I think it's important to recognize that he is saving and taking an interest in his retirement. If only every 32 year-old had 50k saved towards retirement.... He is doing something good; he just isn't doing it optimally. An adjustment in perspective may alleviate the desire to intervene.

He has already demonstrated a willingness to seek advice (he just chose the well-off friend whose advice is questionable). As he matures as an investor, he may become more aggressive. Several years of low returns may naturally cause him to reevaluate his approach.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by fortfun »

miamivice wrote: Tue Dec 05, 2017 11:54 am I would not recommend giving unsolicited advice to buddies.

For one, nobody knows what the future holds. What you suggest may actually turn out to be the wrong advice. i.e, bonds might outperform stocks in the next five years, and then your buddy is mad at you for making a bad suggestion.

For two, he's not asking in the first place.

For three, finances are very personal. KlangFool, for examples, believes that my 529 account is causing me to pay far more in income tax than his college funding strategy. I disagree. We will never agree. There is no one right answer that everyone agrees upon.
What is KlangFools college investing advice? I'm curious now. I'm using 529s too.
tbone555
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by tbone555 »

I believe KlangFool recommends investing as much as possible and then cash flow college expenses.

I'm not sure what argument he has for 529 being less tax efficient. It does constrain funds in that they have to be used for college or face taxes and penalties on the earnings.

I am taking a halfway approach. Funding the 529 to capture state tax deduction, but not worrying if there is enough to cover college as I plan to cash flow the difference.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by miamivice »

fortfun wrote: Tue Dec 05, 2017 2:12 pm
miamivice wrote: Tue Dec 05, 2017 11:54 am I would not recommend giving unsolicited advice to buddies.

For one, nobody knows what the future holds. What you suggest may actually turn out to be the wrong advice. i.e, bonds might outperform stocks in the next five years, and then your buddy is mad at you for making a bad suggestion.

For two, he's not asking in the first place.

For three, finances are very personal. KlangFool, for examples, believes that my 529 account is causing me to pay far more in income tax than his college funding strategy. I disagree. We will never agree. There is no one right answer that everyone agrees upon.
What is KlangFools college investing advice? I'm curious now. I'm using 529s too.
KlangFool's advice on funding college has varied:

1) Sometimes he advocates paying for college from income (cash flowing).

2) Othertimes, he advocates using taxable savings

3) And sometimes he suggests using Roth IRA contributions to pay for college.

4) Sometimes he has suggested using 401k money for college, but I've never followed how this works.

He always advocates against 529s.
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warner25
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by warner25 »

This forum, I guess due to being an investment forum, and maybe due to a very long bull market, skews to the aggressive side of asset allocations. Where "age in bonds" (the words of Jack Bogle) was once accepted as an ideal starting point, it now seems to be on the conservative side of the spectrum, with lots of people saying "age - 10," "age - 20," or "100% stocks until age 50." Last week someone actually felt compelled to write a post rationalizing their choice of 60/40 at age 38, which is awfully close to "age in bonds."

My wife and I have an unconventionally conservative portfolio. The nice thing about being conservative is that you can predict the value of your portfolio at some future point with much higher precision, because the value depends more on things relatively within your control (e.g. savings rate) as opposed to the whims of the market. And for people with a high savings rate who are looking for early financial independence, savings rate is a much bigger factor than market returns anyway (excluding folks who purchased bitcoin in 2010). At a 50% savings rate plus retirement benefits from my job, we'll hit our goals in about 10 years if we simply match inflation, and increasing our stock allocation probably doesn't get us there much sooner or with any higher probability. Sometimes I daydream about just exchanging everything for TIPS and never again worrying about the possibility of a market crash setting us back. We haven't done that because of "deep risk" and other unknowns, but the idea is attractive.

My point is that your premise, that your friend is doing it wrong, might be flawed. He might be well on-track to achieve his goals this way, so taking on more risk doesn't add value for him. As long as his fixed income fund is low-cost and diversified, I don't think he's throwing money away.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by 3funder »

grog wrote: Tue Dec 05, 2017 12:15 am If it's a buddy, I would make fun of him for having an grandma portfolio.
Honestly, if it were my buddy's grandma, I'd make fun of her too. I'm 33 years old and can't imagine having such a conservative allocation.
Global stocks, US bonds, and time.
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David Jay
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by David Jay »

Hugo9898 wrote: Tue Dec 05, 2017 9:02 am...he had a prominent, well off family friend look at and state this is exactly what i do...
If the well off family friend is just about retirement age, a 20/80 portfolio might make sense...for the family friend.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by fortfun »

miamivice wrote: Wed Dec 06, 2017 1:41 pm
fortfun wrote: Tue Dec 05, 2017 2:12 pm
miamivice wrote: Tue Dec 05, 2017 11:54 am I would not recommend giving unsolicited advice to buddies.

For one, nobody knows what the future holds. What you suggest may actually turn out to be the wrong advice. i.e, bonds might outperform stocks in the next five years, and then your buddy is mad at you for making a bad suggestion.

For two, he's not asking in the first place.

For three, finances are very personal. KlangFool, for examples, believes that my 529 account is causing me to pay far more in income tax than his college funding strategy. I disagree. We will never agree. There is no one right answer that everyone agrees upon.
What is KlangFools college investing advice? I'm curious now. I'm using 529s too.
KlangFool's advice on funding college has varied:

1) Sometimes he advocates paying for college from income (cash flowing).

2) Othertimes, he advocates using taxable savings

3) And sometimes he suggests using Roth IRA contributions to pay for college.

4) Sometimes he has suggested using 401k money for college, but I've never followed how this works.

He always advocates against 529s.
I've got 110k tied up in 529s (for two kids) so far. Hopefully, not a dumb move. They begin college in 7 and 9 years. I may start cutting back on contributions to avoid the 10% penalty. I guess I'll use cash flow/Roth to help with anything above and beyond the 529s. I'd be curious to hear your recommendations.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by miamivice »

fortfun wrote: Wed Dec 06, 2017 3:07 pm
miamivice wrote: Wed Dec 06, 2017 1:41 pm
fortfun wrote: Tue Dec 05, 2017 2:12 pm
miamivice wrote: Tue Dec 05, 2017 11:54 am I would not recommend giving unsolicited advice to buddies.

For one, nobody knows what the future holds. What you suggest may actually turn out to be the wrong advice. i.e, bonds might outperform stocks in the next five years, and then your buddy is mad at you for making a bad suggestion.

For two, he's not asking in the first place.

For three, finances are very personal. KlangFool, for examples, believes that my 529 account is causing me to pay far more in income tax than his college funding strategy. I disagree. We will never agree. There is no one right answer that everyone agrees upon.
What is KlangFools college investing advice? I'm curious now. I'm using 529s too.
KlangFool's advice on funding college has varied:

1) Sometimes he advocates paying for college from income (cash flowing).

2) Othertimes, he advocates using taxable savings

3) And sometimes he suggests using Roth IRA contributions to pay for college.

4) Sometimes he has suggested using 401k money for college, but I've never followed how this works.

He always advocates against 529s.
I've got 110k tied up in 529s (for two kids) so far. Hopefully, not a dumb move. They begin college in 7 and 9 years. I may start cutting back on contributions to avoid the 10% penalty. I guess I'll use cash flow/Roth to help with anything above and beyond the 529s. I'd be curious to hear your recommendations.
I consider 529s to be a smart move, so congratulations for saving for your child's education. They will thank you when the time comes. I agree with others that you don't want too set aside too much in a 529. I'm shooting about 75% of the cost of college and I would like my kids to chip in at least some of the 25% that the 529s don't cover.
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fortfun
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by fortfun »

miamivice wrote: Wed Dec 06, 2017 3:15 pm
fortfun wrote: Wed Dec 06, 2017 3:07 pm
miamivice wrote: Wed Dec 06, 2017 1:41 pm
fortfun wrote: Tue Dec 05, 2017 2:12 pm
miamivice wrote: Tue Dec 05, 2017 11:54 am I would not recommend giving unsolicited advice to buddies.

For one, nobody knows what the future holds. What you suggest may actually turn out to be the wrong advice. i.e, bonds might outperform stocks in the next five years, and then your buddy is mad at you for making a bad suggestion.

For two, he's not asking in the first place.

For three, finances are very personal. KlangFool, for examples, believes that my 529 account is causing me to pay far more in income tax than his college funding strategy. I disagree. We will never agree. There is no one right answer that everyone agrees upon.
What is KlangFools college investing advice? I'm curious now. I'm using 529s too.
KlangFool's advice on funding college has varied:

1) Sometimes he advocates paying for college from income (cash flowing).

2) Othertimes, he advocates using taxable savings

3) And sometimes he suggests using Roth IRA contributions to pay for college.

4) Sometimes he has suggested using 401k money for college, but I've never followed how this works.

He always advocates against 529s.
I've got 110k tied up in 529s (for two kids) so far. Hopefully, not a dumb move. They begin college in 7 and 9 years. I may start cutting back on contributions to avoid the 10% penalty. I guess I'll use cash flow/Roth to help with anything above and beyond the 529s. I'd be curious to hear your recommendations.
I consider 529s to be a smart move, so congratulations for saving for your child's education. They will thank you when the time comes. I agree with others that you don't want too set aside too much in a 529. I'm shooting about 75% of the cost of college and I would like my kids to chip in at least some of the 25% that the 529s don't cover.
Thanks Miami vice. Mine are a bit over 50% right now. I think I'll stop contributions and hope the interest will bring them up to 75%. With 7 and 9 years left, I don't think that should be too difficult, unless there's another depression, etc. I've got them on an automatic time adjustment, so hopefully they are mostly in bonds by the time that happens....
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Theoretical »

20/80 is really extreme, but there could be a lot of reasons for that allocation:

1. Extreme career volatility or high risk of disability, especially if family medical history makes him uninsurable.
2. Serious family medical history (or need to save a large amount to care for aging parents)
3. Trying to be a deep value/cigar butt investor in the next crash.
4. Use of things like LEAP equity options.
5. Plans to open a business.

His biggest risks are durational and inflation-related. So short term to intermediate bonds with longer issues being TIPS. Point is, there are reasons to be that conservative. Also, it's entirely possible he's using high yield or emerging market bonds, so the equity-ish percent may be much higher.
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Taylor Larimore »

Hugo9898 wrote: Mon Dec 04, 2017 9:23 pm Have a buddy with the above AA - we've spoken about our individual AA before, but never gone into depth why. I just would like him to know that there are options out there that can outpace inflation (so to speak) in the long run. Rather than provide unsolicited advice, the only thing I can think of is a few boglehead reads (e.g. Guide to Investing, Millionaire Next Door, etc).

Normally, I don't feel compelled to question something of this nature; however, due to his age, what are your thoughts?
Hugo9898:

I agree with your first reply by fortfun.

Best wishes.
Taylor
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Miriam2
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Miriam2 »

Theoretical wrote: Thu Dec 07, 2017 2:32 pm 20/80 is really extreme, but there could be a lot of reasons for that allocation:

1. Extreme career volatility or high risk of disability, especially if family medical history makes him uninsurable.
2. Serious family medical history (or need to save a large amount to care for aging parents)
3. Trying to be a deep value/cigar butt investor in the next crash.
4. Use of things like LEAP equity options.
5. Plans to open a business.
Hugo - other reasons for the 20/80 allocation - since your friend indicated it's in his 401k -

6. He might own property he hasn't told you about
7. He might have family money or an inheritance he hasn't told you about
8. He might have a really rich wife :D
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Re: Unsolicited advice - 32 yo w/ 80% bonds, fixed income fund

Post by Pajamas »

Hugo9898 wrote: Mon Dec 04, 2017 9:23 pm Have a buddy with the above AA - we've spoken about our individual AA before, but never gone into depth why. I just would like him to know that there are options out there that can outpace inflation (so to speak) in the long run. Rather than provide unsolicited advice, the only thing I can think of is a few boglehead reads (e.g. Guide to Investing, Millionaire Next Door, etc).

Normally, I don't feel compelled to question something of this nature; however, due to his age, what are your thoughts?
I would probably try to find out why he chose that allocation before saying anything about it, much less giving advice or even just suggesting or providing reading material. HIs reason may or may not be a "good" one, but he probably has some reason. You're assuming that he needs and wants information. I would be curious enough to ask about it, though.

I am always hesitant to get close to giving advice rather than information, even when asked.
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