Talk the new guy off the 80 or 90% equities cliff!

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DecoyDave
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Talk the new guy off the 80 or 90% equities cliff!

Post by DecoyDave » Wed Jan 09, 2019 4:43 pm

THANKYOU everyone for all your insight; I've learned so much from this board, though you wouldn't know it by this topic lol. First time posting. So, Dave Ramsey, and The Motley Fools rarely mention bonds. Dave Ramsey chuckles at them. I'm trying to learn what I can. I kind of have nothing to lose, I'm ashamed and embarrassed to say. If we lean a young person with a long horizon toward more equities, less bonds, and an older, savvy, nest-egg carrying person towards more bonds, less equities, where do we lean someone like me? (I'm a "warning" to young people, not a role model)
I'm 55 years old, no one in either my, or my wife's family has ever gone to college or had a retirement account. About five years ago, I somehow got a tiny spark of drive and scraped-up money to open a Vanguard account. I've contributed when I can to mostly a Trad IRA, and a little to a ROTH. All I've ever bought for each account are shares of VTTHX (2035 Target Retirement Fund). I opened the Trad, then my neighbor said I'm an idiot to not have a ROTH, so I opened a ROTH, but still put VTTHX in it. My total portfolio value is around 40k. I'm on track to retire comfortably by 3112!
I don't have any debt, other than my mortgage (but am a long way from paying it off unfortunately). My wife has a SEP that's worth around 100k. Her employer hasn't made a contribution to for over a decade. It's in some kind of growth mutual fund through a credit union. I do own a business (hunting decoys), so my pipe dream is to be able to have income from that possibly even while retired, or as close to retiring as someone like me will ever get.
What would you do if you were me, going forward? (and high-five because you're not me). I'm wondering if I should get more aggressive than my 2035 Target Fund that's snailing along. If I lost every penny to more aggressive funds (not interested in individual stocks), I would be no worse-off than anyone before me. I don't mind risk at all and have ZERO tendencies to panic or sell in a downturn, and my horizon is longer than it should be for my age. Would you stick with a high percentage of bonds, or is it time for the nuclear option in my case? If I should stick to roughly my current plan, is there a way to exchange for Admiral shares to lower my ER? (I think Admiral minimum is now 3,000 for some Index funds, formerly 10,000?) I would GREATLY appreciate any specific advice, and forgive me if I left details out. I'll try to correct that if something comes up. I opened a ROTH for my wife, and it's funded with 5500 (shes ten years younger than me), but haven't picked a fund for it yet. THANKYOU THANKYOU for ANY comments. DD
Last edited by DecoyDave on Thu Jan 10, 2019 1:14 am, edited 1 time in total.

bloom2708
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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by bloom2708 » Wed Jan 09, 2019 4:57 pm

Target 2035 is 77% stocks/23% bonds. You could have picked much worse funds. A diverse fund with a low expense ratio.

You could bring your bond percentage up by exchanging for a Target fund with more bonds (2020 has 53% stocks/47% bonds).

Your savings rate over the next 10 years will determine your balances as you head towards SS. Yes, the return of 70/30 or 50/50 might sway the balances a bit, but nothing beats saving more.

Do you have a 401k/403b type plan available to invest to? If not, then Traditional IRA or Roth IRA are your options. Next is a taxable/brokerage account.

If your income is on the lower side, the Roth IRA is probably the way to go. $6k is the limit for 2019. You can still contribute for 2018 up until tax filing day. $5,500 for 2018.

No reason to dwell much on the past. It is locked in place. Figure out a plan going forward to maximize your savings as you head towards SS and retirement age. No time like the present to start getting it right! Good luck!
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

lakpr
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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by lakpr » Wed Jan 09, 2019 4:59 pm

It would help a lot if you would list you entire financial picture using the format in the first post of this forum

viewtopic.php?f=1&t=6212

It helps you obtain a much more tailored advice to your specific situation.

Broadly though, adding about 20% bonds adds diversity to the portfolio and would help cushion the loss of value during stock market downturns. There is a post on this forum where a guy lamented that his portfolio lost 13.6% last year, he was 90% equities. I had, and other posters had, pointed out that had he invested in VBIAX (Vanguard Balanced Index Fund), which has 40% bonds, his loss would have been only 3%. You need to really introspect as to how much risk you are really comfortable with. Are you able to not blink an eye should you lose 16 cents on the dollar? 25 cents? 50 cents?

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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by RadAudit » Wed Jan 09, 2019 5:04 pm

I'd edit my post into the format explained here viewtopic.php?f=1&t=6212 and ask any questions I needed to ask.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by JBTX » Wed Jan 09, 2019 5:15 pm

Target 2035 is a good choice. Trying to get more aggressive and shooting for the moon isn't going to help you that much given the amount you are talking about. The most important thing is how much can you save and how long can you continue to draw cash from your business. While maybe you haven't saved up as much as you like, if you have a side business that you enjoy, that can last for a while and into retirement, that is like having an annuity, which can be very valuable.

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DecoyDave
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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by DecoyDave » Wed Jan 09, 2019 5:27 pm

bloom2708 wrote:
Wed Jan 09, 2019 4:57 pm
Target 2035 is 77% stocks/23% bonds. You could have picked much worse funds. A diverse fund with a low expense ratio.

You could bring your bond percentage up by exchanging for a Target fund with more bonds (2020 has 53% stocks/47% bonds).

Your savings rate over the next 10 years will determine your balances as you head towards SS. Yes, the return of 70/30 or 50/50 might sway the balances a bit, but nothing beats saving more.

Do you have a 401k/403b type plan available to invest to? If not, then Traditional IRA or Roth IRA are your options. Next is a taxable/brokerage account.

If your income is on the lower side, the Roth IRA is probably the way to go. $6k is the limit for 2019. You can still contribute for 2018 up until tax filing day. $5,500 for 2018.

No reason to dwell much on the past. It is locked in place. Figure out a plan going forward to maximize your savings as you head towards SS and retirement age. No time like the present to start getting it right! Good luck!
Thank you so much- that's very helpful and very kind. I don't have a 401K currently, but may be able to open one. Have a dozen or so employees, depending on what day it is lol.

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DecoyDave
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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by DecoyDave » Wed Jan 09, 2019 5:31 pm

lakpr wrote:
Wed Jan 09, 2019 4:59 pm
It would help a lot if you would list you entire financial picture using the format in the first post of this forum

viewtopic.php?f=1&t=6212

It helps you obtain a much more tailored advice to your specific situation.

Broadly though, adding about 20% bonds adds diversity to the portfolio and would help cushion the loss of value during stock market downturns. There is a post on this forum where a guy lamented that his portfolio lost 13.6% last year, he was 90% equities. I had, and other posters had, pointed out that had he invested in VBIAX (Vanguard Balanced Index Fund), which has 40% bonds, his loss would have been only 3%. You need to really introspect as to how much risk you are really comfortable with. Are you able to not blink an eye should you lose 16 cents on the dollar? 25 cents? 50 cents?
First, my apologies for leaving out information, and not following the format. I just now tried to delete this thread so I can start over. I've been too embarrassed to start this thread, so when I got the courage, I just dove in and tried to add everything that's on that template, but I didn't know if there was an actual template to fill out, or that's just the information needed, etc. I will try to edit my post as soon as I can. In the meantime: THANKYOU; the comments so far are exactly what I was hoping for and this all means a great deal to me. DD

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DecoyDave
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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by DecoyDave » Wed Jan 09, 2019 5:34 pm

JBTX wrote:
Wed Jan 09, 2019 5:15 pm
Target 2035 is a good choice. Trying to get more aggressive and shooting for the moon isn't going to help you that much given the amount you are talking about. The most important thing is how much can you save and how long can you continue to draw cash from your business. While maybe you haven't saved up as much as you like, if you have a side business that you enjoy, that can last for a while and into retirement, that is like having an annuity, which can be very valuable.
That's so great to hear and THANK YOU SO MUCH! I know all capitals means yelling; but I AM actually yelling! My business is super fun for me and very low stress and just not very hard work. I play with clay- literally. I think I can keep doing that well into my 70's God willing. I will, at your advice, though, keep saving as much as possible and also try to get my house paid off and I appreciate your comments very much. DD

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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by RadAudit » Wed Jan 09, 2019 5:41 pm

DecoyDave wrote:
Wed Jan 09, 2019 5:31 pm
I didn't know if there was an actual template to fill out, or that's just the information needed, etc.
That's format is just so folks, who know way more than I, can get a quick look at the necessary info and help you get the answers you need. No harm, no foul.

And, you can edit your first post on this thread when you get the info and maybe amend the title to let folks know you have new info.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

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arcticpineapplecorp.
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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by arcticpineapplecorp. » Wed Jan 09, 2019 6:01 pm

I enjoyed your post. Your writing style is amusing (in a good way). It made me chuckle at times (because you seem to be taking things in stride. having a good attitude helps in life).
DecoyDave wrote:
Wed Jan 09, 2019 4:43 pm
THANKYOU everyone for all your insight; I've learned so much from this board, though you wouldn't know it by this topic lol. First time posting. So, Dave Ramsey, and The Motley Fools rarely mention bonds. Dave Ramsey chuckles at them. I'm trying to learn what I can. I kind of have nothing to lose, I'm ashamed and embarrassed to say. If we lean a young person with a long horizon toward more equities, less bonds, and an older, savvy, nest-egg carrying person towards more bonds, less equities, where do we lean someone like me? (I'm a "warning" to young people, not a role model)
First off, turn off Dave Ramsey and Motley Fools for investing advice. Dave gives generally good debt elimination advice and motley fools? well, let's just say they can be amusing, but that's about it. Follow their investing advice at your peril.
DecoyDave wrote:
Wed Jan 09, 2019 4:43 pm
I'm 55 years old, no one in either my, or my wife's family has ever gone to college or had a retirement account. About five years ago, I somehow got a tiny spark of drive and scraped-up money to open a Vanguard account. I've contributed when I can to mostly a Trad IRA, and a little to a ROTH. All I've ever bought for each account are shares of VTTHV (2035 Target Retirement Fund). I opened the Trad, then my neighbor said I'm an idiot to not have a ROTH, so I opened a ROTH, but still put VTTHX in it. My total portfolio value is around 40k. I'm on track to retire comfortably by 3112!
just a minor correction. You wrote VTTHV but that's Virginia Tech Television, so I assumed you meant VTTHX 2035 fund. Since you're on track to retire by 3112 I would suggest you invest in the either the Target Date 3110 or Target Date 3115 funds (they don't exist yet).
DecoyDave wrote:
Wed Jan 09, 2019 4:43 pm
I don't have any debt, other than my mortgage (but am a long way from paying it off unfortunately). My wife has a SEP that's worth around 100k. Her employer hasn't made a contribution to for over a decade. It's in some kind of growth mutual fund through a credit union. I do own a business (hunting decoys), so my pipe dream is to be able to have income from that possibly even while retired, or as close to retiring as someone like me will ever get.
"some kind of growth mutual fund" through a credit union? That's a red flag, not in that there's anything wrong, but rather you don't know if anything's wrong. Often credit unions and other banks don't offer the best (lowest cost) funds so you definitely want to check on the fees you're being charged. Paying higher fees means less money for you and yours. And because it compounds it really loses you money over time. Paying 1% a year in fees amounts to handing over 25% of your money to your bank over 30 years and 33% over 40 years. Why do that when it sounds like you could use the money more than your bank? I have nothing against credit unions (I'm a member of two) but I would never get my investments through them. Check vanguard's small business plans are some of the lowest expense around: https://investor.vanguard.com/small-bus ... comparison

definitely ask what all the fees are and compare to vanguard. You could keep more of what you make. The less you pay, the more you keep.
DecoyDave wrote:
Wed Jan 09, 2019 4:43 pm
What would you do if you were me, going forward? (and high-five because you're not me). I'm wondering if I should get more aggressive than my 2035 Target Fund that's snailing along. If I lost every penny to more aggressive funds (not interested in individual stocks), I would be no worse-off than anyone before me. I don't mind risk at all and have ZERO tendencies to panic or sell in a downturn, and my horizon is longer than it should be for my age. Would you stick with a high percentage of bonds, or is it time for the nuclear option in my case? If I should stick to roughly my current plan, is there a way to exchange for Admiral shares to lower my ER? (I think Admiral minimum is now 3,000 for some Index funds, formerly 10,000?) I would GREATLY appreciate any specific advice, and forgive me if I left details out. I'll try to correct that if something comes up. I opened a ROTH for my wife, and it's funded with 5500 (shes ten years younger than me), but haven't picked a fund for it yet. THANKYOU THANKYOU for ANY comments. DD
A target date retirement fund is an all in one solution. But the name of the fund (year of the fund) tells you how much risk/reward you're taking on. A 2065 fund for instance would have 90% in stocks and 10% in bonds. More risk, more (likely) reward. But you have to be able to handle the risk. Are you aware of the risk you're taking? Here's a place to look at historical returns, worst one year loss, etc for different allocations of stock and bonds (which is essentially what a target date retirement fund is):
https://personal.vanguard.com/us/insigh ... llocations
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

travelogue
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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by travelogue » Wed Jan 09, 2019 7:50 pm

Here’s a great Vanguard publication on its 2019 investment outlook for the next decade. It does a good job of showing expected returns for a variety of portfolios and how reaching for return or yield can add a lot of risk and volatility for diminishing improvement to returns. Interesting reading.

https://personal.vanguard.com/pdf/ISGVEMO_2019.pdf

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DecoyDave
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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by DecoyDave » Wed Jan 09, 2019 8:43 pm

WOW you guys are too kind! Thanks for sharing your insight; you're saving me from myself! I hope good karma comes to you all and I know it will. You're all also making me feel less timid and more welcomed, so THANK YOU
RedAudit- thank you that's very kind of you; understanding and forgiving; thank you
arcticpineapplecorp! I hear that name and my savvy stock-picking instincts just kick-in! lol (A Motely Fool "Rare Triple-buy Alert" Maybe?). You really took alot of time and really helped me out my friend. I hope I can somehow return the favor some day. I will read and re-read and then do my homework and updating, and thank you for that link!
travelouge thank you so much- I'll check that out and that should be so helpful to me!

To all: I'm sure my wife says thank you, too! I think she says thank you, or has said it- yes, she does. It's "sorry" and "you're right" that she struggles with, and "maybe you can handle this", and "you're a great driver"

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arcticpineapplecorp.
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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by arcticpineapplecorp. » Wed Jan 09, 2019 9:07 pm

DecoyDave wrote:
Wed Jan 09, 2019 8:43 pm
arcticpineapplecorp! I hope I can somehow return the favor some day. I will read and re-read and then do my homework and updating, and thank you for that link!
One other thing I forgot to mention that might be helpful to you to determine your risk tolerance is a quiz at Vanguard:

https://personal.vanguard.com/us/FundsInvQuestionnaire

there's also one at Vestory.com:
http://vestory.com/risquiz/
(they ask for information that might seem intrusive, but they won't contact you, honestly).
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by random_walker_77 » Wed Jan 09, 2019 10:20 pm

+1 for sticking with the target date fund. It might be tempting to bet big and go for 90% equities, but consider this: no one ever plans to sell at the bottom. Usually, what happens is that people find themselves in a world of hurt. They've lost their job. Their emergency fund has run down. There are no jobs to be had. On one hand, they need to pull money out to make the mortgage payment, and on the other hand, their portfolio is down so much that they can't afford to lose any more.

It's really hard to gauge your true risk tolerance when things are relatively good. (In my opinion, despite the recent turmoil in the markets, things are still relatively good -- the market is still up a healthy bit compared to 3-4 years ago, and the jobs market isn't bad)

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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by sarabayo » Wed Jan 09, 2019 10:33 pm

random_walker_77 wrote:
Wed Jan 09, 2019 10:20 pm
+1 for sticking with the target date fund. It might be tempting to bet big and go for 90% equities, but consider this: no one ever plans to sell at the bottom. Usually, what happens is that people find themselves in a world of hurt. They've lost their job. Their emergency fund has run down. There are no jobs to be had. On one hand, they need to pull money out to make the mortgage payment, and on the other hand, their portfolio is down so much that they can't afford to lose any more.

It's really hard to gauge your true risk tolerance when things are relatively good. (In my opinion, despite the recent turmoil in the markets, things are still relatively good -- the market is still up a healthy bit compared to 3-4 years ago, and the jobs market isn't bad)
Sure, someone could be completely at the end of their rope, and have no assets left whatsoever except their equities. In such a situation they would need to sell equities (even at the bottom) in order to live. Does that mean they didn't gauge their risk tolerance correctly? I don't really think so, since anyone in that situation would sell some of their equities to survive, whether their "true" risk tolerance was high or low.

To me, risk tolerance in relation to equity investing is more about how close to the end of your rope you have to be before you start panicking and selling off your equities. People with low risk tolerance sell farther from the end of their rope than people with high risk tolerance, but everyone sells once they get to the absolute end.

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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by Watty » Wed Jan 09, 2019 11:05 pm

DecoyDave wrote:
Wed Jan 09, 2019 4:43 pm
What would you do if you were me, going forward?
My situation is a lot different but when I retired a few years ago when I retired I moved almost all my funds to a target date 2015 fund. Before that my 401k did not have a good target date fund so I used several index funds.

The main reasons to not use a target date fund are;
1) You do not have a good low cost one in your 401k.
2) You also have a lot of money in taxable accounts so you have to worry about tax efficiency.

Neither of these is a issue for either of us so a low cost target date fund is a great choice.

Being short of funds might be a good reason to be less aggressive, not more aggressive.

Looking forward one of the things to consider is when you will start Social Security and you can use this web site to see what it suggests the optimal claiming age is.

https://opensocialsecurity.com/

Often for a couple it makes sense for one person to delay starting Social Security until they are 70 to get a larger Social Security check for the rest of your life.

This is usually a very good choice but this can be rough to do if you are not able to work until you are 70 and you might have to use some of your savings to live in when you are in your late 60's but that can be a good tradeoff.

That could mean that you would need to use your money well before 2035. It is not a huge difference but you might want to use the 2025 or 2030 target date fund to be a bit more conservative.

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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by random_walker_77 » Thu Jan 10, 2019 12:02 am

sarabayo wrote:
Wed Jan 09, 2019 10:33 pm
random_walker_77 wrote:
Wed Jan 09, 2019 10:20 pm
+1 for sticking with the target date fund. It might be tempting to bet big and go for 90% equities, but consider this: no one ever plans to sell at the bottom. Usually, what happens is that people find themselves in a world of hurt. They've lost their job. Their emergency fund has run down. There are no jobs to be had. On one hand, they need to pull money out to make the mortgage payment, and on the other hand, their portfolio is down so much that they can't afford to lose any more.

It's really hard to gauge your true risk tolerance when things are relatively good. (In my opinion, despite the recent turmoil in the markets, things are still relatively good -- the market is still up a healthy bit compared to 3-4 years ago, and the jobs market isn't bad)
Sure, someone could be completely at the end of their rope, and have no assets left whatsoever except their equities. In such a situation they would need to sell equities (even at the bottom) in order to live. Does that mean they didn't gauge their risk tolerance correctly? I don't really think so, since anyone in that situation would sell some of their equities to survive, whether their "true" risk tolerance was high or low.

To me, risk tolerance in relation to equity investing is more about how close to the end of your rope you have to be before you start panicking and selling off your equities. People with low risk tolerance sell farther from the end of their rope than people with high risk tolerance, but everyone sells once they get to the absolute end.
I think risk tolerance involves estimating the odds that you'd "reach the end of your rope" and have to sell, and my point is that it's easy to underestimate the odds of bad things happening to you. Personally, though I didn't lose my job, the 2001 and 2008 downturns were sobering, as I had never seen things get so bad before. I overestimated my risk tolerance, but luckily didn't have to sell (and was at 90% equities). If you have a big-enough emergency fund, and enough of your nest egg in bonds/cash, you're less likely to "reach the end of your rope" and less likely to have to sell. Isn't risk tolerance about judging how bad things can get before you'd have to sell, with the idea that you should set your risk tolerance such that you'd (probably) never have to sell at a bad time? To do that, you need to have a realistic view of both how bad things can get, and how likely that would happen, and what percentage of success is acceptable to you.

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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by celia » Thu Jan 10, 2019 12:22 am

bloom2708 wrote:
Wed Jan 09, 2019 4:57 pm
If your income is on the lower side, the Roth IRA is probably the way to go. $6k is the limit for 2019. You can still contribute for 2018 up until tax filing day. $5,500 for 2018.
Let me be more specific since we aren't sure what year you've made contributions for.

You can still contribute for 2018 (up until April 15, 2019) if you haven't yet maxed out the 2018 contribution. There's a $1,000 extra "catch-up" allowance for those who are over 50. So, you were allowed to contribute $6,500 for last year while your wife could contribute $5,500. $6,500 is for the combination of your traditional and Roth contributions. $5,500 is allowed for her Roth account. When you make the contribution, be sure you apply it to the "earliest" year available. Once April 15 of the following year rolls around, you won't be able to contribute for that previous year any more.

For 2019 contributions, the limit was raised to $6,000 ($7,000 if over age 50). That can be made any time until April 15, 2020. But the earlier the money is put in the IRA, the earlier it can start growing.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by sarabayo » Thu Jan 10, 2019 3:06 am

random_walker_77 wrote:
Thu Jan 10, 2019 12:02 am
I think risk tolerance involves estimating the odds that you'd "reach the end of your rope" and have to sell, and my point is that it's easy to underestimate the odds of bad things happening to you. Personally, though I didn't lose my job, the 2001 and 2008 downturns were sobering, as I had never seen things get so bad before. I overestimated my risk tolerance, but luckily didn't have to sell (and was at 90% equities). If you have a big-enough emergency fund, and enough of your nest egg in bonds/cash, you're less likely to "reach the end of your rope" and less likely to have to sell. Isn't risk tolerance about judging how bad things can get before you'd have to sell, with the idea that you should set your risk tolerance such that you'd (probably) never have to sell at a bad time? To do that, you need to have a realistic view of both how bad things can get, and how likely that would happen, and what percentage of success is acceptable to you.
I see what you're saying, but it sounds to me more like you're cautioning people that their risk tolerance may be too high for their own good, not that their estimation of what their own risk tolerance is may be inaccurate.

The wiki defines risk tolerance as follows:
wiki wrote:Risk tolerance is an investor’s emotional and psychological ability to endure investment losses during large market declines without selling or undue worry, such as losing sleep.
So it's really a concept that's more about your psychological response to market volatility, rather than your practical ability to survive in a downturn. Risk tolerance is not something you "set", it's just part of your nature. (At least, that's how I usually see people use the phrase.) Asset allocation is something you can set, though, and certainly you should put a lot of objective measures into that calculation, such as projecting how bad things could get in the worst case.

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Re: Talk the new guy off the 80 or 90% equities cliff!

Post by harvestbook » Thu Jan 10, 2019 7:53 am

I agree that your entire financial picture is important, rather than just your amount saved and your AA. Someone with $40,000 saved who lives on $20K a year is in much better shape than the same person who lives on $80K a year.

I am 90/10 at age 56 but I have zero debt, own my house, very low cost of living, and also own a business likely to earn me money even after traditional retirement, if ever I take such a thing. If there's a rope that would force us to sell at the end, it's a very long rope, on the order of unforeseen lawsuit or extremely debilitating injury which the odds don't really favor. Sounds like your business does involve some physicality that you may see decline or lose altogether, but you also said you had employees, so that can remain viable as long as your mind is sharp, or of course sell as an asset.

I didn't lament the recent dip--I was scrounging up every dollar I could find to invest at 90/10 instead. My wife is 12 years younger and she has hardly any bonds at all, she thinks they're a waste of money if you expect to live into your 90s. You'll find examples of older, retired people here who have been 100 percent equities all their lives if you search the threads.

That aside, many people here express real-life examples of how bonds helped cushion various dips, crashes, and unforeseen emergencies, so all experience is valid. For me, the key is what your future looks like, not just a certain amount of money. If there's nothing you'd rather do than run your business, then your AA is not as immediately critical. If there's no huge risk of job loss (of course a bad economy could change things for a lot of us who aren't textbook retired) then you aren't under as much pressure as the person who will be forced out at, say, age 60.

This is philosophy, though, so on the practical side, I'd second exploring the max IRA contributions you can make right now and investigate options for other retirement plans. I'm of the mind that any reasonable AA will work as long as you save heavily and avoid crippling behavioral errors (which is part of where "risk tolerance" comes in). Good luck.
I'm not smart enough to know, and I can't afford to guess.

random_walker_77
Posts: 646
Joined: Tue May 21, 2013 8:49 pm

Re: Talk the new guy off the 80 or 90% equities cliff!

Post by random_walker_77 » Thu Jan 10, 2019 10:30 pm

sarabayo wrote:
Thu Jan 10, 2019 3:06 am

I see what you're saying, but it sounds to me more like you're cautioning people that their risk tolerance may be too high for their own good, not that their estimation of what their own risk tolerance is may be inaccurate.

The wiki defines risk tolerance as follows:
wiki wrote:Risk tolerance is an investor’s emotional and psychological ability to endure investment losses during large market declines without selling or undue worry, such as losing sleep.
So it's really a concept that's more about your psychological response to market volatility, rather than your practical ability to survive in a downturn. Risk tolerance is not something you "set", it's just part of your nature. (At least, that's how I usually see people use the phrase.) Asset allocation is something you can set, though, and certainly you should put a lot of objective measures into that calculation, such as projecting how bad things could get in the worst case.
I think it's more than just psychological response to volatility. Sometimes, I've heard it described as accurately judging your "ability and willingness to tolerate risk (losses)". The psychological aspect is undoubtedly really important. For the more conservative amongst us, it might even be the prime factor. But this is all in service of the goal: avoiding selling after steep market declines. The ability to tolerate risk is also important -- you might have no fear, but if you've got 5 young kids, a big mortgage, small emergency fund, and work in a cyclical industry, I'd argue you can't afford to take that much risk.

In the context of the OP's question, my caution is to tread carefully as it's really easy to underestimate how bad things can get.

Topic Author
DecoyDave
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Joined: Sat Jan 05, 2019 3:21 pm

Re: Talk the new guy off the 80 or 90% equities cliff!

Post by DecoyDave » Thu Jan 10, 2019 11:07 pm

I'm reading and re-reading all the responses and reading all the attached links. Thank you all so very much !

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