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Cash's role in a retirement strategy

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  • #16
    Re: Cash's role in a retirement strategy

    Originally posted by dxmnkd316 View Post


    I suppose that would be a big deal if you're a day trader, but if we're talking retirement here...

    I'm kicking in bi-monthly payments for $5k a year and each time I see the full purchase price going towards the funds.
    I guess it depends on what you buy. I make about 50-60 trades a year (the story changes with some companies, and I buy on a ladder as the price decreases), so those costs add up.

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    • #17
      Originally posted by FlagDUDE08 View Post
      I guess it depends on what you buy. I make about 50-60 trades a year (the story changes with some companies, and I buy on a ladder as the price decreases), so those costs add up.
      I dont think that either of us are advocating individual stocks. Even if the mutual funds have limited options, the expense ratio is low and even I'd you just get market returns its going to fit what the majority of people need as a basic retirement plan.

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      • #18
        Re: Cash's role in a retirement strategy

        A number of points to be made here:
        1) Cash holdings = bad idea; you're decades from retirement and accumulation / growth ought to be your focus; don't worry so much about capital preservation until you are within 10 years of retirement (at that stage, your mix should be shifting toward a 60-40 stocks to bonds mix or perhaps even 50-50 as that's the time when you can no longer recover from severe market downturns).

        2) 401k vs Roth - ideally, you'll have money flowing into both of these - it's called tax diversification (since no one knows exactly what the tax rates will be decades from now, it makes sense to have some money in tax deferred accounts and some money in a Roth which won't be taxed again). Of course, to contribute to a Roth, you must meet the income limits (most people do).

        3) Amount to contribute to each: my suggestion is fully capture your employer match and then contribute as much as you can to the Roth. Once you've maxed out the Roth contribution, contribute more to the 401k (individual IRS limit will be $17k next year and is $16,500 this year).

        4) Fund type and volatility: first off, any investment can lose money. Even if you had all-cash, you'd lose money due to inflation. My suggestion here is to research target date retirement funds and pick something with a really low fee (Vanguard was suggested earlier for precisely that reason). Also keep in mind that not all target date funds are the same - one company's 2030 fund might be far more aggressive than another's. It is essential to look into exactly what their asset mix is now and what it will be near/at retirement. Generally speaking, you want a fund that reduces stock exposure / increases bond exposure to the point you're around a 50-50 split at the time of retirement (this will smooth out the volatility, protect you from huge losses, and also give you a chance to continue earning returns that exceed inflation by a little bit).

        Lastly, picking individual stocks is a fool's errand. Scooby's suggestion of gold is fine, but that should never be the main basis of a portfolio. I own shares of GLD, but that accounts for 5-10% of my overall retirement holdings. Not particularly significant.
        Last edited by Bakunin; 11-20-2011, 10:46 PM.

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        • #19
          Re: Cash's role in a retirement strategy

          Originally posted by Bakunin View Post
          A number of points to be made here:
          1) Cash holdings = bad idea; you're decades from retirement and accumulation / growth ought to be your focus; don't worry so much about capital preservation until you are within 10 years of retirement (at that stage, your mix should be shifting toward a 60-40 stocks to bonds mix or perhaps even 50-50 as that's the time when you can no longer recover from severe market downturns).

          2) 401k vs Roth - ideally, you'll have money flowing into both of these - it's called tax diversification (since no one knows exactly what the tax rates will be decades from now, it makes sense to have some money in tax deferred accounts and some money in a Roth which won't be taxed again). Of course, to contribute to a Roth, you must meet the income limits (most people do).

          3) Amount to contribute to each: my suggestion is fully capture your employer match and then contribute as much as you can to the Roth. Once you've maxed out the Roth contribution, contribute more to the 401k (individual IRS limit will be $17k next year and is $16,500 this year).

          4) Fund type and volatility: first off, any investment can lose money. Even if you had all-cash, you'd lose money due to inflation. My suggestion here is to research target date retirement funds and pick something with a really low fee (Vanguard was suggested earlier for precisely that reason). Also keep in mind that not all target date funds are the same - one company's 2030 fund might be far more aggressive than another's. It is essential to look into exactly what their asset mix is now and what it will be near/at retirement. Generally speaking, you want a fund that reduces stock exposure / increases bond exposure to the point you're around a 50-50 split at the time of retirement (this will smooth out the volatility, protect you from huge losses, and also give you a chance to continue earning returns that exceed inflation by a little bit).

          Lastly, picking individual stocks is a fool's errand. Scooby's suggestion of gold is fine, but that should never be the main basis of a portfolio. I own shares of GLD, but that accounts for 5-10% of my overall retirement holdings. Not particularly significant.
          It's incredibly important to differentiate the type of account and the tax properties (401k vs IRA; Roth vs. Traditional)

          A 401k is generally provided by your employer. An IRA, by definition, is an individual retirement account.

          I'd also recommend reading this for the differences between a traditional and Roth account: http://en.wikipedia.org/wiki/Roth_IRA

          For instance, I have a Roth IRA, a traditional 401k, and a Roth 401k. I make sure to balance the funds being put into each, although I tend to put more towards my Roth accounts because I'm so young (among other reasons).
          Code:
          As of 9/21/10:         As of 9/13/10:
          College Hockey 6       College Football 0
          BTHC 4                 WCHA FC:  1
          Originally posted by SanTropez
          May your paint thinner run dry and the fleas of a thousand camels infest your dead deer.
          Originally posted by bigblue_dl
          I don't even know how to classify magic vagina smoke babies..
          Originally posted by Kepler
          When the giraffes start building radio telescopes they can join too.
          He's probably going to be a superstar but that man has more baggage than North West

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          • #20
            Re: Cash's role in a retirement strategy

            Originally posted by Almington View Post
            I dont think that either of us are advocating individual stocks. Even if the mutual funds have limited options, the expense ratio is low and even I'd you just get market returns its going to fit what the majority of people need as a basic retirement plan.
            I agree. If someone is trading in a dedicated retirement account that many times a year, they are playing with fire unless they know what they are doing. A retirement portfolio should be extremely diverse. I like Vanguard because they have so many options and the expense ratios are rock bottom. As an added bonus, their website is second to none. I can get history all the way back to when my dad opened the account for me back when I was 10 (or so).
            Code:
            As of 9/21/10:         As of 9/13/10:
            College Hockey 6       College Football 0
            BTHC 4                 WCHA FC:  1
            Originally posted by SanTropez
            May your paint thinner run dry and the fleas of a thousand camels infest your dead deer.
            Originally posted by bigblue_dl
            I don't even know how to classify magic vagina smoke babies..
            Originally posted by Kepler
            When the giraffes start building radio telescopes they can join too.
            He's probably going to be a superstar but that man has more baggage than North West

            Comment

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